by Editorial Team, AdvisorAnalyst.com
Schroders' David Rees and Sandeep Jaggi open with a framing distinct from a standard weather note: the question isn't whether El Niño arrives, but what happens when it lands on top of two other shocks already in motion1. The World Meteorological Organisation puts the event's arrival between June and August, with a 90% probability of persisting to November, and warns directly that "we need to prepare for a potentially strong El Niño event which will exacerbate drought and heavy rainfall and increase the risk of heatwaves." Rees and Jaggi's contribution is to trace that climatic warning through to a specific inflation pathway — one with macro and political consequences, not just agricultural ones.
The historical link, qualified upfront
Before building their case, the authors are careful to flag the limits of the underlying model. "Our previous research shows that there is not a strong, direct link between measures of El Niño (and La Niña, which is the name given to the opposite cooling phenomenon) and agricultural prices," they write. The correlation only firms when energy prices are stripped out of food indices — a reflection of how transportation costs and energy-intensive fertilizer production tie food and energy markets together structurally. With that adjustment made, the relationship implied by the Oceanic Niño Index becomes striking: "If past correlations were to hold, then a very strong El Niño would imply a doubling of global food prices from current levels over the next year or so." But the authors immediately undercut any false precision in that number: "Of course, none of these relationships are ever perfect. Indeed, our analysis of ONI ultimately overstated the impact of El Niño on food prices in 2023, highlighting the difficulty in forecasting both the weather and crop yields." This is the report's methodological backbone — lean on the historical pattern, but disclose exactly where it has failed before.
Why this cycle is different: three shocks, one calendar
Rees and Jaggi's central argument is that this isn't a clean El Niño event hitting a stable baseline. It's arriving on top of conditions that already point toward higher food prices. First, extreme heat is already present: "As of early June, over 50% of the US was in drought, with around 250 million acres of crops affected," alongside "a record-busting heatwave" across Europe in May and Indian temperatures above 40°C. Second — and this is the piece's most original analytical thread — the Strait of Hormuz closure has disrupted fertilizer supply specifically, not just energy. "About a third of global urea originates from the region and is shipped through the Strait. Urea prices have doubled since the conflict began and imply a sharp increase in the price of some food groups." The authors explicitly locate where these two forces compound: "The risk to agriculture production is most acute where fertiliser stocks were not secured ahead of the conflict, and for crops with high nutrient requirements that enter their key crop development phases when El Niño intensity peaks. The confluence of these risk factors is most clearly visible for rice, wheat, sugar and cocoa."
Crop-level transmission
The report maps the climatic mechanism by region: "El Niño typically brings weaker monsoon rains and above-normal heat to South Asia growing areas, while West Africa faces the risk of drier conditions and stronger Harmattan winds, impacting cocoa production." On wheat, the specificity is notable: "Australian planted area is expected to fall sharply, with production potentially down by around 9 million tonnes in 2026/27." Sugar draws the sharpest exposure language in the piece: "Sugar looks especially exposed. Previous El Niño events have seen production in India and Thailand fall by 20-30%, pushing major producers towards net imports and driving prices much higher." Rees and Jaggi then add a feature specific to this cycle rather than historical pattern alone — biofuel diversion is compounding the squeeze: "The impact could be more pronounced this time because a greater share of sugar stockpiles is being diverted into ethanol production. Biofuel demand is being reinforced by the Middle East oil shock, increasing usage of sugar, corn and soybean oils." They close that section with an observable signal already in the data: "Food prices have begun to rise, suggesting the squeeze on fertiliser supplies is starting to trickle down to prices, and the impact could be compounded by more difficult growing conditions."
From farm gate to headline CPI
The piece's most quotable macro line ties the agricultural analysis directly to a policy-relevant inflation number: "if this confluence of factors caused the UN FAO food price index to rise 50% by year-end, the usual lags mean G7 food inflation would probably hit double digits in 2027 – enough to add over a percentage point to headline inflation." Crucially, the authors don't treat food inflation as standalone — they connect it to the broader macro cycle: "All of this could add to the stagflationary tilt that we are already seeing in the global economy as higher energy prices pass through to consumers." They also flag the asymmetric exposure across markets: food's weight in consumer baskets "ranges from only 10-15% in developed markets to 25% and more in emerging markets," meaning a food-inflation wave lands hardest where households can least absorb it — and arrives "just as the current energy inflation shock subsides," extending pressure on real incomes and consumption rather than letting it fade.
The political tail
Rees and Jaggi end on the risk of duration rather than magnitude: "Rolling waves of inflation, rather than a more immediate, one-off shock increase the risk of adverse outcomes. One is that the longer inflation remains elevated, the greater the chance of second-round effects on wages that could see price pressures become ingrained." Earlier in the piece they extend this into geopolitics directly: ingrained price pressures "would coincide with other adverse economic and geopolitical factors. It could result in a further populist lurch, particularly in Europe, ahead of key elections across the continent."
Key takeaways for advisors and investors
1. This is a risk-stacking thesis, not a point forecast. Rees and Jaggi's own disclosure that their model overstated 2023's impact is a built-in caution against treating the "doubling" figure as a base case.
2. The fertilizer channel is the structurally new element. Hormuz-driven urea scarcity removes the normal regional offset where one area's good harvest compensates for another's weather losses, since input costs are rising everywhere at once.
3. Exposure is concentrated, not universal. Rice, wheat, sugar, and cocoa carry the acute risk; sugar's exposure is further amplified by biofuel diversion specifically.
4. The FAO-to-CPI chain gives advisors a sourced number for client conversations: a 50% rise in the FAO food price index translates to over a point of added G7 headline inflation by 2027.
5. Emerging-market clients and exposures face disproportionate impact, given food's 25%+ weight in EM consumer baskets versus 10-15% in developed markets.
6. The real risk is duration, not magnitude. Second-round wage effects from prolonged inflation — and the associated European political tail risk ahead of elections — are what could turn a commodity shock into something more entrenched.
Footnote:
1 David Rees. Sandeep Jaggi. Schroders."A super El Niño” threatens waves of commodity-driven inflation into 2027." " 18 June 2026,
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