The Australian Drought

The current Australian drought, now in its eleventh year, is the worst on record. Australian agricultural production has been severely curtailed by the extensive and widespread effect of drought conditions, particularly the Australian wheat belts and in the Murray-Darling basin. The Australian Bureau of Agricultural and Resource Economics (ABARE) estimates Australian winter wheat, barley and canola production to be 18 million tonnes for 2007–08, 42 per cent below the five-year average.

The decrease in grain production has caused feed grain prices to escalate, so that production costs for livestock (including dairy) and poultry have also increased substantially. The drought has also reduced livestock numbers and increased livestock slaughtering, thereby affecting future stocking rates. The lack of rainfall compounding the reduced availability of water in the Murray-Darling Basin has contributed to falling production and increased costs for cotton, horticulture, rice and viticulture. Irrigated agriculture has been particularly hard hit.

Overall, the impact of the drought on production volumes and rising input prices (including fuel) have resulted in higher food prices (particularly for fruit and vegetables). The higher prices contribute to inflationary pressure in the economy.

The Australian Government has provided assistance to drought-affected farmers and businesses under a policy known as Exceptional Circumstances (EC). The program consists of income support (Exceptional Circumstances Relief Payment–ECRP) and business assistance (Exceptional Circumstances Interest Rate Subsidy–ECIRS), administered by the National Rural Advisory Council. For the year to 30 June 2006, there were 10 054 recipients of the ECRP and an expenditure of about $154 million, and 9123 approvals under ECIRS and an expenditure of about $260 million. Counselling services are also provided. Total drought assistance since 2001 is estimated at $3.5 billion.

Any extension of the drought in 2008 across agricultural production zones will exacerbate pressures on farm viability and on agricultural production volumes. Further drought assistance and measures to promote farm exits may assist farm households in the short-term. However, if drought persists then the impact on both the economic and social fabric of rural Australia will require significant government assistance and policy focus.

Documentation
Australian Bureau of Agricultural and Resource Economics, Australian Crop and Livestock Report—Drought Update, Canberra, October 2007.