El Niño is strengthening again, raising the prospect of drought, excessive rainfall and heat across some of the world’s major agricultural regions. The World Meteorological Organization’s latest update says the event is firmly established, is expected to strengthen further and is likely to persist through February 2027.
But knowing where crops are exposed to extreme weather tells us surprisingly little about where the biggest economic effects will land.
The FAO’s latest State of Agricultural Commodity Markets helps explain why. The same global commodity shock can produce an immediate price response in one country, a delayed one in another and barely register somewhere else.
Take maize. In Colombia, imports supply around 80% of consumption, so movements in global prices feed relatively directly into the domestic market. In Uganda, the effect is much weaker and slower because the country is landlocked, faces higher trade costs and is more closely connected to regional trade hubs such as Kenya than to the global market.
Wheat shows a similar pattern. Armenia experiences a relatively sharp but short-lived response to global wheat price shocks, reflecting its high import dependence and close integration with Black Sea markets. Pakistan sees much weaker pass-through, in part because public stocks, procurement and trade policy insulate its domestic market.
Rice behaves differently again. FAO finds that global rice prices can react strongly and persistently to weather shocks because the international market is relatively thin. Yet domestic price effects in Laos and the Philippines can remain much smaller, as local production, stocks and trade controls alter the way global price movements are transmitted.
The FAO analysis points to a few recurring features.
Concentrated supply makes markets more vulnerable because disruption in one major producer can have an outsized effect. Cereal markets remain particularly concentrated despite the growth of global food trade.
Thin international markets also matter. Where only a small share of production is traded, there is less capacity for the global market to redistribute supply after a shock, which helps explain why rice shocks can be more persistent than wheat shocks.
Few credible substitutes leave buyers with less room to adjust. Following Russia’s invasion of Ukraine, countries with broader wheat sourcing networks were better able to switch towards other producers, while those dependent on a narrow set of exporters had far fewer alternatives.
Low stocks and limited buffers can magnify the effect further, because even relatively modest production losses can require much larger price movements to bring supply and demand back into balance.
And policy responses can amplify scarcity. Export restrictions may protect domestic consumers in the short term, but they can worsen the global shock by removing supply from international markets. FAO estimates that such policies accounted for around 45% of the increase in world rice prices and around 30% of the increase in wheat prices during the 2007–08 food crisis.
For companies, there is an additional layer: whether alternative suppliers are actually exposed to different risks. Five suppliers do not offer much diversification if they ultimately depend on the same production region or similar climatic conditions.
As the current El Niño strengthens, attention will understandably focus on where drought, heat and excessive rainfall could hit agricultural production. WMO also cautions that the strength of El Niño does not translate directly into the severity of impacts in any individual region, another reason to look beyond the headline climate signal.
For companies dependent on agricultural commodities, physical exposure is only the starting point. The more useful questions are what happens next: how concentrated is global supply, how much of the commodity is traded, where replacement supply could come from, whether those alternatives are genuinely independent and how governments might respond if availability tightens.
For companies, the implication is that mapping physical exposure is not enough. Understanding how the market is likely to respond is just as important.