HI5003 Economics for Business: Australian Drought Impact Report

This report analyzes the impact of the 2018-19 drought on the Australian economy, particularly focusing on the agricultural sector. It examines the importance of agriculture to Australia's GDP, employment, and exports, highlighting its reliance on climatic conditions. The report explores the market structure of the agricultural industry, which resembles perfect competition, and details the effects of the drought, including water shortages, production declines, and impacts on export earnings and GDP. It also discusses government policies implemented in response to the drought. The analysis covers the decline in agricultural production, the increase in livestock prices, and the overall economic contraction, including a decrease in export earnings and an increase in the import of processed stock feed. The report concludes by emphasizing the significance of the agricultural sector and the negative consequences of the drought, referencing various sources to support its findings.

ECONOMICS FOR BUSINESS
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Introduction
■ Agriculture plays an important role in Australia’s economic development
■ sheep and wheat continues to grow even in the 21st century
■ 6 percent of available land in Australia is suitable for producing pasture and
crops
■ 60 percent of the land is suitable for cattle grazing
■ Production depends on climatic condition
■ Vulnerable to extreme climatic condition
■ Drought defines a natural calamity (lack of rainfall)
■ Hot dry summer in Australia
■ Affects agricultural industry and the overall economy

Background of the industry
■ one vital sector of the Australian economy
■ Not only supplies food
■ Contribution to export
■ 14 percent of total goods and service export
■ GDP share 2.7 percent
■ Employment share 2.5 percent
■ climatic condition, water, soil and market
■ Cropping, horticulture and livestock Figure 1: Selected contribution of
agriculture

Background of the industry
■ Increasing trend in value
■ Increased by almost 34 percent in real terms.
■ Different drivers of output growth
■ For cropping volume growth increased
■ For livestock, real price increases
■ Variation within the industry
■ Different growth pattern for dairy sector
■ Pattern varies in horticulture and grain sectors.
Figure 2: Value of production in
agriculture, fisheries and forestry by
commodity during 2017-18s

Market structure of agriculture
■ Four main types of market
■ are perfect competition, monopoly, monopolistic competition and
oligopoly.
■ Agricultural market resembles to perfect competition
■ Have features similar to perfect competition
■ Perfectly competitive market
■ Large number of buyers
■ Large number of sellers
■ Homogenous product

Market structure of agriculture
■ Agricultural industry
■ Large number of firms
■ Supply basic necessity to large number of buyers
■ Very small market share to individual
■ Standardized or homogenous product
■ No scope for differentiation
■ Same price is charged

Recent drought in Australia
■ The hot climatic condition in summer in Australia
■ Eroded moisture from the soil
■ Recent drought occurred in 2018
■ The extreme heat however has made the weather condition worse
■ NSW, Northern Territory, South Australia, Western Australia
■ Sufficient rainfall in northern state
■ Failed to escape from overall dry state
■ Result of weak and less frequent frontal system

Recent drought in Australia
■ Experienced a recorded warm summer
■ Extreme heat in December and January
■ Intensified the impact of drought
■ No hope for improvement in climatic condition
■ Depletion of water storages
■ Severe decline in water storage
■ Disruption in agricultural production
■ Impacted both grassy agriculture and livestock
Figure 3: water storage in states
and territories of Australia

Impact of drought on
agricultural production
■ Interruption in production
■ Expected to decline by 23 percent
■ Below the 20 year average
■ winter crops is forecasted to be declined by around 65 percent
■ Shortage at national level
■ Slaughter of sheep and cattle has remained almost same
■ Increase in price of livestock
■ Number of cattle are likely to decline

Impact of drought on agricultural
production
■ Adverse impact of production
■ Overall value declined to $58 billion
■ Compared to $63 billion in 2016
■ 2% decline in overall production
■ Milk and wool have particularly been affected
■ Decline in average income of farmers
■ Increases the demand for substitute products such as fodder and
gains
■ Average income has declined to $93, 000 from $160,900 in 2017-18

Impact of drought on agricultural
production
Figure 4: Demand and supply analysis of
agricultural market

Impact on Australian
economy
■ Significant contributor to the economy
■ Poor performance affects overall economy
■ Export earnings to decline by around 4.5 percent
■ Contraction in export volume of beef, lamb, wool and cotton
■ Exported livestock will decrease by 11 percent
■ Significant increase in import of processed stock feed
■ Forced to import grain first time since 2007