El Niño brings unexpected situations


Climate change is causing new risks regarding the supply of raw materials for the food industry, which will affect cost levels and may even affect availability. El Niño, which began in the summer of 2023, will result in more extreme weather events and unpredictable situations in 2024. The impacts will extend up to 2025.

According to Bate Ismail, an economist at the Finnish Food and Drink Industries’ Federation, the difficulty in forecasting is reflected in the food industry raw materials derivatives market. Just the knowledge that there is the risk of a possible reduction in supply will prompt contingency action and the pricing of risk into the future prices of products.

Increasing extreme weather events can lead to sudden supply issues for some raw materials, and even if the harvest in Finland is good, global supply problems will cause price shocks in Finland as well. The price trends of many raw materials, such as grain, feed, vegetable oils, sugar and coffee beans, in Finland are, in practice, determined directly by the global market.

Climate change will also bring new opportunities for Finland if we are able to adapt to the new conditions. A changing climate means that Finland has the opportunity to become a larger producer of food security and increase its food production in the future, says Ismail.

Finnish food and drink companies traditionally have a high level of expertise in both procurement and sales. This importance of this expertise will only increase.

According to the European Central Bank, a strong El Niño would affect the global food chain, with significant cost implications also for Finnish food and drink businesses. The upside price risks arising from a strong El Niño are particularly pronounced for soybeans, corn and rice, while the risk for wheat prices is small and the impact insignificant. The upside price risk for coffee and cocoa is close to zero.

Read more: European Central Bank, Economic bulletin


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