Farmers in parts of Panama haven’t been able to plant this year. Fishing crews out of Ecuador are travelling further from shore for a smaller catch. While neither shows up on a UK balance sheet just yet, they’re two of a growing number of signs on the ground of El Niño.
Where it reaches UK food and drink manufacturing is the input line. A poor harvest moves the commodity price and the producer-country currency at the same time, and both feed the price on your invoice. For a sector already working to tight margins, there’s little room to absorb that without a plan in place.
Why it could land on your P&L a quarter or two after the weather event that caused it
The lengthy separation between cause and cost is what makes this hard to plan for; a harvest disrupted this autumn doesn’t necessarily hit your input costs immediately, with the effect building through the supply chain first:
- Rice, corn and soybean prices have previously moved higher following a shift to strong El Niño conditions, with effects building over 12-16 months, per European Central Bank research.
- Sugar carries one of the cleanest links. Past events have cut production in India and Thailand by 20–30%, pushing major producers toward net imports and lifting the price you pay.
- Wheat has moved in a similar direction, though the effect was less statistically robust.
- Cocoa‘s risk this cycle looks different: West Africa faces drier conditions, but analysts point to this compounding with separate fertiliser supply issues rather than El Niño acting alone.
By the time a poor harvest reaches your ingredient costs, the weather event that caused it can be old news, which is exactly why it’s easy to miss where a cost increase started.
I’ve got a manufacturer who buys cocoa out of West Africa. A poor harvest moves the price, and often the regional currency with it, but it doesn’t reach their costs for a couple of months. By then, finance is just asking why input costs have jumped.
– Tom Harrington, Strategic Account Manager
Where the currency risk sits underneath it
Commodity moves like these tend to feed through into producer-nation currencies. Several Asian currencies, including the Indonesian rupiah and Indian rupee, are already trading near multi-year lows, and central banks across the Philippines, Indonesia, Korea, Pakistan and Sri Lanka have raised rates once already this year.
If you pay a supplier in their local currency and that currency moves against sterling, for example by strengthening on commodity pressure, the same invoice costs you more, with no change in volume or contract price on your side. On the other hand, a move in the other direction would reduce that cost, which is part of what makes the direction hard to plan around.
The second cash flow problem: timing
As well as moving prices, weather disruption of course slows your goods down too. Flooding, drought and extreme weather can delay shipping routes and logistics timing in the regions you source from.
A shipment delayed by weeks changes the point at which a payment or receipt arrives, which changes the currency exposure you’re carrying at that moment, regardless of where the exchange rate itself sits. You can lose margin this way even when the rate hasn’t moved against you, simply because the cash flow landed somewhere your FX strategy didn’t anticipate.
How this compounds upon existing margin pressure
Research from Lumon’s The FX Factor report puts the sector’s average net margin at 11.7%, with 45% of businesses running below 10%. FX fluctuations already cost the sector an average of 3.33% of net profit in 2025, the survey found, before this event is even factored in. Almost half of businesses surveyed reported timing gaps between supplier payments and revenue caused by FX volatility alone.
What’s different this time?
Currency risk usually arrives without warning. But this time, the trigger is already underway, which means you can start mapping your exposure now ahead of it fully reaching your input costs.
The direction of currency moves continues to be unpredictable. Although El Niño has arrived, its effect on individual currency pairs remains uncertain.
So, as you head into 2027 planning, it could be worth asking yourself:
- Where do your supplier contracts sit in emerging market or commodity-linked currencies?
- Do your cash flow timing assumptions account for shipping and logistics delays?
- How regularly do you review your FX exposure against events of this kind?
There’s no single right answer; your exposure and risk appetite are yours to weigh. But going into a year already shaped by fragile supply chains and thin margins, having the full picture of where this particular pressure sits on your business is a strong start.
This publication is provided for general information purposes only and does not constitute financial, legal, tax or other professional advice from Lumon, nor is it intended as a substitute for obtaining advice from appropriately qualified professional advisers. Foreign exchange services provided by Lumon are offered on an execution-only basis. Lumon makes no representations, warranties or guarantees, whether express or implied, as to the accuracy, completeness or timeliness of the content of this publication.
Foreign exchange transactions involve risk. Currency movements and market volatility may affect costs, cash flow and financial outcomes.
