The Philippines faces mounting risks to agricultural production, rice supplies, food prices, and hydropower generation as a strong to very strong El Niño threatens to intensify drought conditions across the country, according to Fitch Solutions unit BMI.
ADSIn a report released Monday, BMI identified the Philippines as one of the Southeast Asian countries most vulnerable to El Niño-related disruptions, warning that severe drought could expose agricultural land to substantial damage, weaken domestic food production, and increase the country’s susceptibility to price shocks.
The developing weather phenomenon is expected to place additional pressure on an economy already grappling with elevated food inflation, declining rice inventories, and concerns over the affordability of essential commodities.
The Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) recently reported that a strong to very strong El Niño was active in the tropical Pacific. The phenomenon is expected to peak before the end of 2026 and persist into the first quarter of 2027, although its actual duration and intensity will depend on evolving oceanic and atmospheric conditions.
El Niño occurs when sea surface temperatures in the central and eastern equatorial Pacific become unusually warm, disrupting normal weather patterns and increasing the likelihood of below-normal rainfall in parts of the Philippines. Prolonged dry conditions can reduce crop yields, deplete water resources, and threaten electricity production in areas dependent on hydropower.
BMI said previous El Niño episodes increased the proportion of cropland exposed to high-intensity drought by an average of 11 to 12 percentage points across affected regions, with the Philippines among the hardest-hit countries.
The warning highlights the country’s exposure to a potentially damaging combination of agricultural losses, higher food prices, and pressure on household budgets if drought conditions intensify in the coming months.
Rice remains central to the country’s food security because it is the staple grain consumed by millions of Filipino households. Any significant disruption to local rice production can tighten market supplies and push prices higher, particularly when domestic inventories are already limited.
BMI identified food inflation as the primary channel through which extreme drought could affect emerging-market economies. According to the report, local food inflation has historically been 1.8 to 2.5 percentage points higher within a year following an extreme drought, while El Niño significantly increases the likelihood of such droughts in vulnerable regions.
ADSThe Philippines is already experiencing renewed pressure on food prices even before the full effects of the current El Niño have materialized.
Inflation in the food and nonalcoholic beverages category accelerated to 6.7% in September from 4.6% in August, marking its fastest pace since October 2023, when the rate reached 7%, according to the figures cited in the report.
Bangko Sentral ng Pilipinas Governor Eli M. Remolona Jr. has also identified El Niño as a major inflation concern, warning that a severe episode could have substantial consequences for prices.
Headline inflation has remained above the central bank’s 3% target for seven consecutive months, according to the reported figures, intensifying concerns that prolonged drought and rising food costs could complicate efforts to stabilize prices.
BMI projected full-year Philippine inflation at 5.9% in 2026 and 5% in 2027. These estimates were below the Bangko Sentral ng Pilipinas’ cited forecasts of 6.1% for 2026 and 6% for 2027.
However, the outlook remains vulnerable to further increases in food prices if drought significantly reduces agricultural output, raises transportation costs, or disrupts domestic and international rice supplies.
The country’s rice inventory situation presents another major concern. BMI said the Philippines entered 2026 with rice stocks equivalent to approximately 15% of annual domestic consumption and exports, down from around 20% during the 2023–2024 El Niño episode.
Other major Southeast Asian rice producers and suppliers have also experienced lower stock levels. Thailand’s rice stocks were equivalent to approximately 19% of annual consumption and exports, compared with around 20% previously, while Vietnam’s level declined to about 8% from more than 10%, BMI said.
“Rice stocks have fallen below 2023 levels in Thailand, Vietnam and the Philippines,” BMI noted, warning that the Philippines is particularly exposed to higher prices because it imports around one-third of its rice requirements.
The country sources approximately 30% to 35% of its rice consumption from overseas, leaving domestic markets vulnerable to international price increases and supply disruptions in exporting countries. Vietnam remains the Philippines’ leading rice supplier, making developments in the Vietnamese rice market particularly important to local availability and prices.
If El Niño reduces harvests in exporting countries or restricts the volume of rice available for international trade, the Philippines could face higher import costs at a time when local supply is already under pressure.
Official inventory figures further underscore the challenge. National rice stocks fell by 8% year on year to 1.91 million metric tons in September, down from 2.07 million metric tons during the same period a year earlier.
Rice inflation also accelerated to 20.3% in September from 19.4% in August, reaching its highest level in more than two years amid tighter domestic supplies and rising transportation costs.
For Filipino consumers, a further increase in rice prices could have significant consequences because the commodity accounts for a substantial share of everyday household food spending. Low-income families, which devote a larger proportion of their budgets to basic necessities, are particularly vulnerable to sustained increases in staple food prices.
The Department of Agriculture has separately reported that El Niño has caused approximately P8.57 billion in agricultural damage nationwide.
Under the department’s worst-case scenario, prolonged dry spells could affect 4.6 million farmers and fisherfolk and reduce palay, or unmilled rice, production by as much as 1 million metric tons.
Such losses would threaten farmers’ livelihoods, reduce agricultural output, and potentially increase the country’s dependence on imported food. They could also place additional pressure on government resources as authorities seek to support affected communities and maintain adequate food supplies.
Beyond agriculture, BMI warned that the Philippines faces a substantial increase in drought risks affecting its hydropower capacity during El Niño periods.
Reduced rainfall can lower reservoir levels and restrict the amount of electricity generated by hydroelectric facilities, potentially creating supply constraints during periods of high electricity demand.
However, BMI expects the impact on the broader electricity system to be more concentrated in peak-power constraints rather than widespread power shortages because hydropower accounts for less than 20% of the country’s total electricity generation.
Even so, reduced hydropower output could complicate electricity supply management and increase the need for other generation sources during periods of prolonged dry weather.
The combined risks to food production, rice availability, inflation, and electricity generation underscore the importance of preparing for a potentially prolonged period of dry conditions.
Government agencies, agricultural producers, and energy providers may need to strengthen water conservation measures, improve irrigation management, monitor crop conditions, and prepare contingency plans to minimize the effects of worsening drought.
For the Philippines, the challenge extends beyond the immediate weather outlook. With rice inventories below previous El Niño levels and food inflation already elevated, a severe episode could amplify existing economic pressures and leave households increasingly exposed to rising living costs.
As the country monitors the evolving El Niño phenomenon, the extent of its economic impact will depend on the severity and duration of drought conditions, the resilience of domestic agricultural production, the availability of imported rice, and the effectiveness of government measures to protect food security and maintain stable electricity supplies.
ADSBSP Chief Warns of Inflation Risks as Philippines Braces for El Niño
Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. has warned that intensifying climate risks, from destructive typhoons to the looming threat of severe El Niño, could put additional pressure on inflation, financial stability, and economic growth in the Philippines.
Speaking at the Green Swan Conference in Manila on October 19, Remolona emphasized that climate-related disasters are no longer distant environmental concerns but immediate economic challenges for a country frequently exposed to extreme weather events.
“In the Philippines, the past two months alone saw unusual successive tropical cyclones. The southwest monsoon caused massive damage to our farms and roads,” Remolona said.
He warned that the country must now prepare for the opposite weather extreme: a potentially severe El Niño that could bring prolonged dry conditions, threaten agricultural production, and intensify pressure on food prices.
“And we are now preparing for the opposite shock: what we call the ‘Godzilla’ El Niño with the risk of severe drought,” he added.
The warning comes as the Philippines confronts overlapping climate and economic vulnerabilities. While successive tropical cyclones and heavy monsoon rains can damage crops, roads, and other critical infrastructure, prolonged drought can reduce harvests, constrain water supplies, and disrupt agricultural activities.
These contrasting weather threats can create a difficult environment for policymakers, particularly when damage to farms and transportation networks pushes up the cost of producing and distributing essential goods.
Remolona said climate-related disasters could quickly spread beyond the sectors directly affected, creating wider consequences for the country’s economy and financial system.
“What begins as a climate event can quickly become an inflation problem, a financial stability concern, and a threat to sustained growth,” he said.
The BSP chief stressed that preparing for climate risks requires more than identifying which industries, businesses, and financial institutions are exposed to extreme weather. He called for stronger infrastructure, effective insurance mechanisms, and financing that supports climate adaptation.
“Our task goes beyond measuring exposures. We need to prepare for the worst. We need resilient infrastructure, insurance that absorbs losses, and financing that supports adaptation,” he added.
His remarks underscore the growing importance of climate resilience in economic policymaking, particularly in the Philippines, where extreme weather can affect food security, business operations, household incomes, and the stability of financial institutions.
Agriculture remains particularly vulnerable because farmers depend on predictable rainfall, reliable irrigation, and accessible transportation networks to sustain production and bring crops to market. Flooding can destroy standing crops, while drought can leave fields without sufficient water during critical growing periods.
ADSWhen agricultural output declines, food supplies can tighten and prices can rise, placing additional pressure on household budgets. For a country where rice is a staple food, severe drought could become a significant concern if it reduces domestic harvests or increases dependence on imported supplies.
The effects can also extend to rural communities, where crop losses may weaken farmers’ ability to repay loans, maintain their livelihoods, and invest in subsequent planting seasons. Financial institutions exposed to agricultural borrowers may consequently face increased credit risks when extreme weather damages productive assets or reduces income.
Infrastructure is another critical part of the country’s climate vulnerability. Damage to roads and transport networks can delay deliveries, increase logistics costs, and disrupt access to markets, amplifying the economic effects of agricultural losses.
The potential arrival of severe El Niño adds another layer of uncertainty to the outlook. Prolonged dry conditions can threaten water availability, affect agricultural productivity, and reduce hydropower generation in areas dependent on rainfall and reservoir levels.
For policymakers, these risks highlight the importance of coordinated planning across monetary policy, agriculture, energy, infrastructure, insurance, and financial regulation.
The Green Swan Conference, where Remolona delivered his remarks, is a joint initiative led by the Bank for International Settlements (BIS) and the Network for Greening the Financial System (NGFS).
The fifth edition, hosted by the BSP in Manila, was co-organized with the BIS, NGFS, and Banca d’Italia. It brought together central bankers, climate scientists, and finance and business leaders from Europe, Asia and the Pacific, the Middle East, and the Americas.
The gathering focused on the relationship between climate-related risks and the financial system, reflecting growing international attention to the economic consequences of extreme weather and the need to strengthen resilience.
For the Philippines, Remolona’s message highlights the need to prepare for both sudden disasters, such as destructive typhoons, and slower-developing threats, such as prolonged drought. Both can undermine economic activity, disrupt supply chains, and increase financial pressure on vulnerable households and businesses.
As the country prepares for potential El Niño-related disruptions, investments in resilient infrastructure, effective insurance coverage, and accessible climate-adaptation financing could help reduce losses and strengthen the economy’s ability to withstand future shocks.
The challenge, Remolona emphasized, is to ensure that climate preparedness translates into practical measures that protect livelihoods, support financial stability, and sustain long-term economic growth.
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