The 2026/2027 El Niño could cost the global economy about $11 trillion in lost income over several years, as drought risks compound higher energy and fertilizer prices, threatening agricultural production and food security, according to a report by the International Fund for Agricultural Development.
The climate phenomenon could also push an additional 49 million people into acute food insecurity by the end of 2027, with smallholder farmers particularly exposed to the combined effects of rising production costs, water shortages and disruptions to agricultural supply chains, IFAD said in its report, Food Systems Under Stress: Building Resilience from the First Mile.
The agency estimates there is more than a 90% likelihood of a very strong El Niño, which is expected to peak between October 2026 and January 2027. Its effects on agricultural production and rural economies could extend beyond the immediate weather event, potentially lasting until 2031 or 2032.
The $11 trillion estimate represents an illustrative scenario rather than a definitive forecast. IFAD derived the figure by applying historical economic losses from three previous El Niño events to the US National Oceanic and Atmospheric Administration’s August 2026 intensity outlook. The resulting estimate ranges from about $7.4 trillion to $14.2 trillion.
The impending climate shock comes after a surge in global energy and fertilizer prices in 2026, triggered by geopolitical tensions surrounding Iran and the Strait of Hormuz. The disruption pushed Brent crude prices to about $120 a barrel in April, while urea fertilizer prices reached $857 a tonne, equivalent to 93% of their April 2022 record.
For agricultural producers, the timing has intensified pressure on production costs. Diesel accounts for nearly three-quarters of the energy used globally for irrigation pumping, as well as powering agricultural machinery, processing, storage and transportation, according to the report.
The pressure is particularly severe in lower-income and import-dependent economies, where farmers have less capacity to absorb higher input costs. IFAD found that during the previous fertilizer shock, low-income countries reduced fertilizer imports by a median of 15%, compared with 3% across all countries examined.
The agency also found that the fertilizer-to-crop terms-of-trade index, which measures fertilizer costs against prices received for staple crops, fell to about 35 in April 2026. A reading below 100 indicates that the relationship is unfavourable to farmers, highlighting how input costs have outpaced the returns from agricultural production.
West Africa and the Sahel are among the regions facing potential agricultural drought as the El Niño develops. IFAD identifies possible rainfall deficits of 20% to 35% across parts of the Sahel during major El Niño events, historically associated with yield reductions of 15% to 30% in rain-fed crops such as millet, sorghum and maize.
The forecast extends across a broad area from Senegal through Nigeria into Ethiopia and Sudan, although the report describes the regional outlook as having lower confidence.
The economic consequences could extend beyond farm production. Lower agricultural incomes can reduce household spending, weaken rural businesses and limit farmers’ ability to purchase seeds, fertilizer and equipment for subsequent planting seasons.
IFAD argues that governments and development institutions need to reconsider how they finance agricultural resilience, moving away from isolated interventions towards coordinated investments in agricultural inputs, market access and finance.
Its modelling suggests that combining the three areas could prevent 18.7% of net farm income losses during a compound shock, nearly twice the 9.8% protected by finance alone.
The model examines a representative smallholder farm facing the 2026 combination of fertilizer and energy price increases, higher food prices and drought. Without support, the farm could lose 62% of its normal annual net income when drought compounds the price shock. Combining investments in inputs, markets and finance reduces the modelled loss to 50%.
The findings are supported by examples from five IFAD-financed agricultural projects across Africa and Asia.
In Burkina Faso, the Agricultural Value Chains Promotion Project combined improved inputs, irrigation, financing and market infrastructure to support rice, sesame, cowpea and market-gardening producers.
The project reported that 97.4% of participating households experienced increased incomes, while processed and marketed agricultural output rose 49.5%. It also created 2,865 jobs and supported the rehabilitation of 97 kilometres of feeder roads and the construction or upgrading of 99 storage warehouses.
In Kenya, an agricultural programme linked subsidised seeds and fertilizer with drought insurance through a digital voucher system, enabling 59,110 farmers to receive insurance payments totalling $1.32 million between 2020 and 2023.
The report recommends that governments assess how climate, energy, input and market risks interact before designing agricultural support programmes. It also calls for greater investment in locally available fertilizer alternatives, water-efficient irrigation, resilient infrastructure, agricultural insurance and functioning rural value chains.
For IFAD, the challenge is not simply to increase spending on agricultural resilience but to ensure that investments in production, finance and markets work together as food systems face increasingly interconnected shocks.
