Global Shocks: War and El Niño Driving Up Your Grocery Bill

While supermarket shelves are more stocked than during the early days of the Covid-19 pandemic, consumers are facing a noticeable increase in food prices over recent months, with further rises anticipated. The primary drivers behind this escalation are global conflict and the El Niño climate phenomenon.

According to the latest World Bank report, Commodity Markets Outlook, food commodity prices are projected to climb by 10 percent in 2026 and 7 percent in 2027. This forecast is attributed to the difficulties in Black Sea shipments caused by ongoing conflicts and the uncertainty surrounding harvests due to extreme weather patterns. These projections underscore the significant impact of geopolitical events and climate-related developments on global food markets.

The current forecasts for food commodity prices in 2026 and 2027 are notably higher—7.6 percent and 13.9 percent, respectively—than previously estimated in April. Should El Niño intensify or existing conflicts escalate, the resulting strain on food price indices could place considerable pressure on household budgets.

El Niño's Influence on Food Prices

The El Niño-Southern Oscillation (ENSO) is a recurring climate pattern characterized by fluctuations in sea surface temperatures in the central and eastern equatorial Pacific Ocean, with El Niño representing its warmer phase and La Niña its colder phase. The effects of El Niño events, which vary significantly across the globe, historically include drier conditions in regions such as Australia, Central America, parts of South America, the Sahel, and South and South-East Asia. Conversely, it can bring wetter weather to other areas, including parts of South America, Central Asia, and the southern United States.

Governments are actively preparing for the potential impacts. In Africa, the Kenyan government launched a nationwide preparedness plan on July 2 in anticipation of the expected El Niño weather event, citing concerns about flooding and crop destruction. In October, the UK government advised households to prepare for potential national emergencies by stocking essential supplies and registering for state assistance, following warnings of adverse weather, drought, flooding, and hostile activities from Russia and Iran.

The impact on commodity prices is complex, as El Niño's weather effects interact with various stages of the food supply chain, including farming, production, processing, and distribution. Historical data indicates that agricultural commodity prices, including food, tend to be higher in the months following an El Niño event.

Worst-Case Scenarios and Supply Chain Disruptions

The current forecast suggests a potential decrease in agricultural input costs for the upcoming year, driven by lower energy and fertilizer prices. This projection assumes that crude oil exports from the Middle East will return to pre-war levels, global liquefied natural gas supplies will gradually improve, and Russia will lift its restrictions on oil product exports.

However, if conflicts exacerbate disruptions to energy and fertilizer supplies, a cascading effect could lead to increased production costs, which would inevitably be reflected in food prices. Farmers might also opt to reduce crop yields, thereby diminishing future supply and placing additional pressure on food prices. A stronger-than-anticipated El Niño could result in heightened heat stress and drought in key rice, edible oil, and sugar-producing regions, pushing prices beyond current predictions. Similarly, severe rainfall and flooding could damage crops in areas like Brazil and East Africa. While the ultimate cost implications will depend on the specific location, scale of impact, and existing inventory levels, El Niño's involvement in the food supply chain consistently translates to price increases.