BRAZIL NGA used to be a small exporter of corn. Over the past two decades, however, its share in global exports is expected to reach more than 30% this year. Similar success stories can be found throughout Latin America, which is responsible for a growing share of the world’s agricultural products. This year’s harvest was very large, and helped make up for a shortage of crops from Ukraine due to the war. But the next harvest may not be so abundant.
In June the world entered its “El Niño” phase, one of three phases of a weather event that brings warmer ocean temperatures to the Pacific Ocean and triggers extreme weather events around the world. Past El Niño outbreaks have damaged agriculture and other industries that are vulnerable to changes in weather patterns. For produce powerhouses like Latin America, it could spell trouble for global food supplies.
Analyst at EIU, our sister company, believes that El Niño will bring three major changes that will affect the output of the region (see map). Some areas are drier than average; some are wetter; and yet some will face rising temperatures. The unlucky few will experience a combination of the three: Bolivia may face drought and flooding across the country.
The Caribbean, Central America, Colombia and western Mexico are particularly vulnerable to drought. Dry weather at the end of the year will disrupt agricultural production and increase the risk of forest fires. Main crops, beans and livestock—all highly dependent on rain—will be the most affected.
Wetter conditions, on the other hand, may bring relief to dry areas of Latin America. Argentina’s fertile Pampas region, for example, can benefit from above-average rainfall. A crippling drought has devastated its agriculture, which covers 6% of the country. GDP according to the World Bank. Soya, corn and wheat—three crops that do very well in dry conditions—will benefit from El Niño rains.
Too much of a good thing, however, can increase the risk of flooding. The EIU predicts that Peru’s economy will be hit between January and May next year, when heavy rains on the northern coast could damage infrastructure and reduce agricultural and fishing output. Flooding has destroyed irrigation canals and brought locusts, rats and plant diseases to agricultural regions. Past El Niño events have had a major impact on prices: in March 2017 consumer prices in Peru rose by 1.3%, month-on-month—the biggest jump in 19 years.
Changes in temperature will bring many challenges. A crop-sizzling season is predicted for Brazil’s center-west region, the country’s agricultural powerhouse. The north and northeast—important producers of cotton, corn and sugarcane—may experience drought. But southeastern Brazil is likely to benefit from more rain in the spring and summer months of an El Niño year, boosting agricultural output.
Currently world prices for most staple crops remain below pre-war levels, despite a jump in wheat prices after Russia bombed Ukraine’s Black Sea ports. Good harvests around the world have restricted the flow of supplies and depressed prices. A return to El Niño could increase that.■