Drought 2002-03- some issues

BRS Seminar SeriesMichael Taylor

SecretaryAgriculture Fisheries & Forestry – Australia

Friday 17 January 2003

Introduction •Weather:

•Meteorological Situation and Outlook

•Impacts:Crop and farm production Economic effects of the drought

•Drought Policy:Commonwealth & StatesExceptional CircumstancesNew initiatives

Weather - Meteorological Situation & Outlook

Rainfall (18, 12, 9 months) the evidence

El Nino the cause

Relief the prognosis

Weather - Rainfall - Last 18 Months

Weather - Rainfall - Last 12 Months

                                                                                                      

Weather - Rainfall - Last 9 Months

                                                                                                      

Weather - Some Historical Droughts

3 Years 3 Years

2 Years 1 Year

Weather - El Nino

Weather - El Nino – The SOI

Weather – Northern Pacific Ocean - Sea Temperature Anomalies Dec ‘02

Weather – SOI

Weather - The Future- Probability [Rain > Median Rainfall (02/03 - 04/03)]

Weather - Future – El Nino Forecasts - Modelling - Decay of El Nino Warm Anomaly

(red - last 15 forecasts, blue - previous 15 forecasts)

Impact of the Drought

Net value of productionFarm Cash IncomesGrain and stockfeedEconomy wide

Net Value of farm production, 1980-81 to 2002-03

(2002-03 dollars)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1980

-81

1984

-85

1988

-89

1992

-93

1996

-97

2000

-01

2002

-03

$b

illio

n

Impact : Net Value of Production

Farm cash income, by state, 1977-78 to 2002-03(preliminary)

-20000

0

20000

40000

60000

80000

100000

120000

140000

160000

77-78

78-79

79-80

80-81

81-82

82-83

83-84

84-85

85-86

86-87

87-88

88-89

89-90

90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

2000-01

2001-02

2002-03

$ (

rea

l)

New South Wales

Queensland

Victoria

Impact : Farm Cash Income

Impact : Agriculture Revenues

ABARE Forecasts:Farm incomes- lowest in 20 yearsNet value of farm production

estimated to fall to $2.2 billion in 2002-03 from $10.1 billion last year (down 80%) compares with $0.5 billion in 1982-83

Rural & regional economies severely depressed in drought areas

Impact : Grain Production  1994-95 2001-02 2002-03

  Mt Mt Mt

Wheat 9.0 24.0 10.00

Barley 2.9 7.5 3.3

Pulses 1.4 2.4 1.3

Total Winter 14.7 37.2 16.2       

Sorghum 1.3 1.8 0.9

Cottonseed 0.8 1.0 0.3

Rice 1.1 1.3 0.4

Total Summer 3.6 4.8 2.0       

Total All Grain/Year 18.3 42.0 18.2

Impact: Grain PricesGrain prices, July 2002 - January 2003

100

150

200

250

300

350

400

4505

-Ju

l

19

-Ju

l

2-A

ug

16

-Au

g

30

-Au

g

13

-Se

p

27

-Se

p

11

-Oct

25

-Oct

8-N

ov

22

-No

v

6-D

ec

20

-De

c

3-J

an

$A

/t

ASW export

ASW domestic

US sorghum

UK feed w heat

Impact : Grain & Stockfeed - estimated grain requirement (Mt)

Poultry

Pigs

Feedlot

Dairy

No drought

1.52

1.43

2.17

1.43

Drought

1.45

1.14

2.01

3.82

Change

-0.07

-0.29

-0.16

2.39

Grazing

Ruminants

TOTAL

0.48

7.03

5.49

13.91

5.01

6.88

Impact: Grain & Stockfeed - outlookPasture production – little availableRoughage (hay, etc) – little availableWinter grain crops

(wheat, barley, canola, lupins) down to 14.5m tonnes in 2002 compared to 34.1m tonnes in 2001 compared to 13.2m in 1994-95 drought

Imports - limited

Impact : Grain Imports

Availability quality, quantity & price GMO issue

Risks and issues sources disease/pests processing prior to distribution devitalisation & pelletisation

Impact : Economy WideABARE estimates

0.75% negative impact on GDP rural exports decline 11.6%

Treasury in its November 2002 Outlook Confirms ABARE’s estimated 0.75% negative

impact on GDP. Warns that the current account deficit is likely to

widen due to the droughtFood pricesComparisons

fire, flood

Drought Policy – General - Commonwealth/State policy

Drought not an “NDRA” matter State responsibilities Developments:

• 1992 • 1997• 1999 • 2002

Drought Policy – Principles - Commonwealth/State policy

Encourage primary producers to adopt self-reliant approaches to managing for drought, while at the same time relieving financial stress for farm families

Maintain and protect Australia’s agricultural and environmental resource base during periods of extreme stress and

Ensuring early recovery of agricultural and rural industries, consistent with long-term sustainable levels

Support provided after substantial state commitment

Drought Policy – Commonwealth - key elements

Farm Management Deposits (FMD) FarmBis Farm Help Exceptional Circumstances (EC)

Drought Policy – Commonwealth - exceptional circumstances

Criteria:• 1:20 / 25 year (“one in a generation”) event • severe & prolonged impact on farm incomes• event is not part of normal structural process

Process:• State / Farm Peak Body make submission• submission assessed by NRAC• time to assess (Historically 2 months +, but

reducing) Benefits:

• EC Relief Payments (ECRP) • Business support

ECRP (Exceptional Circumstances Relief Payments)• Criteria - no work activity test

- exemption for essential farm assets• Benefit - equivalent to New Start program

- approx. $600 per fortnight (family of 4)

Business Support• Criteria – viable, needs based, off-farm assets test• Benefit - 50% interest rate subsidy

on new/existing debt for 2 years (max $100K pa)• Funding – 90% + Commonwealth, rest – States• Administration – State Rural Adjustment Auth.

Drought Policy – Commonwealth - exceptional circumstances

16 EC applications received since September

3 areas EC declared in November/December– 2 in NSW– 1 in QLD– Decisions on some areas deferred pending rainfall

analysis over December/January

Approx 20 other EC applications anticipated in next few months

Drought Policy – EC Applications 2002

Criteria:• drought area defined by State• criteria same as EC • preliminary desktop assessment

Purpose:• provide support pre full EC assessment

Benefit:• Income Support for 6 months

Drought Policy - New Initiative September 2002 - Prima Facie EC Drought Area

Drought Policy - New Initiative November 2002 - Additional Measures Farm Management Deposits – early access

12 month delay waived without negative tax implications

Personal counselling to rural communities $2m in 2002-03 delivered through FACS

Australian Government Envirofund Drought recovery round ($10m for targeted works)

Pest animal management grants program $1m in 2002-03 for humane pest reduction

Country Women’s Assoc Emergency Aid Fund $1m in 2002-03 to assist in helping/supporting farmers

FarmHand - $5m

Criteria:• rainfall deficiency > 1:20 years for 9 mths• if State area deficit > 80%

then total state declared (ie NSW)• creates immediate eligibility• applies only to 2002/03 drought

Extends drought areas beyond:• EC areas• prima facie EC areas

Drought Policy - New Initiative 9 December- new Rainfall Deficient Areas defined

Drought Policy – Rainfall Deficit Areas - boundaries at 9 December 2002

Drought Policy - New Initiative - interim income support for farmersCriteria:

in a prima facie or rainfall deficient area income & assets same as for ECRP

Benefits: Income Support for 6 months

Administered by: Centrelink

Drought Policy - New Initiative - farmer interest rate reliefCriteria:

area- EC, prima facie, or rainfall deficient off-farm assets test

Benefits: Interest subsidy (5% or 50% of current)-2 years maximum loan – $100,000 (new & additional) purpose – stock support & drought recovery

Administered by: Centrelink

Drought Policy - New Initiative - small business interest rate reliefCriteria:

area EC declared or 60% dependant business solvent & < 20 full-time employees income decline related to EC owner’s primary income source

Benefit: interest subsidy (5% or 50% of current)-2 years maximum loan – $100,000 (new & existing) purpose – business support & recovery

Administered by Centrelink

Drought Policy - New Initiative – work for the dole – Drought forceCriteria:

drought affected area & unemployedPurpose:

skill retention & drought mitigationBenefit:

job-seekers immediately eligible for training training credits of $800 (2 days per week) access to job-matching service

Administered by: Community Work Co-ordinators

Drought Policy – EC Areas - boundaries at 17/01/03

IRRIGATION- NSW Dams 2001-2002

0102030405060708090

1 4 3 5 7 9 11 13

Months

%

Total Water Storages in the MDBC

0

10

20

30

40

50

60

70

80

90

100

January February March April May June July August September October November December

Month

Per

cent

of

Ful

l Cap

acit

y

2001

2002

2003

Conclusion

Other issuesWeatherImpactDrought policiesQuestions