Sustainable Investing Asia: Taking stock of the potential Super El Niño impact on agriculture and hydro power

Research evidence excerpt

Sustainable Investing Asia: Taking stock of the potential Super El Niño impact on agriculture and hydro power

Barclays | Sustainable Investing

suggesting climate can only explain roughly one-third of yield variability1 , the current cycle is

compounded by tightening fertiliser markets, amid disruptions to supplies from the Middle East

(~14% of global exports), with India, Thailand and Pakistan more dependent on Middle East

fertilisers.

Hydro: likely disruptions but system vulnerability depends on LNG supply: Hydro power is

also vulnerable (12% of average regional power output) and was materially disrupted during

the two most recent strong El Niño cycles. System-wide power outages were largely contained

in Asia, with gas and coal filling the shortfall. However, the complexity rises this time if the

Middle East energy supply disruptions persist, making Pakistan, Sri Lanka and Thailand more

exposed. A second derivative impact is a 1-3% rise in near-term power-sector emissions,

challenging decarbonisation efforts.

Macroeconomics: varied effects, but unlikely to alter monetary decisions: Emerging Asian

economies with relatively higher correlation between agriculture GDP levels and El Niño

indicators are India, followed by Taiwan, Thailand and Vietnam. Historical episodes of El Niño

have not always resulted in higher food price inflation. With de-escalation in the Middle East

conflict, the fertiliser and energy supply situation is gradually improving, especially in South

Asia. Monetary policy is more likely to look through supply-driven food-price shocks in

Singapore, Malaysia, India, Thailand and Indonesia if these are not accompanied by concerns

over a de-anchoring of inflation expectations.