October 10th 2015


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Articles from this issue:

COVER STORY Will drought and falling dollar spike food prices?

CANBERRA OBSERVED Nationals extract good deal in Turnbull takeover

EDITORIAL Obama's climate gambit: do as I say, not as I do!

FAMILY AND SOCIETY Senate committee says no to marriage plebiscite

NATIONAL AFFAIRS Turnbull divides party in Cabinet reshuffle

RURAL AFFAIRS FTAs eat away at our food and agriculture surpluses

RELIGION IN RUSSIA Byzantine Catholics driven underground

FINANCE Hidden by a metaphor: the secret life of money

EDUCATION Proliferation of screens making kids no smarter

NATIONAL AFFAIRS Cabinet door must be open to public service

FAMILY AND SOCIETY Child-support program under the microscope

PUBLIC POLICY Prohibition of drugs has the evidence on its side

CINEMA Kids will love pixelated Aussie classic: Blinky Bill: The Movie

BOOK REVIEW Hope for the Land of the Southern Cross

BOOK REVIEW Evaluating arguments against free will

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COVER STORY Will drought and falling dollar spike food prices?

by Patrick J. Byrne

News Weekly, October 10, 2015

When politicians consult community leaders in the run-up to a federal election, they always want to know the electorate’s mood on unemployment, health and food prices.

Here are five reasons why food prices could increase significantly in the run-up to next year’s election.

First, the Australian dollar is predicted to fall to around US65¢. About a year ago it was about $US1 and at present is trading at around US70¢. This will have two effects:

The price of imported foods (around $13 billion) can be expected to rise and they will become more expensive to import.

More food products are likely to be exported as the cost of buying from Australia falls considerably, meaning a lower supply of food for Australian consumers.

Meat prices are already increasing as the United States buys more of our beef because drought has caused shortages in the U.S.

Second, large parts of Australia are in a serious drought. Particularly affected are western Queensland and northern NSW.

The Bureau of Meteorology says Australia could be facing the second-strongest El Niño since 1905 and the strongest since 1997. [1] This means that most of eastern Australia could be facing another year of severe drought. The exception may be central NSW, which has had considerable winter and spring rains.

Third, the huge loss of over 30 per cent of the Murray-Darling Basin’s irrigation water to environmental flows means that reservoirs – which once held water to ensure water in dry times for permanent plantings like dairy farms, fruit trees and grape vines – are getting to the point where they will be unable to supply enough water in the coming drought year.

Once, based on a 50-50 share of the water between the environment and human/agriculture/industry use, there would have been plenty of water to supply farmers in the current dry spell.

But under the federal Water Act 2007 and the Murray-Darling Basin Plan 2012, reservoirs prioritise the environment, not agriculture. There is not enough water allocated to irrigation farming to ensure supply to farmers in 95 to 97 years out of 100, as was previously the case.

This security of water supply was vital to permanent plantings. An apple tree needs two-thirds of its regular water supply just to say alive and it needs 100 per cent supply to produce a crop. If it dies due to lack of water, it takes six to seven years to grow a new tree to produce a crop, and to then earn any income for the farmer.

Further, the price of water that is still available on the open water market is now cost prohibitive. Farmers have been paying $200-230 per megalitre of water. Having to pay an extra $50,000 to $100,000 per this year to keep a farm producing food is sending farmers broke.

Next season, with even less water available, the price of water is set to go even higher.

Last century, Australians made a huge investment in building huge dams like the Hume and the Dartmouth, and in constructing thousands of kilometres of irrigation channels and many locks and weirs on the Murray River. The whole purpose was to drought-proof the basin; that is, to guarantee water security to permanent planting in 95 to 97 years in every 100.

Now, two years into a drought, the supply of water for farmers mimics the old days before the dams, locks, weirs and irrigation channels were built.

So, as water supplies tighten and the price of water soars, a drop in food production will affect the price of available food.

This is now happening in the basin just five years after the worst drought in a century and three years after the Murray-Darling Basin plan was written into law.

Fourth, bureaucrats and politicians have a mantra that effectively says, because Australia has a high level of food security, drought and the cuts of irrigation water in the Basin won’t led to a rise in food prices. This argument was succinctly put in a 2010 Productivity Commission report, which said: “Australia exports around 60 per cent of all of its agricultural output in addition to providing the large majority of the food eaten by Australians (ABARE 2008). This is indicative of a very high level of food security.”

Consequently, the commission argued that cutting irrigation water to farmers in the Murray-Darling Basin would not risk Australia’s food security. [2]

But here’s the rub. Two major studies of agriculture found that Australia does not export anywhere near 60 per cent of its product. Rather, properly measured at the farm gate, it exports a bit over 20 per cent of farm production. [3] Further, officials from the Australian Bureau of Statistics agreed in 2000 that the export figure was about 20 per cent. [4]

Fifth, as News Weekly explained last year (in the April 26 and May 10 editions), claims that Australia was a big exporter were based on a methodology that compared the value of raw and manufactured food exports with the farm gate value of unprocessed foods. This led to many anomalies. For example, it showed Australia exporting 274 per cent of its wine production! [5]

Further, as News Weekly has pointed out previously, there have been big declines in production of many major agricultural industries.

• Sheep numbers have plummeted from 170 million, in 1990, [6] to 75.5 million today. [7]

 Cattle numbers have not grown in 38 years. There were 29.8 million head in 1976 [8] and 29.3 million today. [9]

Dairy production has fallen from its peak of 10.9 billion litres in 1999–2000, just before deregulation, to 9.2 billion litres in 2013–14. [10]

Sugar cane production has dropped since deregulation and the loss of its single selling-desk, from 38 million tonnes in 2005 to 31 million tonnes to 2013. [11]

Horticulture (worth $8.7 billion) used to be a net exporter; but imports of processed, frozen and other products mean that Australia now imports $863 million (2011–12) of horticulture more than it exports. [12]

Wheat: Since the loss of the single selling-desk for wheat, Australian wheat exports are generally classed as only feedstock quality. This is because of a big increase in reliance on plastic tube farm storages that are subject to attacks by animals, reducing the quality of the grain at the port. [13] Also farmers no longer find it profitable to use the quality of fertiliser needed for producing the highest-quality nutritional grains suitable for human consumption.

These factors lead to a rather sobering conclusion. Because Australia has exported only around 20 per cent of its farm product, it has not feed 60 million people. It has fed 23 million Australians and, at best, just a few million more overseas.

Therefore, Australia does not have the high level of food security that is being claimed.

Against a background of long-term stagnation or declining production in many sectors, today Australia is facing severe drought and a man-made drought in the Murray-Darling Basin. These factors, along with higher food exports, could result in supplies of domestic food being unable to meet demand.

The result could be a significant rise in food prices.

In which case, the Turnbull Government could be facing a backlash from the Australian electorate at the next federal election.

Patrick J. Byrne is national vice-president of the National Civic Council.

 

Endnotes:

 

[1]Australian rainfall patterns during El Niño”, Bureau of Meteorology.

[2] Market Mechanisms for Recovering Water in the Murray-Darling Basin, Productivity Commission Research Report, March 2010, page 28.

[3] Guy West, “Decomposition of exports and GDP into direct and indirect industry contributions”, Australasian Journal of Regional Studies (Brisbane), vol. 8, no. 2, 2002, pp143-164.

M. McGovern, “On the unimportance of exports to Australian agriculture", Australasian Journal of Regional Studies, 5(2), 1999.

[4] The Customs House Agreement, May 9, 2000, at the old Customs House, Brisbane.

[5] Patrick J. Byrne, “Does Australia export 274 per cent of its wine production?News Weekly, April 26, 2014. And: Patrick J. Byrne, “Sorting out the confusion over Australia's agricultural exports”, News Weekly, May 10, 2014.

[6]Australia’s declining sheep flock”, published by the Commonwealth Department of Industry’s Cooperative Research Centre for Sheep Industry Innovation (Sheep CRC).

[7]Australia’s sheep meat industry”, Sheep: Meat & Livestock Australia (MLA).

[8]Australia’s beef cattle industry”, Australian Bureau of Statistics (ABS), 1301.0, Year Book Australia, 2005.

[9]Australia’s beef industry”, Cattle: Meat & Livestock Australia (MLA).

[10]Australian milk production statistics”, Dairy Australia.

[11]Statistics fact and figures”, Canegrowers (Australia), 2013.

[12] Agriculture & Food Horticulture Fact Sheet, published by the Australian Government Department of Agriculture, 2014.

[13] Patrick J. Byrne, “Huge cost of abolishing national wheat pool”, News Weekly, March 3, 2012.




























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