Weather forecasters are increasingly confident the La Niña weather pattern affecting the Pacific Ocean will persist into the spring. But specific regional impacts are harder to predict.
Will drought persist in California, as La Niña shifts storm tracks northward? Will the U.S. Northeast see less snow and rain than usual as La Niña causes storms to dump more precipitation over the Great Lakes, Ohio and Tennessee River valleys? How much will La Niña increase precipitation in Asia? Meteorologists and climate scientists have some ideas, but like everything to do with weather and climate, the predictions “are never guaranteed,” noted Michelle L’Heureux with the U.S. Climate Prediction Center in a recent Insurance Journal story.
What is certain is that negative impacts from La Niña are already hitting core food commodities such as rice, wheat, dairy, meat, palm oil, coffee—and especially corn and soy. As recently as six weeks ago, South American corn and soy crop yields were looking strong. But growing conditions took “a dramatic turn” in December, with dryness attributed to La Niña setting in across southern Brazil and Argentina, according to Reuters market analyst Karen Braun.
The consequences of weather-related strains on supplies of corn, soy, and other food commodities—on top of existing inflation trends and rising shipping prices—means that food prices will stay at or near their record highs thought 2022, according to analysts interviewed by UK-based grocery trade journal The Grocer.
Suketu Ghandi, a Kearney partner with expertise in supply chains, says that rising food costs represent “the latest in a series of hits the global supply chain has taken.” In an interview with the business and financial news service Cheddar, Ghandi likened supply chains to a wobbly stock of Jenga blocks that is “one brick away from falling down completely.”
Ghandi averred that large global food companies have “limited” options” at this point for responding to La Niña. But those who are best prepared have already taken measures such as building up inventories of sensitive commodities. He estimated this cohort makes up 12% to 15% of large global firms, according to Kearney surveys. These firms will be “huge winners,” he said. “We’re seeing more and more the payoff from [investing in] resilient supply chains to be massive.” (Resilinc agrees with Ghandi and is proud of the role our firm has played in enabling our customers to increase their supply chain resiliency, reduce the impact of disruptions and gain long-term competitive advantages.)
Ghandi added that the energy shortages and price spikes affecting much of the world are adding to the difficulties in food supply chains. The turmoil in energy markets “is whipsawing supply chains from end to end in ways we have not seen in the last 50 years.”
It’s worth pointing out that the crisis in natural gas supplies and pricing is leading to rising fertilizer prices, which in turn will affect food prices. In a recent story, the Wall Street Journal cast La Niña as an additional factor pushing food prices up—on top of a tripling in fertilizer prices, shipping congestion, high freight rates, and trade tensions between the U.S. and China and the possibility of war between Russia and Ukraine, both leading wheat exporters.
Food supply chains may be as unsteady as the wobbling Jenga blocks that Ghandi described. For large global firms in this space, the lessons are obvious—continue building greater resiliency and risk management into supply chains that have historically been optimized for cost efficiency.
For a look at how climate – in particular, drought – is impacting the food supply chain, among other industries, download our Special Supply Chain Report: Global Drought Tracking.
