El Niño may lift Australian food prices as dry conditions squeeze farms

Australia's farm sector is experiencing a dual challenge due to El Niño and inflation: El Niño, which models suggest may become the strongest on record, and rising costs of fuel, fertilizer and other farm inputs. The Bureau of Meteorology predicts a strong El Niño in late spring and summer, with the current event likely to lead to lower spring rainfall.

This could result in higher food prices for fruits and vegetables, such as leafy greens, peas, broccoli and cauliflower, due to lower availability. However, greater supply of citrus, apples and stone fruits could lead to lower prices for peaches, nectarines and plums. Drier growing conditions may also affect the quality of produce, but not its safety.

Lower rainfall in eastern and southern Australia could lead to reduced pasture production, forcing cattle and sheep producers to use more feed supplements or reduce stock numbers. This could put pressure on livestock prices. Winter crop output, mainly wheat, barley and canola, is forecast to fall by 16% to 44% in Queensland, New South Wales and Western Australia, but rise in Victoria and South Australia.

The overall impact on food prices is complex, with many factors at play and some business forecasts predicting higher prices for wheat, sugar and beef through 2026. Higher prices for fertilizer and diesel are also driving up farm input costs, which are likely to be passed on to consumers in the form of higher food prices. El Niño effects have coincided with severe droughts in Australia in the past, including in 1994, 2002, 2006 and 2015.

Inflation in Australia, primarily driven by food prices, is above the Reserve Bank's target of 2-3%.