Treasury has increased its contingency reserve to R10-billion for the 2026/27 financial year to prepare for drought risks linked to El Niño.
According to the mid-term budget policy statement (MTBPS), the weather shock poses a risk to the fiscal outlook. It is associated with high-temperature and lower rainfall, while posing severe threat to agriculture.
READ: El Niño approaches: Cape vineyards put on alert as summer nears
The drier El Niño season creates a difficult start to the agricultural production cycle and could put renewed pressure on food prices, amid the pressure already faced with sharp increases in fuel.
Rising input costs raise food price fears
StatsSA reported that between March and April 2026, ammonia nitrate fertiliser prices jumped 37.6% and other fertilisers 20.1% as producer level prices could not be increased then until the cycle has been completed but are looming now.
It warned that higher fuel and fertiliser prices could eventually feed through to food prices.
“In an environment of elevated uncertainty, government is increasing the contingency reserve to R10-billion in 2026/27 for drought and El Niño response, and potential responses to additional energy price spikes,” said Godongwana.
Experts warn of severe El Niño impact
Aroni Chaudhuri, chief Africa economist at Coface, said last year had favourable conditions under La Niña considering that it improved crop production, food prices and downward pressure on food prices.
“While La Niña generally supports production in Southern Africa, El Niño tends to have the opposite effect. Reduced rainfall, prolonged dry periods and higher temperatures often place pressure on crop yields, livestock production and water availability.
Chaudhuri warned that the concern was no longer just the possibility of an El Niño event, as forecasts increasingly pointed to a stronger episode that could have more severe and longer-lasting effects than many businesses expected.
He explained that agricultural disruptions carry economic challenges, saying lower food prices assist in reducing cost pressures from households and businesses.
- Treasury has increased its contingency reserve to R10 billion for the 2026/27 financial year to address drought risks linked to El Niño.
- The mid-term budget policy statement (MTBPS) identified El Niño-related weather shocks as a risk to South Africa's fiscal outlook due to high temperatures and lower rainfall.
- Between March and April 2026, ammonia nitrate fertiliser prices rose by 37.6%, and other fertiliser prices increased by 20.1%, raising concerns about food price inflation.
- Government is preparing for potential additional energy price spikes alongside drought and El Niño impacts with increased fiscal reserves.
- Economist Aroni Chaudhuri warned that the forthcoming El Niño event could be stronger and longer-lasting than expected, potentially causing significant agricultural disruptions and economic challenges.
