El Niño threat, rising farm costs may push global food prices higher in 2027

Global food prices could rise further in 2027 as increasing fertilizer and farming costs combine with potential El Niño-related weather disruptions, according to a report by S&P Global.

The report cautioned that an exceptionally strong El Niño could threaten agricultural production across major crop-producing regions, while shortages of fertilizer and diesel continue to squeeze farmers’ margins. The impact on food markets is expected to become more visible over the coming months, although the full extent of the price pressure may not materialise until 2027.

Unlike fluctuations in oil prices, which tend to be reflected in markets relatively quickly, changes in agricultural production costs take longer to feed through to food prices. Farmers typically purchase seeds, fertilizer and fuel months before harvesting and selling their crops, delaying the impact on consumers.

Fertilizer and diesel costs add to pressure

Global agriculture is facing mounting pressure from higher fertilizer and energy costs, growing demand for biofuels and the risk of weather disruptions linked to El Niño.

Fertilizer production depends heavily on natural gas, while diesel is essential for operating farm machinery, running irrigation systems and transporting agricultural produce. Rising energy prices have therefore increased production costs and narrowed farmers’ profit margins.

The conflicts in Europe and the Middle East have contributed to higher diesel prices, making biofuels more attractive. This could divert some agricultural production towards fuel rather than food, particularly in regions where crops used for biofuels offer better returns.

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S&P Global expects fertilizer production to recover gradually, potentially helping markets stabilise. Higher crop prices could also improve farmers’ earnings, encourage cultivation of additional land and support increased fertilizer use.

However, the adjustment is likely to take time. Consumers could face higher food prices before agricultural production and supply respond sufficiently to ease the pressure.

El Niño could intensify weather disruptions

The report identified the possibility of an exceptionally strong El Niño, expected to peak in late 2026, as a major risk to global agricultural output in 2027.

The weather phenomenon could trigger severe droughts and floods across important agricultural regions in Asia, Africa and Latin America, threatening crop yields and disrupting food supplies.

The risks could be particularly acute in regions where agricultural productivity has already weakened following several growing seasons of insufficient fertilizer use.

Beyond staple grains, El Niño could also affect cash crops that are important sources of income and livelihoods in poorer regions, adding to the economic strain on vulnerable farming communities.

Low grain reserves leave little room for error

Global grain reserves remain at historically low levels amid the ongoing war in Ukraine, according to the report. This leaves food markets with limited capacity to absorb simultaneous crop failures across multiple agricultural regions.

A combination of weather-related production losses, higher input costs and supply disruptions could therefore amplify price volatility and worsen food affordability.

The report highlighted that the risks stem not from a single agricultural shock but from the convergence of geopolitical conflicts, energy market pressures, fertilizer constraints, biofuel demand and extreme weather.

While a global food crisis is not inevitable, the report warned that the threat can no longer be treated as a distant possibility.

The extent of the impact will depend on the severity of El Niño, the recovery in fertiliser supplies, farmers’ ability to sustain production and the resilience of global grain markets over the coming months.