El Niño is a recurring climate pattern characterised by unusually warm waters in the central and eastern equatorial Pacific, reshaping rainfall and temperature patterns worldwide.
The National Oceanic and Atmospheric Administration estimates an 81% probability of El Niño reaching very strong levels between October and December 2026, increasing the chance of extreme weather well into 2027, and making it potentially one of the most significant climate events recorded since 1950.
As such, the global food system may be entering one of the most severe stress tests on record, with drought, extreme heat and heavy rainfall likely to disrupt production throughout the value chain.
For food, agriculture and aquaculture companies, these hazardous weather patterns can result in lower crop yields and livestock productivity, constraining supply and squeezing margins. Farmers and suppliers with limited resources may take longer to recover, meaning the impacts could continue into the next harvest or production cycle.
Goldman Sachs estimates that a very strong El Niño could drive a cumulative 15.8% increase in global food commodity prices by the second half of 2028.
The investment question is therefore not only how strong this El Niño will become, but also whether companies are converting forecasts into sourcing, inventory and risk management decisions before losses happen, as this Insight piece explores.
Is the food sector ready for the next, stronger El Niño?
The 2015–16 El Niño illustrates how rapidly negative effects can compound.
Parts of Africa experienced their driest rainfall season in more than 35 years, resulting in widespread crop failures, pasture degradation and water shortages. Maize prices doubled in Malawi and Mozambique, for example, as the countries turned to costly imports to close domestic supply gaps.
In Ethiopia, crop production fell by 50% – 90% in some areas and more than 800,000 livestock died, with the FAO also recording rising household debt, severe feed and water shortages, and 2.4 million livestock-owning households in urgent need of assistance. These were not short-term financial losses, reducing productive capacity for subsequent seasons.
Financial pressures can also move quickly beyond the farm. During the 2023–24 El Niño, adverse weather, crop disease and longer-term structural constraints combined to reduce West African cocoa supply.
Some processors in Côte d’Ivoire and Ghana stopped or reduced production because they could not afford to buy beans, with Ghana’s Cocoa Processing Company operating at around 20% of capacity.
In the same period, Zurich-based chocolate manufacturer Barry Callebaut reported that average cocoa bean prices rose 131% year on year, working capital doubled and free cash flow became negative (- CHF 2.4 billion (US$3.0 billion) compared to CHF 113 million (US$139.6 million) the year before).
El Niño was a major contributor to the cocoa crisis, and the episode demonstrates how upstream supply disruption can translate into lower capacity utilisation, greater financing needs and pressure on downstream margins.
Livestock companies are directly exposed to climate risks through feed costs. South African poultry producer Astral Foods reported that feed prices rose 17.4% per tonne during the 2016 financial year as severe drought increased raw material costs.
Poultry profits fell by 91.1%, while Astral’s operating margin declined from 7.6% to 0.7%. The company was unable to recover the higher feed costs fully through sales price increases. Poultry imports and weak market conditions also contributed to the decline, while climate-related disruption added further pressure.
Furthermore, the financial risks facing the food sector are not limited to land-based industries. The seafood industry is also facing heightened costs due to warming oceans linked to El Niño.
For example, in 2021, Salmones Camanchaca, a Chilean seafood company, faced a 26% reduction in its salmon production compared to the year before, leading to operational losses of US$13 million, primarily due to algal blooms linked to El Niño, as FAIRR has highlighted.
The hidden costs of water There is little available analysis of the financial impact on companies caused by extreme weather conditions in an El Niño cycle. This is due to challenges in mapping whole company value chains and isolating the financial impact of El Niño compared to other stresses. However, the financial shock to companies could be significant. Research from FAIRR’s recently published Water Risk Monitor model shows that chronic water stress in 2024 cost 18 of the world’s largest livestock companies over US$6.4 billion. |
Which regions and value chains should investors watch in 2026?
Regional exposure becomes financially material when El Niño coincides with critical growing periods, rainfed production and concentrated sourcing.
For investors, the most significant risks arise where these regional forecasts overlap with limited supplier visibility and weak contingency planning, as FAIRR has outlined in its work on climate resilience.
The FAO identifies the Sahel, Southern Africa, South and Southeast Asia, and Central America’s Dry Corridor and the Caribbean as key areas of agricultural drought concern in the coming months.
Southern Africa is particularly exposed, with some cropland and pasture areas facing a greater than 50% probability of agricultural drought. Reduced rainfall could constrain maize production and the availability of pasture and water, raising feed costs, weakening livestock productivity and increasing import requirements.
Strong maize harvests and stocks in the region may provide a short-term buffer, but prolonged dryness could increase exposure in future planting and production cycles.
Across South and Southeast Asia, weaker monsoon rainfall could place rainfed rice, maize and other agricultural commodities under pressure.
Malaysia provides one example of the connection between certain crops and animal protein supply chains: below-average rainfall could affect domestic paddy production, while the maize imports required for 2026-27 is already expected to be around 10% above average, at 4.2 million tonnes.
Disruptions to production of maize, which is a primary feed input for poultry production, create potential downstream vulnerabilities for protein producers in the form of higher costs and squeezed margins.
In Central America’s Dry Corridor and the Caribbean, below-average rainfall could reduce maize, bean and coffee production, increasing the risk of supply shortages and price volatility for companies and creating income losses and financial instability for smallholder farmers and rural communities.
Are companies translating forecasts into action?
Companies significantly affected by El Niño tend to reference the phenomenon retrospectively – both as a challenge to supply-chain resilience and as an explanation for weaker-than-expected business performance, but few disclose their mitigation efforts or preparations for future cycles.
Representatives of MBRF, the Brazilian meat producer, stated during the company’s Q1 2026 results call that field teams were monitoring crop conditions and increasing grain inventories in anticipation of the season.
Many companies understand the financial materiality of climate risks well - according to CDP, in 2026, 48% of disclosing companies identified physical risks to their business as substantive. The challenge is to put in place adaptation measures that contain potential losses and strengthen supply chain resilience.
Supporting investor action and company resilience by strengthening adaptation
For investors, it is important that companies demonstrate that they can anticipate the potential impacts of El Niño cycles on their operations and that these forecasts translate into timely and effective action.
This may include earlier procurement decisions, greater supplier and sourcing region diversification, increased inventories of critical inputs, and production adjustments.
Companies can provide investors with greater clarity by making clear how they are addressing:
concentration risks across commodities, sourcing regions, suppliers and facilities most exposed to extreme weather associated with El Niño;
financial exposures to El Niño-related climate shocks, including the impact on costs, production volumes, margins, working capital and capital expenditure; and
investments made in resilience, including how lessons from previous or current El Niño cycles inform future preparedness and how scenario analysis tools are informing future-fit business models.
Moving forward, companies that make significant progress in these three areas would be well placed not only to monitor El Niño risks, but to actively build resilience to manage them.
FAIRR insights are written by FAIRR team members and occasionally co-authored with guest contributors. The authors write in their individual capacity and do not necessarily represent the FAIRR view.
Written by
Senior Analyst, Climate & Nature
Research Manager
