During the last twenty years, the incidence of abnormal weather variation has increased, mainly due to El Nino. In Malaysia, the El Nino induced weather change has resulted in prolonged dry seasons, which have led to severe drought and increased temperatures. This has been further compounded by the formation of haze due to the large scale burning of forest and plantations for land preparation. These phenomena brought serious implications for farm productivity and land use patterns. This report describes, analyzes and quantifies the impact of El Nino induced climate variability on the agricultural sector and the rural economy. It also proposes measures to mitigate the damage and to stabilize agricultural production for the welfare of the rural population at large.