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Dec 2021

Australia: Agriculture profits will continue to fall

Source: Middle East Insurance Review | Oct 2021

Agricultural profits in Australia have fallen by 23% over the last two decades (2000-2020) and the trend is likely to continue due to significant impacts of climate change according to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES).
 
An analysis published by ABARES predicts a scenario when the overall farm profit will fall by 13% by 2050 and there will be significant differences between the different regions of Australia. 
Cropping profits in Western Australia are predicted to drop by 32%. With higher emissions, the reductions will be worse. Overall estimates of the fall in Australian farm profits range from 11% to 50%.
 
Inconsistent water supplies, increased natural disasters and greater production risks will also render agricultural production in many areas uneconomic. Due to these climatic changes agricultural assets, both land and infrastructure, could become virtually worthless – so-called stranded assets.
 
The effect of falls in farm income will ripple throughout the regional communities that are interdependent networks of businesses, towns, public infrastructure and people. Lower output will mean fewer jobs. If farms close, so will other regional businesses, leading to more stranded assets.
 
So far development planning in Australia has not adequately considered the potential impacts of the climate on liveability, especially in rural communities. This failure to account for climate change exacerbates the potential for stranded assets.
 
A ‘tree-change’ trend, with people leaving cities in search of a better lifestyle and more affordable housing in rural settings, is becoming widespread and it appears to have been amplified by the COVID-19 pandemic, with figures showing net internal migration of people out of Sydney and Melbourne.
 
Drought insurance markets have struggled to achieve commercial viability to date, however improvements in data could support new approaches including parametric or ‘index-based’ insurance. M 
 
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