El Niño and its impact on coffee

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El Niño

El Niño (meaning ‘The Boy’ in Spanish, a term you may also associate with striker Fernando Torres) is regularly used in the coffee industry. It is having a profound impact on coffee harvests all over the world and has been mentioned in the majority of market reports I’ve read in the last nine months. Whether it be drought in Colombia, irregular rains in Guatemala or drought in Sumatra, El Niño is certainly making an impact.

In my opinion, there’s a degree of mysticism surrounding this weather pattern: many people seem to mention it as the cause of a problem but seem unable to explain how it causes the problem. According to the World Meteorological Organization (WMO), the El Niño that we are currently undergoing (or that some people say we have just finished) is the strongest since 1997/8 and potentially one of the worst of the last 50 years.

With this in mind, I think it’s important to understand more about this mystical weather pattern. An important caveat; El Niño is only half of the picture. The less famous ‘other half’ is called La Niña, which occurs less frequently. We’ll touch on both in this article.

“El Niño and La Niña are opposite phases of what is known as the El Niño-Southern Oscillation (ENSO) cycle. The ENSO cycle is a scientific term that describes the fluctuations in temperature between the ocean and atmosphere in the east-central Equatorial Pacific.” (The National Oceanic and Atmospheric Administration of the USA).

El Niño is caused by the abnormal warming of coastal waters off Peru and Ecuador on the eastern Pacific Ocean and the irregular cooling of the coastal waters in the western Pacific Ocean. It has a significant impact on rainfall patterns with heavy rainfall in East Africa and flooding in South America, coupled with drought in India and South East Asia. In a nutshell, El Niño is caused by changes in water temperature in the Pacific Ocean.

What happens in a ‘normal’ year?

Trade winds blow warm water from East to West across the Pacific. As a result of the warm water in the western Pacific, cooler water rises up from the depths to the surface in the Pacific’s east in a process known as upwelling. This upwelling of cold water, coupled with trade winds blowing warmer water across the Pacific to South East Asia results in South East Asian waters that are eight degrees warmer than those in Ecuador. The warm water evaporates, generating rain clouds, which eventually bring moisture across the West Pacific from July to October.

El Nino and coffee

what happens during El Nino

During El Niño

Under El Niño conditions, however, trade winds are weakened and fail to create the difference in water levels between the west and east Pacific. This means that less cold water rises near Ecuador and less warm surface water is blown across the Pacific. As a result, warm ocean waters, as well as the rain clouds produced as a result, gather in the middle of the Pacific. Typically, because the warm air is over the Eastern Pacific, there are drier conditions over India, Indonesia, and South East Asia. South America on the other hand can experience strong and irregular periods of rainfall.

What about La Niña?

La Niña represents the opposite situation. Abnormally strong trade winds push more water to the west Pacific, bringing more rain than usual to that part of the world. La Niña episodes represent periods of below-average sea surface temperatures across the east-central Pacific. Typically, the impact of La Niña is the opposite of El Niño. As you can imagine, if the intensity of both weather patterns is strong, this can wreak havoc on crops.

June 2016

Typically, El Niño occurs every two to seven years but with more volatile weather patterns, it’s difficult to try and predict the future regularity of this weather pattern. On 24 May 2016, Bureau of Meteorology (BOM) declared that the most recent El Niño had finished, as surface temperatures across the tropical Pacific have cooled over the past two weeks. Whether or not we are likely to meet La Niña in the coming months is up for debate!

Impact on coffee prices

As we’ve seen, both El Niño and La Niña can have a great influence on ‘regular’ weather patterns. They affect many coffee-producing areas and as a result have a profound impact on prices. The crop forecast for Vietnam for 2016/7 is forecasted to be nearly three million bags less (-7%) than 2015/16 because of a lack of rain as a result of El Niño. It is probable that this reduction in supply of the key producer of Robusta will initiate a rise in price of Robusta over the coming year.

El Niño and La Niña affect the supply of key coffee-producing countries and thus can often have a great impact on the market, depending on whether or not the weather pattern is reducing supply and increasing prices, or increasing supply and reducing prices.

The difficulty is that the true impact of these adverse weather patterns is hard to predict and often realised many months after they have occurred. All one can be certain of is that the strength of the (current) El Niño increases risk across all of the coffee supply chain by the uncertainty it creates.

If you found this article useful, you might enjoy reading about the Ethiopian Commodity Exchange here.

 

 

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