Asia's El Niño Playbook: Eight Lessons from 25 Years of Shocks

Why El Niño’s impact isn’t just about rainfall

El Niño has arrived, and it could intensify into a "super El Niño" by year-end. While Asia typically braces for drier conditions and heatwaves, oil prices, irrigation infrastructure and policy responses often matter more than rainfall alone in determining food price outcomes. This report distills 25 years of shocks into eight key implications for Asia. 

Asia has weathered seven El Niño episodes in the past 25 years. Mild-to-moderate episodes typically shaved ~0.2pp off agricultural output growth and lifted food inflation by 0.6pp. Yet, during severe episodes, the relationship between El Niño and food prices breaks down; despite sharper crop losses, inflation has fallen. Three factors explain this paradox:

1. Oil prices: Fertilizer and transport costs hinge on crude. When oil prices stay moderate during El Niño (e.g., 2015-16, 2023-24), food inflation has been relatively contained. Question for energy analysts: Could OPEC+ cuts or geopolitical shocks reverse this buffer?
2. Resilience: Improved irrigation, drought-resistant seeds and diversification into non-farm activities have reduced rainfall sensitivity. For policymakers: Are these gains evenly distributed, or do smallholder farmers still bear the brunt?
3. Policy action: Governments now preemptively release strategic grain reserves, enforce price controls and curb hoarding. Key risk: Will these measures create moral hazard or distort markets long-term?

Eight lessons for Asia from 25 years of shocks

1. 2026 food inflation contained by buffers: Input costs like crude oil and urea have eased from April highs. Thailand’s reservoirs hold significantly more water than during past severe El Niño events, while India’s rice and wheat stocks stand at 3x and 2x buffer norms, cushioning price volatility.

2. 2027 inflation risks rise as buffers deplete: Once existing buffer stocks are depleted to stabilize prices this year, the region’s vulnerability will be higher next season. Droughts could hinder reservoir refill, pressuring irrigation-dependent crops, while potential export restrictions later this year may tighten global food supply. 

3. Four commodities face outsized risks: 

• Rice: A rainfed Asian staple, with only 11.3% of global production exported in 2025/26. Domestic shortages or export curbs could trigger regional spillovers.

• Palm oil: Reduced rainfall may reduce output in Malaysia and Indonesia.

• Pulses: India’s buffer stocks remain low, risking price spikes.

• Vegetables: Heatwaves accelerate spoilage, lifting prices.

4. Philippines and India are most exposed to an El Niño shock: This reflects a larger share of food in their CPI baskets. The Philippines is particularly vulnerable to higher rice prices as a net food importer, with the staple accounting for 8.9% of its CPI basket. 

However, these aggregates do not capture the full picture of vulnerability. For instance, while India and Thailand are both net food exporters, they are net importers of edible oil and wheat, respectively, exposing them to price risks in these food categories. 

5. Stagflation threat: Advanced economies such as Singapore and South Korea are net importers of cereals and meat, so they could be impacted through higher imported inflation. For emerging Asia, El Niño poses a dual threat of a supply-side inflation shock and a demand-side growth shock. The latter stems from weaker farm incomes due to lower agricultural output as well as lower real disposable incomes owing to a pickup in food price inflation next year. Low- and middle-income households will likely be hardest hit. 

6. Fiscal policy and supply measures as a first defense: Governments in India and Southeast Asia are already deploying drought mitigation, cloud seeding, water-efficient crops, crop insurance, seed reserves and solar pumps. If needed, they may be supplemented with subsidies, direct farmer aid or price controls.

7. Trade protectionism is a major risk in coming months: Asia has often used export restrictions or bans to control domestic food prices, but this would trigger price spikes for importing nations. We are seeing early signs of similar policies being imposed, including India’s ban on sugar exports until end of September.

Key risks to watch include Indian rice export restrictions, if monsoon shortfalls persist, and Indonesian or Malaysian palm oil curbs, if yields decline. 

8. A dilemma for central banks: Monetary policy responses may not necessarily be hawkish. While food and fuel prices drive inflation expectations, emerging Asian economies, particularly Thailand and to some extent India, also face growth risks from weaker agricultural output and domestic demand. However, in the Philippines, the BSP would  likely tighten policy if headline inflation rises, given its status as an orthodox inflation-targeting central bank. 

The policy playbook

For most of Asia, the 2026-27 El Niño playbook will favor fiscal buffers and trade policy over monetary tightening. However, when buffers run dry next year, the policy calculus may shift as priorities are reassessed. 

To read our full report, click here.