El Nino may pile pressure on Asean food prices as dry weather meets fuel and fertiliser shock

[SINGAPORE] South-east Asian governments, food producers and farmers are bracing themselves for cost squeezes as a strengthening El Nino threatens to further roil crop yields – and they are already dealing with an ongoing energy and fertiliser price shock.

If this weather phenomenon that shapes weather and rainfall in the Pacific Ocean comes in hard, the shocks could ripple through the wider regional economy, with food-related inflation creeping into everyday consumer baskets and hitting economic growth in the region’s agriculture-centric nations.

Meteorological data indicates that El Nino has already begun. But scientists are predicting that it could intensify into a “Godzilla” El Nino around November to January; some models are projecting its severity to be the strongest on record, exceeding levels of the powerful 2015-to-2016 episode.

This could well be the third “strong” El Nino in recent decades. The last two times – 2015 to 2016 and again in 2023 to 2024 – brought significantly higher temperatures and less rainfall.

Food prices

A potentially strong El Nino could turn up the pressure on food inflation in the region. Hotter temperatures could disrupt the annual monsoon rainfall patterns and threaten farm yields.

Ong Bin Hui, commodities analyst at BMI, said: “Monsoon-dependent economies such as Indonesia, Malaysia and Thailand are the most vulnerable. Below-average rainfall may coincide with key planting and early crop development phases.”

Khor Yu-Leng, director at commodity market research firm Segi Enam Advisors, said rice markets could be particularly vulnerable if weather conditions worsen, as global trade for the crop remains thin.

“Even modest disruptions (to rice markets) trigger export bans and panic buying,” she told The Business Times.

Global palm oil markets, largely dominated by production in Indonesia and Malaysia, could see prices skyrocket if decreased rainfall causes crop yields to falter.

Analysts noted that the crop could be among the hardest hit, given its higher water intensity for irrigation, and the concentration of plantations within vulnerable regions.

Khor identified the regions Rokan Hulu in Indonesia’s Riau province and Plai Phraya in Krabi, Thailand, as having taken the sharpest hit during El Nino events. Both are primarily known for their palm oil plantations.

The coffee plantations in Vietnam and Indonesia and sugarcane plantations in Thailand could also come under strain.

Rising commodity prices could pile the pressure on the region’s consumers as food prices rise, with most countries – apart from Thailand – largely dependent on food imports, noted Goldman Sachs analysts Chris Poh and Andrew Tilton in a Jun 22 report.

Such inflationary shocks could surpass the impact on crop yields, said Khor. “Food prices often rise faster than crop losses because markets react to fear – export restrictions, stockpiling and panic buying amplify shocks beyond actual shortage.”

But beyond South-east Asia’s crops bearing the brunt of volatile weather in the region, she said El Nino’s impact on global agricultural markets could also play into regional food prices.

Corn, for example, is a key input cost in regional food production. The region is reliant on this crop as feed for livestock and poultry, which is largely imported from Brazil and Argentina, Khor said. Higher corn prices could send the prices of poultry, eggs, dairy and livestock up.

Compounding risks

Significantly, this year’s episode is arriving at a time when the region is already dealing with elevated energy and fertiliser costs.

Blockaded shipments through the Strait of Hormuz have already caused the costs of fertiliser and fuel to spike in the first half of the year, placing cost pressures on farmers in the region and driving up food-related inflation.

“Fertiliser trade through Hormuz has collapsed,” said Khor, noting that it contracted by up to 30 per cent in early 2026. “These supplies will take months to rebuild, even after the strait reopens.”

Inflationary pressures were initially largely confined to fuel-sensitive industries such as transport and aviation, but the lagged second-round inflationary pressures have now begun to seep into food prices, said Poh and Tilton.

Goldman Sachs estimates that, combined with the effect of oil and fertiliser shocks, a severe El Nino could contribute 1 percentage point to South-east Asia’s food inflation after six months, then 2.1 percentage points after 12 months.

The bank’s models found that the impact of these shocks on Singapore and Malaysia is likely to be relatively more insulated, given that food has a lower weightage in their consumer price index baskets than in Indonesia, the Philippines and Thailand.

Apart from inflation, other macroeconomic and policy risks beckon. Economic growth in the region may have to weather a lower contribution from the agricultural sector in the case of a severe El Nino.

A report by the Bank of America (BOA) in April noted that the agricultural sector makes up about 10 per cent of gross domestic product in Asean-6 countries apart from Singapore; it also contributed about 10 per cent of total merchandise exports from the region in 2025.

“The agriculture sector continues to be instrumental to Asean’s economic development,” said BOA. “A favourable rainfall year, therefore, becomes critical for the region.”

Governments may also need to reconsider biofuel mandates in South-east Asia, with countries such as Indonesia, Thailand and Malaysia increasingly moving to reduce their reliance on imported fuel following global energy shocks, Goldman Sachs noted.

But now, a new climate shock could force governments to evaluate whether the tightening palm oil market can meet demand for food before the product is used for biodiesel blends.

Emergency fixes not enough

In the meantime, policymakers around the region have been on alert as the risk of a severe El Nino builds.

Malaysia’s Ministry of Agriculture and Food Security has committed to issuing early warnings if El Nino begins to affect the country, and to working with regional partners to ensure sufficient food supplies if output declines.

In Indonesia, the government has announced measures to strengthen irrigation systems, particularly within rice fields and plantation areas.

But by and large, analysts are saying that South-east Asian governments may be insufficiently prepared for strong weather shocks.

Khor said the region’s governments have often intervened in food markets through measures such as releasing buffer-stock, restricting exports and implementing price controls or subsidies.

She added that the region’s policymakers will increasingly need to focus on building structural resilience, rather than rely on such emergency responses when crises hit.

Moves could include improving water storage capacity, introducing drought-resistant seeds or conducting more digital weather surveillance, she told BT.

“Policy buffers like food stocks and targeted subsidies can cushion the shock, but they create fiscal pressure and distort markets.

“The measures that matter are boring, but essential – water management, seed systems, forecasting, supply chain redundancy and farmer financing.”