Australia is in the midst of its worst drought for 100 years. Grain crops are significantly reduced and cattle farmers are having to downsize or give up altogether. The drought is estimated to be costing Australia A$5bn a year in lost agriculture revenue, reducing the country's economy by 1% each year. And beyond short-term survival concerns, the agricultural industry is also concerned about damage to Australia's food export reputation. David Robertson reports.

They are calling the drought currently afflicting Australia the worst in one hundred years and "the big dry" is threatening to permanently damage the country's position as one of the world's leading food exporters. Agricultural products - primarily beef, lamb, wheat and grains - accounted for 24% of all Australian exports in 2003-04 and the industry is worth an estimated A$26bn (US$20.1bn) a year.

But economists are warning that the drought is costing Australia A$5bn a year in lost agricultural revenue and this is reducing the size of the country's economy by about 1% for every year it continues. Although many farmers are thinking only about survival at this moment, the agricultural sector as a whole is growing concerned that the drought will do long-term damage to Australia's reputation as a leading food exporter.

Losing customers

Australia has benefited hugely from the bans imposed by many Asian countries, including Japan, on US beef imports in recent years. But the drought will cause a significant cull in cattle numbers over the next five years and farmers fear they will lose overseas customers forever.

According to the Australian Bureau for Agricultural and Resource Economics (ABARE) beef and veal exports are expected to fall from A$4.2bn this year to A$3.4bn in 2007-08 and A$3bn in 2009-10.

Charles Burke, vice president of Australia's National Farmers' Federation and a cattle rancher in south-eastern Queensland, said: "We are reducing calving rates in order to survive and because cows have a similar gestation period to humans, this will lead to a big reduction in the overall cattle herd in the next two to three years. And because everyone is struggling financially as a result of the drought we won't be able to restock and build numbers up.

"It will take us quite some time to get back to the level of production we had prior to the drought and that will obviously have an impact on how well we perform in the world market. If we cannot supply these markets there is always someone else to take our place and once we've lost these sorts of foreign customers it is very difficult to get back into their countries."

Reduced harvests

ABARE expects barley production to fall in Australia from 8,728 kilo-tonnes in 2003-04 to 6,454kt this year, a crop reduction of 26% in just one year. Overall production of course grains is expected to fall from 13,166kt to 10,582kt, a 20% drop. The prospects for the wheat crop are more varied. Australia is the world's fourth largest wheat exporter (after the US, Canada and the EU) and the crop is worth about A$5bn a year.

According to ABARE's statistics, the wheat harvest will fall from 25,700kt in 2003-04 to 20,376kt this year (21%) but bounce back to previous levels - around 24,705kt - by 2009-10.

But recent rainfall in the south and east of the country has allowed farmers to start a winter planting and the forecast is for a better than expected wheat harvest this year. AWB, the former Australian Wheat Board, which sells and markets the vast majority of the wheat crop is expecting its members to produce between 21kt and 23kt this year - the same, or slightly better than, last year's crop of 21kt. Although it is hard to predict how the crop will actually fair given the conditions, most of the premier wheat growers are located in parts of Australia that have not been badly hit by the drought - south Western Australia, Victoria and eastern New South Wales. Non-AWB members are more likely to be in marginal areas and grow wheat only as a supplementary crop to be sold at local markets.

Environmental damage

Ryan McKinlay, a spokesman for AWB, said: "It is difficult to speculate on how the drought will affect the quantity and quality of the wheat crop but we are expecting a similar sized crop to last year. The wheat growing areas of WA are doing fantastic this year and the prospects are good for the east coast, particularly if the forecasts for rain soon are right."

This split between prime agricultural land and marginal land has prompted a debate in Australia about whether the country should be trying to turn its vast semi-desert areas into productive land.

"I've heard of farmers in some areas that have had four crop failures in a row," said Burke. "That's three years and the window for getting a winter crop this year is closing so many of them will go to five consecutive crop failures."

The variability of the rainfall in these areas combined with poor soils and growing conditions means that farming is now a leading cause of environmental damage across vast territories in the middle and north of the country. Indeed, Jared Diamond, author of the recent book Collapse, has just been in Australia warning that its continuing exploitation of marginal farmland is threatening to make these areas permanently barren. However, this isn't an argument that is particularly popular with politicians as the rural farmers are a vocal group.

Financial hardship

Instead the government is trying to cushion the blow by giving about A$1.25bn in aid to farmers, including A$4m alone for relationships counselling. But there are now calls, even from some farmers, for the government to make more funds available to move marginal farmers off the land altogether.

This is likely to become a controversial area of Australian politics in future years but it is hard to see how some of these marginal, semi-desert areas can justify continued production given the ecological damage they are causing. However, the current drought is affecting more than just the most marginal farms.

"We are facing conditions here that we've never had to deal with before," Burke said of his own ranch. "My family has been on this property for 123 years and this is the first time that we've faced something this bad. It is difficult to assess how it will affect us as a lot depends on what happens this winter, but the drought could cripple us financially."

While the drought will inevitably cause financial hardship for many of Australia's farmers, the country as a whole also looks set to suffer as food exports have become a major part of the economy. The loss of these export markets could be devastating and emphasises just how dependent Australia is on primary industries.