Monday 30 December 2019

Climate change hits Australian farm profits

New research from the Australian Bureau of Agricultural and Resource Economics says that changes in temperature and rainfall over the past 20 years have had a negative effect on average farm profits while also increasing risk.

The findings, says the Bureau, demonstrate the importance of adaptation, innovation and adjustment to the agriculture sector, and the need for policy responses which promote, and don’t unnecessarily inhibit, such progress.

ABARES admits that measuring the effects of climate on farms is difficult given the many other factors that also influence farm performance, including commodity prices.  Adding that the effects of rainfall and temperature on farm production and profit can be complex and highly location and farm specific.

To address this complexity, ABARES developed Farmpredict, a model based on more than 30 years of historical farm and climate data.

The model finds that farms growing crops generally face greater climate risk than beef farms, but also generate higher average returns.

Cropping farm revenue and profits are lower in dry years, with large reductions in crop yields and only small savings in input costs.

In contrast, drought has a smaller immediate effect on beef farm revenue, because in dry years farmers can increase the quantity of livestock sold.

However, drought also lowers herd numbers which lowers farm profit when herd value is accounted for.

In the cropping sector ABARES found that average profits have been cut by 35%, or $70,900 (Aus) for a typical cropping farm. Nationally, this represents an average loss in revenue for the broadacre cropping industry of around $1.1 billion (Aus) a year (based on 2015–16 to 2017–18 production levels).

While beef farms have been less affected overall, with a reduction in average profits of 5%, some beef farming regions have been affected more than others, particularly in south-western Queensland.