While it is obviously a matter of conjecture as to whether this year’s drought is caused by global warming/climate change or by natural cyclical conditions, there is no question that it has been economically detrimental in the extreme.

On Monday, ABARE said that the total winter crop production of wheat, corn, soybean and cotton is estimated to have declined by 62% this year, while the summer crop is likely to have fallen 33%. Cattle and sheep farmers are also suffering – many are so short of feed that they are selling a significant portion of their stock, causing a glut in the market, which has sent prices through the floor. Indeed, by the time the sheep reach the market, they are often in such bad shape that they remain unsold and are forced to be shot.

ABARE found that the gross value of farm production is likely to fall 19% to $31.4 billion in 2006-07, a forecast that means that half of Australia’s farmers will make a financial loss this year.

The bushfires currently raging across several states of Australia, the worst of which continue to threaten towns in the Victorian highlands, are also likely to cause extensive economic damage. While it will be several years before a rough estimate of the economic cost of these fires can be calculated, with over 800,000 hectares burning across three states, the cost will be significant. The human, animal and environmental costs will never be fully calculated.

The Australian Government’s tradition of buttressing a struggling agricultural sector with handouts is also a direct and obvious cost of the drought – since 2003 the Federal Government has handed out more than $2.3 billion in drought aid and with State Government handouts included, the figure would be much larger.

Also, as reported in The Age, in a speech to the Victorian Parliament, Victorian Governor David de Kretser said the drought’s impacts would be long-term:

“The economy is moving into tougher conditions and the impact of the drought will flow through to reduced demand and slower growth,” Professor de Kretser said.

While it is relatively easy to quantify the economic cost of most natural disasters, such as the 2003 Canberra bushfires, a drought’s impact upon the economy is almost impossible to calculate. Quite often a severe drought, especially one that drags on for years, can have impacts on small communities long after handouts are spent.

Perhaps it is lucky that the once in a hundred (thousand) year drought fell during the once in a hundred (thousand) year commodity boom – otherwise our economy might be in real trouble.

Read more at Henry Thornton.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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