Climate reduces crop profits
11 January, 2020
FARM profits have reduced by about 22 per cent and there has been about $1.1 billion a year in lost production from changes in temperature and rainfall since the 1950s, according to the latest Australian Bureau of Agricultural and Resource Economics and Sciences’ (ABARES) Insights report.
The report examines both short-term climate risks such as drought and longer-term shifts in climate conditions and provides an analysis on the effects of climate variability on Australian cropping and livestock farms.
ABARES senior economist Neal Hughes said that an observed shift to hotter and drier conditions over the period 2000 to 2019, relative to the period 1950 to 1999, had hurt the profits of Australian cropping and livestock farms.
“Average temperatures have increased by about one degree since 1950, while recent decades have also seen a trend toward lower winter season rainfall, particularly in the southwest and south-east of Australia,” Dr Hughes said.
“Controlling for all other factors, we estimate these changes have reduced average farm profits by about 22 per cent.
“These effects have been most pronounced in the cropping sector, reducing average profits by 35pc, or $70,900 per year for a typical cropping farm.
“At a national level this amounts to an average loss in production of broadacre crops of 8pc or about $1.1 billion a year.
“Although beef farms have been less affected overall, some beef farming regions have been affected more than others, particularly south-western Queensland.
“Similar to past research, this study finds evidence of adaptation, with farmers getting better at managing dry conditions over time.
“The results suggest that without this adaptation the effects of the post-2000 climate shift would have been considerably larger, particularity for cropping farms.
“While recent trends in rainfall have been driven at least in part by climate change, there is still significant uncertainty over long-term future rainfall,” Dr Hughes said.
“The implications of climate change projections for agriculture is an important area for further work.”
ABARES executive director Steve Hatfield-Dodds said the Insights study provided robust quantitative analysis of the effects of climate variability and recent shifts in seasonal conditions on Australian broadacre cropping and livestock farms.
“Analysis of this kind is complex, as you need to account for the many factors that affect farm profits, including seasonal conditions, input and output prices, technology and management practices and farm size,” Dr Hatfield-Dodds said.
“ABARES is only able to do this because of our long-term investments in high quality farm survey data and our multi-year effort to build the farm predict model.
“The results from this study have important implications for the agriculture sector, particularly for how farmers and governments respond to drought risk.
“Governments face a dilemma because providing relief to farmers in times of drought risks slowing industry adjustment and innovation in the longer-term.
“Adjustment, change and innovation are fundamental to improving agricultural productivity, maintaining Australia’s competitiveness in world markets and providing attractive and financially sustainable opportunities for farm households.
“Supporting farm households experiencing hardship is important, but for the long-term health of the sector this needs to be done in ways that promote resilience and productivity and allow for adjustment and change.
“Key options in this regard include research and development to improve long-term farm drought resilience, including further development of weather insurance markets.
“Insurance is an important area for further research, as it could provide farmers new options for managing climate risks.”
The latest ABARES Insights paper, Analysis of the effects of drought and climate variability on Australian Farms, is available at agriculture. gov.au/abares/