El Niño will test the resilience of both infrastructure and food supply chains.
Summer is upon us in the northern hemisphere. This year, it’s already bringing record-high temperatures in many parts of the world, thanks in part to the formation of an El Niño pattern of ocean currents.
During an El Niño event, the trade winds flowing west over the Pacific Ocean become weaker. The water along the equator is not cooled by the wind. Warmer ocean water upends weather patterns worldwide, with jet streams and rainfall moving outside their usual locations. Cycles of El Niño (warmer) and La Niña (cooler) waters emerge unpredictably and will last from two to seven years.
The risks presented by El Niño are substantial. Commodity markets are struggling to price the potential for lower yields in commodities sourced from Asia and the Americas. Prices of sugar, palm oil and wheat are already reacting. Crop disruptions can happen for myriad reasons, but more droughts and flooding will add to volatility for food growers and raise prices for consumers. Fish will move from their usual ocean locations, and some species may be challenged by a lack of prey. The effects of wildfires and flooding range from disruptive to deadly, and will create more underwriting losses for the insurance sector.
The resilience of infrastructure will also be tested. Already, capacity is lower in the Panama Canal, which relies on rainfall to replenish the reservoirs that fill its locks. Hydroelectric generators and wind farms will not capture their usual flows of water and wind, leaving them underutilized just as air conditioners are turned on.
