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Australia drought belts economic growth

By Neil Sands

A radical Australian government plan to cut water to drought hit farmers risks turning the nation's food basket into a dust bowl and will hobble national economic growth, according to experts.

Prime Minister John Howard announced last week that the "unprecedentedly dangerous" drought crisis meant water to farms in the fertile Murray-Darling basin would be shut off unless heavy rains fell by mid-May.

Howard said the water was needed for urban communities but acknowledged the move was likely to force Australia to import more food, impede overall economic growth and cripple agriculture in the Murray-Darling.

Covering more than one million square kilometers in the southeast of Australia, the Murray Darling basin is the country's largest river system, almost three times bigger than Japan and four times larger than Britain.

It is Australia's rural powerhouse, producing more than 40 percent of the nation's agricultural produce, worth A$10 billion (US$8.3 billion) a year, according to the government's environment department.

The Murray Darling supports half the nation's sheep flock, a quarter of the cattle herd and three-quarters of all irrigated land.

Howard said the situation was "grim," predicting the drought would drag on the economy, which grew by a lower-than-expected 2.8 percent in 2006. "We know already that the drought has taken three quarters to one percent off our growth -- the longer it goes on the harder the impact," he said.

The government commissioned report that Howard based his decision to restrict water flows on also predicted severe impacts unless the drought that has lasted up to a decade in parts of the Murray-Darling broke soon.

Economic and social impacts would be substantial," it said, adding that rainfall in the past year had been only 60 percent of the previous minimum and had taken authorities by surprise.

"The rapid deterioration in water resource availability that has been experienced is unprecedented, and so the seriousness of the situation could not immediately have been predicted."

Treasurer Peter Costello said the fear was that the so-called "big dry" would lead to a spike in retail food prices, feeding onto inflation.

Costello cited the impact of Cyclone Larry in tropical Queensland in March 2006, which pushed up the price of bananas to send overall inflation skyrocketing beyond the central bank's 2.0-3.0 percent target band.

Costello said the impact of the drought could hit more product lines.

"We saw it with Cyclone Larry in north Queensland, the price of bananas went up four or five times.

"That's what you could be seeing in relation to stone-fruit, horticulture, all those things ... it's not good news."

National Farmers' Federation chief executive Ben Fargher said the dairy, sheep, grape, fruit and horticulture industries would all struggle without a water allocation.

"They are big economic contributors," he said. "A lot of those tree crops are quite labor intensive and contribute a lot of support jobs in regional communities."

Terry Sheales, the chief commodity analyst at the federal government's Australian bureau of agriculture and resource economics, said the drought would have a major impact on Australia's exports.

"It's also very important to Australia's overall export performance," he told ABC radio.

"For example, around about a bit over 20 percent of all of our merchandise exports come from the farm sector. As a general sort of comment, roughly two-thirds of everything produced on farms goes to export."

Original article posted here.