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A bit too much drought and not enough flooding rains

By Brad Ruting - posted Wednesday, 25 October 2006

As Dorothea Mackellar once wrote: “I love a sunburnt country / A land of sweeping plains / Of ragged mountain ranges / Of drought and flooding rains.”

Recently we’ve been having a bit too much drought and not enough flooding rains. The current drought is the worst on the record, closely following another in 2002-03. Economic growth, the social viability of hundreds of rural towns, and the very existence of agriculture in many parts of Australia are becoming uncertain. There’s a strong case for government intervention.

What have governments done to help agriculture through the current drought and improve its long-term viability? Hardly anything. The Commonwealth has pledged more drought aid and relaxed restrictions on who receives it, but this doesn’t stop the next drought.


The state premiers have done worse, writing a letter (as the Council of Australian Federation) to Reserve Bank Governor Glenn Stevens, requesting a hold on interest rates. Interest rate rises do hurt farmers in times of drought, but shouldn’t be the focus of government agricultural policy. Agriculture accounts for less than 3 per cent of national output, whereas interest rates affect a lot more (for example, business investment is about 18 per cent of GDP). With underlying inflation near the upper-bound of the Reserve’s 3 per cent target, and financial markets having priced in a rise for November, the likely path of rates is up.

Despite this, state premiers have attempted to put political pressure on the Reserve not to raise rates. First, this puts upwards pressure on inflation, which can raise transaction costs, reduce investment due to uncertainty, cause wage-price spirals, worsen tax-bracket creep and reduce overall market efficiency. Second, it undermines confidence in Reserve Bank independence. Third, it does little to help agriculture in the long-term (other than encouraging unproductive farms to stay in business). There may be a case for relieving immediate financial hardship for farms through extending low-interest loans, but the whole economy shouldn’t be distorted in the process.

What agriculture needs is longer-term structural reform. Governments must co-operate more and promote environmental sustainability. We only have one environment, which has been progressively destroyed by salinity, desertification, land clearing, introduced pests, and other practices. Many parts of the country are used for unsustainable activities, and these need to change.

Inappropriate water policy highlights this. Too often short-term crop growth is gained at the expense of long-term river health. Agriculture accounts for about 70 per cent of Australian water use, yet government attempts to keep this in check have been dismal. The federal government has made a lot of noise about water policy recently, but real action has been scarce.

Farms need river water, but total extractions should not exceed what rivers can handle in the long-term. In theory, water permit allocation and trading puts a market price on water, ensuring it flows to the most efficient users. Inefficient farms have an incentive to change their activities or shut down.

In practice, however, this hasn’t happened. Most existing schemes have over-allocated water rights, charging farmers without generating many environmental benefits. This approach is also diminished by schemes stopping at arbitrary state borders regardless of catchment boundaries. Large farms are abusing their political and market power. For example, Queensland’s Cubbie Station cotton farm (which is now dry anyway) leaves only a trickle flowing into the Darling River, hurting hundreds of towns and farms downstream.


Permit systems are good in theory, but need urgent reform in practice. The sum of water allocations needs to be an ecologically sustainable amount to send appropriate price signals to farms. Correct price signals would also give an incentive to reduce open channel irrigation, which results in huge water losses to evaporation.

Other land-use policies need attention too. We’ve made good progress to date in preserving land quality for future generations, but can still do better. Land clearing needs stricter policing, as do the use of environmentally harmful chemicals such as pesticides and herbicides. Natural approaches to pest management and crop rotation must be encouraged to ensure each piece of farmland is used to its sustainable potential.

The spatial distribution of agricultural activities throughout the country also needs reassessing. In some places, the environment simply cannot sustain production as it is now - for example, too much rice is produced in the Murrumbidgee region, using up huge quantities of precious water. Inefficient or environmentally damaging practices must be curtailed. Farmers may face hard choices: the government can help out in the short-term, encouraging a change of activities, relocation elsewhere or retraining for other occupations.

However, the biggest single risk facing Australian agriculture is climate change. The current drought is most likely a temporary phenomenon, but could we handle this every few years? The evidence exists: the earth is warming. This will make much of southern Australia a lot drier and northern Australia much wetter. Productive land will be in new places. Opportunities to farm sustainably without reducing total output may arise, and must be identified.

The Federal Government’s response to climate change so far has been disappointing. Large temperature increases are not absolutely certain, but the risks are huge. We face a higher frequency of severe weather events, such as droughts and cyclones. The government must take action. It needs to reduce carbon emissions, increase energy efficiency, invest more in scientific research, proactively assess and plan for future risks, and start acting as a role model for other countries. We need to ask where we want to be in the future, and how we can get there. That means ensuring our land-uses are more sustainable than they have been.

Farming isn’t a part of our national psyche like it once was, but there’s no reason why we can’t continue being a world-class agricultural producer. Australian governments need to stop focusing so heavily on short-term, economic solutions to droughts, and start addressing the underlying problems of environmental sustainability and climate change.

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About the Author

Brad Ruting is a geographer and economist, with interests in the labour market, migration, tourism, urban change, sustainable development and economic policy. Email:

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Related Links
Productivity Commission study, 'Rural Water Use and the Environment: The Role of Market Mechanisms'
The Australian's Science & Nature section

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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