El Niño and climate extremes compound existing volatility and affect global businesses and supply chains, with food and agricultural producers as a bellwether for broader impacts.

Key insights

  • The development of a super-charged El Niño has implications for business operations and global supply chains.
  • There is little relief in sight for agricultural producers, with environmental risks compounding ongoing disruption linked to the conflict in the Middle East.
  • Operating in an era of climate extremes requires an understanding of the direct and indirect consequences, to identify vulnerabilities and build resilience.

This year's El Niño is set to be one of the strongest on record, with a 97% chance of lasting into early spring 2027.1 Businesses are bracing for disruption from climate extremes, supply chain volatility and subsequent commodity cost pressures.

Previous strong El Niño events warmed the central Pacific by around 2.5°C above normal.2 Forecasters predict this one could warm sea surface temperatures above the 2.7°C record set in the previous event of 2015-2016.3

It comes amid a warming global climate. Currently, the NOAA's Climate Prediction Center projects that 2026 has a 97.4% chance of ending as one of the Top 5 warmest years on record.

“
When a weather or climate shock occurs, it can trigger a cascade of second-order effects.
Steve Bowen, chief science officer, Gallagher Re

In summer 2026, many parts of the northern hemisphere experienced intense heatwaves, droughts and destructive wildfires. Regions across the Southern Hemisphere, entering spring, are poised for the combined impact of climate change and a supercharged El Niño.

What is El Niño?

El Niño is a naturally occurring climate pattern that begins in the Pacific Ocean but has a much broader global influence on weather, agriculture and supply chains.
It develops when ocean temperatures in the central and eastern Pacific become unusually warm. The result can be drought in some regions, flooding in others, shifts in storm activity and significant changes in water availability, crop production and transportation networks.
This is why El Niño is closely monitored. It's one of the few climate patterns that can be forecast months ahead. The lead time is what makes it commercially useful, as it opens a window for anticipatory action.
According to Gallagher Re, strong El Niño phases often lead to reduced hurricane activity in the Atlantic basin, but a higher frequency of storms in the Pacific basin.

"In a severe El Niño year, the cumulative impact can be extensive," says Sophie Griffin, head of Climate, Sustainability and Resilience Solutions at Gallagher Australia. "Wildfires may cause immediate damage to stock and infrastructure, but they can also lead to canceled bookings, reduced tourism and significant economic losses across multiple sectors."

These events are arriving on top of ongoing disruption to food supply chains. Since late February, the conflict in the Persian Gulf has disrupted fertilizer trade through the Strait of Hormuz, inflating prices of nitrogen-based products.

"The world has never been more interconnected from an economic or societal perspective, and disruptions often reveal underlying vulnerabilities in that system," says Steve Bowen, chief science officer at Gallagher Re. "These stresses can manifest through geopolitical disruption, commodity price volatility or physical supply chain constraints.

"When a weather or climate shock occurs, it can trigger a cascade of second-order effects — from reduced canal capacity due to lower water levels, to power constraints during heatwaves, to limitations in worker productivity."

Global grain stocks have absorbed most of that shock so far, keeping it from reaching consumer prices. But a strong El Niño in the fourth quarter would further compound operating conditions in the global food bowl.

"When facing challenges like a drought, I would say that labor, perishability and infrastructure are all interconnected," says Gina Ekstam, director of Operations, Food & Agriculture practice at Gallagher.

"In agriculture, we say that 90% of what we do depends on the weather, as it determines when crops can be planted, maintained and harvested. It affects when we need to bring in workers and whether we have the necessary means to transport the produce. If a river is low, that can hinder our ability to transport commodities efficiently."

How El Niño can amplify existing volatility across supply chains

Droughts directly impact the ability of global supply chains to function effectively. During the last El Niño cycle, record-low water levels in reservoirs feeding into the Panama Canal meant the passage of vessels through the critical waterway had to be restricted.

Across Central and Eastern Europe, nuclear and hydroelectric power generation reached a crisis point in August 2026 as levels of the Danube, Rhine and other major rivers dropped to an all-time low, disrupting shipping and freight transportation.

"When drought takes hold, the headlines tend to focus on crop losses and water shortages," says Griffin. "What receives less attention are the second-order impacts. Supply chains can be disrupted and shipments delayed — it becomes harder, slower and more expensive to move goods, and those costs tend to flow through to the price of everyday products. At the same time, water restrictions, rising input costs and extreme heat can erode productivity across a range of industries."

Plan for the swing, not just the event

Equally disruptive transitions often follow El Niño events. For example, Australia moved from severe drought and fire conditions in 2018-2020 into consecutive La Niña years marked by destructive flooding in Queensland and New South Wales in 2021 and 2022.

California shows a similar pattern, known as weather whiplash. Atmospheric rivers drive heavy brush growth, which then dries and acts as tinder during subsequent dry wildfire seasons.

"You're always going to see these pendulum swings between El Niño and La Niña phases," says Bowen. "But what's changing is the backdrop. Climate change is amplifying the impacts of each phase. That has real implications for food production, harvests, global shipping routes, and when looking through a science lens, broader atmospheric circulation patterns."

India's sugar squeeze: Knock-on effects on real time

Extreme weather and shifting rainfall patterns linked to El Niño have reduced sugarcane production in India, one of the world's largest sugar producers. The disruption came just ahead of the country's festive season, increasing concerns over domestic supply in a nation that's also the world's largest consumer of sugar. As prices rose by more than 30%,4 authorities turned to imports for the first time in nearly a decade.
As a water-intensive crop, sugar offers a timely example of the challenges that other staples, including rice, could face if weather risks are not anticipated and incorporated into planning decisions well before disruption occurs.

Food and agriculture: A bellwether during El Niño cycles

The impacts of extreme weather are often first seen in food and agriculture and then trigger broader consequences. Such consequences can range from disruption to energy supplies and supply chains to rising food costs, fueling inflation and social unrest.

The risk impacts on food production

Within food production, extreme heat can lower crop quality and nutritional value even when harvest volumes remain relatively stable. Higher temperatures and humidity can increase contamination risks in maize, peanuts and other commodities. This has implications from a food recall perspective, explains Adam Nisenson, Managing Director, Product Recall, Gallagher.

The USDA currently forecasts food prices will increase by 3.1% in 2027, but the outlook remains highly dependent on global weather conditions.

"The growing complexity of global supply chains means businesses are operating with more moving parts and more potential points of failure," he says. "When change happens quickly, there is less opportunity to fully vet suppliers and processes, which can increase exposure to product recall events."

"While recalls have long been part of doing business in the food sector, we're seeing greater financial and operational consequences when incidents occur, making supply chain vigilance more important than ever," he adds.

Additionally, heat stress affects agricultural workers, shortening the hours they can safely work during critical planting, harvest and processing periods.

Prolonged heat places additional strain on cold-chain infrastructure, increasing spoilage risks and energy costs for food processors, distributors and retailers.

“
When facing challenges like a drought, I would say that labor, perishability and infrastructure are all interconnected.
Gina Ekstam, director of Operations, Food & Agriculture practice, Gallagher

The impacts are not just heat- and drought-related. "While droughts pose a challenge, excessive rainfall often creates even more serious problems," Ekstam says. "Heavy rain can damage bridges and roads, hindering access to fields and making it difficult to plant and/or harvest crops. In some cases, corn can rot in the field simply because it's impossible to reach it."

Environmental risks intensify disruptions caused by geopolitical conflicts

There's little relief in sight for agricultural producers, as environmental risks compound the ongoing disruption linked to the conflict in the Middle East.

More than one-third of global urea exports originate in the Strait of Hormuz. As fertilizer supplies tighten and prices rise, farmers face difficult decisions about whether to reduce applications, delay planting or absorb higher costs. Timing is key. Nitrogen-based fertilizers such as urea must be available during narrow planting windows when crops are being established.

The impact of El Niño-driven extremes on growing conditions is therefore another layer of risk, compounding existing challenges already being felt within global food production.

When weather hits supply chains

What resilience looks like in practice

Even under the most extreme climate risk scenarios, businesses are not powerless, but a strong El Niño does change the timing around preparedness.

"The window for putting protection in place on favorable terms sits earlier in the cycle than feels natural — often before there's anything concrete to respond to — and that's a hard call for any business juggling competing priorities," says Griffin.

Anticipatory action starts with scenario planning — anticipating what could reasonably happen — and carrying out a business impact analysis as part of broader business continuity planning.

Organizations may not be able to predict exactly where the supply chain disruption will originate from, but they can put in place measures to protect people and property and ensure minimal disruption to operations.

"It is increasingly important to consider scenarios involving simultaneous shocks across multiple regions, combined with constraints at key infrastructure chokepoints that could become more probable over time," says Bowen.

"There should also be a sharper focus on policy responses (such as trade restrictions, stockpiling, tariffs or market intervention) which can drive price spikes or shift trade flows and, in some cases, prove just as disruptive as the underlying climate shock itself," he adds.

“
In the event of a significant shock, such as a severe drought, farmers often cannot afford to wait for traditional insurance payouts.
James Bosley, global head of Parametric Solutions at Gallagher

Many organizations are investing in supplier diversification, alternative transportation routes and enhanced inventory strategies to reduce dependency on single points of failure across supply chains.

On the production side, improved water management and digital monitoring technologies are helping businesses adapt to drought-driven water scarcity.

"In the event of a significant shock, such as a severe drought, farmers often cannot afford to wait for traditional insurance payouts," says James Bosley, global head of Parametric Solutions at Gallagher. "Alternative risk transfer solutions, like parametric insurance, can provide payments when predefined conditions are met within weeks, helping businesses maintain liquidity and continue operating."

FAO reports that 9.1 million farmers now access parametric insurance through digital platforms.8

Faster access to funds accelerates recovery efforts and provides greater flexibility in how resources are allocated.

"Climate volatility is turning food security into a systemic resilience challenge," says Antoine Bavandi, global head of Public Sector, Parametric & Climate Resilience Solutions, Gallagher Re. "The most effective solutions will not rely on insurance alone, but on coordinated public-private mechanisms that combine climate data, early warning, risk transfer and prearranged financing so funds can move quickly when drought or other shocks begin to disrupt production and supply chains."

How businesses can prepare for El Niño

El Niño is a reminder that disruption rarely arrives from a single source. Environmental, social, economic and geopolitical risks are increasingly interconnected, creating consequences that can emerge in unexpected places and move quickly across the value chain.

“
One of the most challenging aspects of maintaining financial resilience is efficiently and sustainably managing the peaks and troughs.
Sophie Griffin, head of Climate, Sustainability and Resilience Solutions at Gallagher Australia

While food and agricultural producers are directly on the front lines of El Niño-driven disruption, businesses more broadly feel the impacts through supply chain disruptions, exposure to natural perils and the increased costs of doing business.

Operating in an era of climate extremes requires an understanding of the direct and indirect consequences to identify vulnerabilities and build resilience. Building these systems takes time, and businesses that start now will be in better shape.

"El Niño and La Niña are not surprise events — they are a recurring climate pattern that is generally flagged well in advance," says Griffin. "One of the most challenging aspects of maintaining financial resilience is efficiently and sustainably managing the peaks and troughs," she continues.

"And part of that challenge is understanding how deep a trough can go when impacts compound — physical damage flowing into lost revenue, environmental strain and the slower recovery of the assets a region depends on. It's the same cumulative effect that makes a severe El Niño so costly. A changing climate can amplify that volatility, and businesses are better placed when they have strategies and systems that can adapt to those fluctuations, whichever way conditions swing."

Talk to our climate resilience specialists about protecting your business from El Niño disruption.

CONNECT WITH US

Sources

1"El Niño/Southern Oscillation (ENSO) Diagnostic Discussion," National Oceanic and Atmospheric Administration, 9 Jul 2026.

2"El Niño," National Aeronautics and Space Administration. 16 Jul 2026.

3McSweeney, Robert, Dunne, Daisy. "Explainer: How the 'Super El Niño' Will Reshape the World's Weather", Carbon Brief, 17 Aug 2026.

4Das, Puja. "Sugar Prices Rise 30% in a Month as Weather Shocks Expose Inflation Risk Flagged by RBI," Down to Earth, 25 Aug 2026.

5Tandon, Ayesha. "Drought Behind Panama Canal's 2023 Shipping Disruption 'Unlikely' Without El Niño," Carbon Brief, 1 May 2024.

6"El Niño Impacts and Policies for the Fisheries Sector," FAO, 2024.

7Lorenzetti, Linda Rice. "1997-98: The Year of El Niño," Tea & Coffee Trade Journal, 1 Jun 1998.

8"Disasters Cost Global Agriculture $3.26 Trillion Over Three Decades, FAO Report Reveals," FAO, 14 Nov 2025.