Bloomberg Línea — The El Niño-Southern Oscillation (ENSO) phenomenon, which is expected to have its greatest impact on Latin America starting in September, may have significant consequences on the region’s economies, affecting sectors such as agriculture, energy, industry, tourism and infrastructure.
El Niño events are generally associated with increased rainfall in parts of southern South America, the southern United States, the Horn of Africa and Central Asia. In contrast, it can also cause severe droughts in Australia, Indonesia, parts of South Asia, Central America and northern South America.
El Niño generates extreme weather changes worldwide, which also causes innumerable socioeconomic impacts and anthropogenic changes that can affect the entire world.
According to Science magazine, El Niño persistently reduces the country-level economic growth of those affected. For a case in point, $4.1 trillion and $5.7 trillion in global income losses were attributed to the 1982-83 and 1997-98 El Niño events, respectively.
“Under an emissions scenario consistent with current mitigation pledges, increased ENSO amplitude and warming teleconnections are projected to cause $84 trillion in economic losses in the 21st century, but these effects are determined by stochastic variation in the sequence of El Niño and La Niña events,” according to the magazine.
According to a recent Moody’s report, Latin American governments, businesses and infrastructure have less financial flexibility to cope with the current El Niño phenomenon than they did seven years ago, when it hit the region hard.
“The short-term impact of the new El Niño on GDP growth will depend on its severity, and the long-term effects will depend on the damage to roads, schools and hospitals,” the rating agency said regarding the regional situation.
In general terms, in the region, the phenomenon affects the agricultural and mining sectors more, and may delay the development of new infrastructure and impact electricity prices”.
Depending on the region, the impact is different: droughts in northern Brazil, Colombia, Panama and other parts of Central America, as well as heavy rains in the Pacific coastal countries, such as Ecuador, Peru, as well as northern Bolivia and Chile, southern Brazil, Argentina and Paraguay.
If the phenomenon were strong, it would also compromise the ability of agricultural, livestock, fishing and mining borrowers to repay bank loans, the rating agency said.
Consequences for the region’s economies
Globally, the El Niño phenomenon may affect more than a quarter of agricultural areas, reducing yields of staple crops and animal protein, as well as many other crops relevant to a balanced diet.
This will result in higher production costs, as well as making supply chains more expensive or disrupting them. As a result, the prices of basic and indispensable products such as white corn and beans may rise.
What happens to agricultural production could exponentially alter global food prices, global inflation and the economic performance of the countries involved, according to the WHO.
It also brings with it future capitalization losses for producers who, after an extreme event, see their ability to move towards more resilient technologies and practices in the immediate future limited, and so agricultural insurance becomes an important factor in these contexts.
In regions of Colombia, Venezuela, Central America and Mexico, the El Niño phenomenon can mean droughts - limiting access for human consumption, livestock and irrigation - which is more likely to occur in Argentina during the onset of La Niña.
In Ecuador and Peru, rivers often increase their flows by up to 15-fold, flooding large areas of crops.
According to the latest report from the International Center for El Niño Research (CIIFEN), during July 2023, above-average rainfall was recorded in part of the coast of Venezuela, the northern coast of Ecuador, the northern Amazon region of Peru, and part of central Chile. Below-normal rainfall occurred in parts of Venezuela and Colombia, in the Amazon region of Ecuador, and part of northern Peru.
The global cost of the El Niño phenomenon would be $3.4 billion, due to its effects over the next five years, according to a study by Dartmouth College in the United States.
Rodney Martínez Güingla, representative of the World Meteorological Organization in Central and North America, states that in Latin America and the Caribbean “we have conditions of vulnerability that have grown in recent decades”.
He referred to the fact that much emphasis is placed on the immediate response to problems, but little progress has been made in legislation and policies that allow “proactive risk management” so that society can prepare for the potential impacts of El Niño.
Consequences and reactions
- Brazil
The weather event is forecast to peak later this year, with the possibility of persisting until at least February, according to AgroLatam. One of the main concerns lies in the possibility that El Niño will cause a period of below-normal rainfall and higher than usual temperatures in central Brazil, specifically in the states of Mato Grosso and Goiás, during September, October and November.
This weather forecast could have significant consequences for soybean planting, where there is a risk that soybeans will not reach their maximum yield potential. In addition, it could have a domino effect on the planting of safrinha corn (second-crop corn crop), extending the planting window beyond the ideal and increasing the risk of low yields.
However, there is a note of hope in the forecasts: El Niño is expected to bring above-normal rainfall to southern Brazil over the next three months, although excess moisture in the region could lead to problems in the quality of wheat, which is harvested in September and October, and increase disease pressure on soybean and corn crops.
- Colombia
For Colombia, El Niño could put an end to a prolonged period of rains that caused havoc in sectors such as coffee, which, unlike several agricultural products, could benefit from a dry season.
The country’s agricultural society (Sociedad de Agricultores de Colombia, SAC) considers that farmers are now better prepared to mitigate the effects of the El Niño phenomenon based on past experiences, but that in any case the effectiveness of these measures will depend on the intensity with which it occurs.
Among the agricultural activities that could potentially benefit from the climate event is sugarcane cultivation. The same could occur with citrus fruits, since there could also be a positive effect in terms of flowering, fruit quantity and sweetness.
On the other hand, dairy production is the most threatened livestock activity, because less rainfall means less pasture for cows, and the need to use balanced feed, a cost that not all dairy farmers can afford.
In addition, electricity prices would rise at the same time, while natural gas and food prices would take three to five months to reflect climate disruption pressures.
“Under a moderate El Niño scenario, inflation would close 2023 at double digits; however, the decrease in higher education fees and the appreciation of the Colombian peso would mitigate some of the new pressures,” according to John Fredy Escobar Posada, manager of economic research for the agroindustry sector of the Bancolombia Group.
- Peru
In Peru, a El Niño coastal alert has already been declared and moderate to heavy rains are expected in the northern part of the country for the summer of 2024, according to official sources.
For the August-October quarter of 2023, along the Peruvian coast, air temperatures will remain above normal, and light and sporadic localized rains will develop on the northern coast, according to Peru’s national study of the El Niño phenomenon.
As for pelagic fishery resources, for the next few weeks, due to the anomalous warming, anchovy is expected to maintain a more coastal and deeper distribution than normal. In addition, the increase in reproductive and spawning activity would continue to reach its main period in the following weeks. On the other hand, the availability and accessibility of bonito would be maintained.
In the following weeks, with respect to deep-fish resources, landings of hake would remain low, as an effect of the changes in its distribution. On the other hand, warm water indicator species are expected to remain in the coastal zone. It is expected that the anomalous warm conditions will not have a significant impact on the availability of squid.
In view of this situation, the Peruvian government has said it will allocate $397.5 million for preventive activities such as cleaning and clearing rivers and streams in the event of torrential rains and floods.
- Ecuador
The heaviest rains are expected to occur between February and March 2024 in Ecuador. The International Center for Research on the El Niño Phenomenon (Ciifen), in which the Ecuadorian government participates, forecasts above-normal rainfall throughout Ecuador’s coastal region in the coming austral summer.
Since mid-June 2023, the Ecuadorian government has been sharing details of its action plans to mitigate the effects and consequences of El Niño in the different regions of the country, including the coordination of international humanitarian aid, the strengthening of first response institutions, the provision of temporary housing and the channeling of economic resources.
In June, Ecuador’s President Guillermo Lass tweeted that the government met with productive sector representatives to discuss actions to be taken to counter the effects of El Niño.
- Argentina
Argentina along with Australia is one of the world’s major wheat producers and exporters. The Latin American country is coming from facing the worst crop since 2015/16, with the lowest productivity since 2009, driven by drought, so El Niño rains are expected to boost wheat recovery during this year and next, according to market intelligence firm hEDGEpoint Global Markets.
According to estimates from the Rosario Stock Exchange, Argentina’s 2022/23 soybean crop will likely total 21.5 million tons, below the 23 million tons previously estimated.
Regarding corn, the forecasts are for a production of 32 million tons. For its part, the entity considers that wheat sowing for the 2023/24 season will cover an area of 6.7 million hectares, 6,000 hectares more than the previous season.
Nelson Larrea, executive of the private sector programming division of the Development Bank of Latin America and the Caribbean (CAF) publicly reported that the World Food and Agriculture Organization (FAO) is activating early action protocols it has been developing with various countries under such conditions, including several Latin American and Caribbean countries. This means the incorporation of seeds tolerant to drought and higher temperatures, the distribution of livestock feed, vaccines, rehabilitating irrigation intakes, canals and other water points, as well as developing water harvesting capabilities, among others.
- Chile
The El Niño weather phenomenon has led to an increase in rainfall in Chile this year compared to previous years. And while rainfall in central Chile is still 20% below average, warmer temperatures in the southern hemisphere winter have led to more rainfall at higher altitudes, which has melted the snowpack, causing flooding.
As reported by Bloomberg Línea, President Gabriel Boric declared a state of catastrophe in parts of central Chile after a freak winter heat wave ended with torrential rains, forcing the evacuation of miles of people and killing two.
The state of catastrophe will allow the government to divert funds and assistance to the O’Higgins, Maule, Ñuble and Bio Bio regions, Boric said. The president went on to warn that environmental disasters will become more common due to global warming.
Impact on health
Dengue fever and malnutrition are some of the diseases for which Latin American governments must prepare themselves, according to the World Health Organization (WHO), as a result of the drought and high temperatures caused by the meteorological phenomenon.
Specifically, and according to the WHO, Central America and northern South America are the regions that could be most affected in terms of health: northern Colombia, Peru and Venezuela, as well as El Salvador, Guatemala, Guyana, Honduras, Nicaragua and Suriname.
As a result, access to food could be limited, especially in the most vulnerable localities, following the failure of harvests. In addition, dry conditions could lead to severe water shortages.
An assessment by the Food and Agriculture Organization of the United Nations (FAO) has revealed alarming food price alerts in Latin America. As of May 10 of this year, domestic prices of certain basic foodstuffs have already increased.
Argentina has experienced increases in wheat flour retail prices, even setting records in March 2023. This could have an impact on the production and availability of wheat products such as bread and pasta.
Nicaragua, meanwhile, has faced a significant increase in red bean prices, which rose in April to levels 60% higher than in March 2023. This situation could affect access to an important source of protein for the population.
Mexico faces a moderate warning regarding white corn. Although white corn prices have decreased on a monthly basis in Puebla, they are still much higher than last year’s levels, which could impact the availability and accessibility of this staple food.
While food prices are of concern, nutrition and food security are also pressing challenges in several countries:
Guatemala faces an alarming rate of chronic child malnutrition, especially in children under five years of age, where 45% of deaths are related to malnutrition. The country is the leader in cases of child malnutrition in Latin America and the sixth in the world. More than 4 million people whose diet is based on corn are not receiving adequate food, and the climate crisis has further aggravated this situation.
Colombia, Ecuador, Peru and Bolivia also struggle with insufficient levels of food consumption, indicating persistent food security challenges in these nations.
Haiti, affected by armed violence and a cholera outbreak, has seen an increase in the number of children suffering from severe acute malnutrition. More than 115,600 children are expected to experience severe wasting in 2023, up from 87,500 in 2022.