EL NINO EFFECT ON FOOD INFLATION
1. Context
- The latest El Nino climate phenomenon has arrived, threatening floods in some areas of the world and droughts in others.
- Previous disruptive weather patterns cost the global economy trillions and stoked inflation.
- The return of El Nino is expected to intensify over the next six to nine months, leading to extreme weather conditions globally.
- The likelihood of another strong El Nino period is considerable and if it occurs, we can anticipate the familiar climate extremes and anomalies associated with this phenomenon.
2. Background
- El Nino, which refers to "Little Boy" in Spanish, is characterized by above-average sea surface temperatures in the central and eastern Pacific Ocean near the equator.
- It leads to flooding in the Americas, tropical storms in the Pacific and droughts in various regions worldwide, including southern Africa.
- These consequences severely disrupt fishing, agriculture and other sectors of the economy, while also exacerbating the impacts of climate change.
- In 2016, El Nino contributed to the warmest year ever recorded and scientists are concerned that it could result in new record-high global temperatures.
- Recently, researchers at the EU's Copernicus earth observation unit observed global surface air temperatures surpassing 1.5 degrees Celsius (2.7 degrees Fahrenheit) above pre-industrial levels for the first time.
- This threshold aligns with the global warming limit established by world leaders during the 2015 Paris Climate Summit.
- Approaching the 1.5 degree Celsius temperature limit in June is highly unusual, suggesting that we are likely to exceed this threshold not only for a few weeks but for an extended period.
3. The economic impact of El Nino
- The economic losses resulting from past El Nino seasons have extended beyond the period of extreme weather events.
- According to research from Dartmouth College, the financial effects of the 1982-83 El Nino continued for another half-decade, totalling around $4.1 trillion.
- After the 1997-98 El Nino season, the damage to global economic growth amounted to $5.7 trillion.
- Societies and economies do not simply rebound quickly from these impacts. The effects could persist for up to 14 years or possibly even longer.
- The researchers found that the 1982-83 and 1997-98 El Nino events resulted in a 3 per cent decline in US gross domestic product in 1988 and 2003.
- Countries heavily reliant on agriculture, such as Peru and Indonesia, experience GDP contractions of over 10 per cent in 2003.
- Estimates suggest that the negative economic effects from the current El Nino season could reach $3 trillion between now and 2029.
- The fishing industry is the first to suffer due to the higher ocean temperatures, followed by major agricultural regions in Africa, South America and even parts of North America.
- Poor harvests and infrastructure damage caused by storms further impact the insurance sector.
- Overall, the economic impact of El Nino extends across various sectors and regions, with significant consequences for industries, GDP and long-term growth prospects.
4. Impact of El Nino on Food and Energy Inflation
A recent analysis by Bloomberg Economics highlights the impact of previous El Nino events on global food and energy prices, indicating potential concerns for the current phase of El Nino.
Price Spikes
Previous El Nino periods added approximately 4 percentage points to non-energy commodity prices and 3.5 points to oil prices, resulting in weakened global food security.
Inflation Effects
Inflation rates were notable in regions affected by El Nino. Argentina and Brazil experienced around a 0.75 percentage point increase in inflation, while the Philippines and India saw a half-percentage point increase.
Prolonged Food Inflation
Analysts fear that the current El Nino Phase, which may be the warmest and costliest ever recorded, could prolong high food inflation.
Post-COVID Inflation
While the peak of post-COVID price rises might have passed, it could take several years to reach the 2 per cent inflation target set by the US and European central banks.
Rising Prices
- Warnings about El Nino have already contributed to sharp increases in prices of commodities such as coffee, sugar and cocoa.
- The other food commodities are expected to follow suit as severe weather events impact harvests.
Impact on Emerging Markets
- Rising prices could have a particularly negative effect on emerging markets where food comprises a significant portion of consumer expenditure.
- The geographic vulnerability of these markets exposes them to climate changes, including the increased likelihood of flooding associated with El Nino events.
India's Vulnerability
- In India, where agriculture is a cornerstone of the economy and the annual monsoon plays a crucial role in food production, policymakers have emphasised the importance of staying vigilant.
- The uncertain monsoon outlook and the impact of El Nino necessitate close monitoring by the RBI.
- The potential consequences of El Nino on food and energy prices underscore the importance of monitoring and implementing measures to mitigate its economic impacts.
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For Prelims: El Nino, La Nina, RBI, food prices, inflation, GDP, Climate change, Paris Agreement,
For Mains:
1. What is El Nino? Explain why is India particularly vulnerable to the impacts of El Nino on food and energy prices. (250 Words)
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Previous Year Questions
1. Read the following passage and answer the question that follows. Your answers to these items should be based on the passage only.
Policymakers and media have placed the blame for skyrocketing food prices on a variety of factors, including high fuel prices, bad weather in key food producing countries, and the diversion of land to non-food production. Increased emphasis, however, has been placed on a surge in demand for food from the most populous emerging economics. It seems highly probable that mass consumption in these countries could be well poised to create a food crisis.
With reference to the above passage, the following assumptions have been made: (UPSC 2021)
1. Oil producing countries are one of the reasons for high food prices.
2. If there is a food crisis in the world in the near future, it will be in the emerging economies. Which of the above assumptions is/are valid?
A. 1 only B. 2 only C. Both 1 and 2 D. Neither 1 nor 2
Answer: D
2. India has experienced persistent and high food inflation in the recent past. What could be the reasons? (UPSC 2011)
1. Due to a gradual switchover to the cultivation of commercial crops, the area under the cultivation of food grains has steadily decreased in the last five years by about 30.
2. As a consequence of increasing incomes, the consumption patterns of the people have undergone a significant change.
3. The food supply chain has structural constraints.
Which of the statements given above are correct?
A. 1 and 2 only B. 2 and 3 only C. 1 and 3 only D. 1, 2 and 3
Answer: B
3. With reference to inflation in India, which of the following statements is correct? (UPSC 2015)
A. Controlling the inflation in India is the responsibility of the Government of India only
B.The Reserve Bank of India has no role in controlling the inflation
C. Decreased money circulation helps in controlling the inflation
D. Increased money circulation helps in controlling the inflation
Answer: C
4. With reference to the Agreement at the UNFCCC Meeting in Paris in 2015, which of the following statements is/are correct? (UPSC 2016)
1. The Agreement was signed by all the member countries of the UN and it will go into effect in 2017
2. The Agreement aims to limit greenhouse gas emissions so that the rise in average global temperature by the end of this century does not exceed 2°C or even 1.5°C above pre-industrial levels.
3. Developed countries acknowledged their historical responsibility in global warming and committed to donate $ 1000 billion a year from 2020 to help developing countries to cope with climate change.
Select the correct answer using the code given below:
A. 1 and 3 only B. 2 only C. 2 and 3 only D. 1, 2 and 3
Answer: B
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Source: The Indian Express
