04/03/2003 - 21:00

Drought proves no major threat

04/03/2003 - 21:00


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CITY folk could be forgiven for thinking the farm sector is in crisis.

Drought proves no major threat

CITY folk could be forgiven for thinking the farm sector is in crisis.

Most of eastern Australia is blanketed in drought, the WA government is providing emergency help to drought stricken farmers here, and this year’s grain harvest was the lowest in two decades.

The gloomy view was neatly summed up recently by ABARE executive director Brian Fisher.

“There is little doubt that 2002-03 is shaping up as one of the worst years on record for Australian grain producers,” he said.

ABARE has estimated the national grain harvest will be down 61 per cent on last year’s record crop.

The fall in WA was not quite as severe but the harvest was still down about 50 per cent to 6.14 million tonnes.

The poor season has already had an adverse impact on many off-farm businesses, as farmers wait for the autumn rains that will dictate the success of next year’s crop.

“They are sitting there waiting,” said RSM Bird Cameron rural consultant Paul Hansen.

“In August-September last year they put their cheque books away. You get a very quick knock-on effect to the local businesses.”

However, Mr Hansen and other rural consultants acknowledge that there are wide variations across the State.

“Some growers have had their best year ever, with good yields and good prices,” Mr Hansen said.

This included farmers in the south-west, around Katanning, Williams and Narrogin.

Conversely, farmers in the eastern wheatbelt around Lake Grace and Lake King have had three bad seasons in succession.

It’s a similar story in the north of the State, according to Geraldton-based Agrarian Management consultant Paul McKenzie.

“The coastal areas up here have had a fantastic run of years, and some have had their best year on record,” he said.

In contrast, inland around Mullewa and Perenjori, farmers have had three seasons with production 50 per cent below the norm.

A State-wide survey of approximately 200 WA farmers by Insight Marketing & Management and Kondinin Group revealed the extent of the downturn.

Twenty two per cent of WA farmers labelled the season a ‘disaster’ and 55 per cent described it as ‘poor’ or ‘below average’.

The survey found that the drought had a severe impact. With wheat yields down and the area harvested also down, the average shortfall in gross crop income for grain growers was $518,000.

Insight acknowledged that the survey was biased towards high-income producers.

It provided some consolation for WA – local producers fared better than farmers in every other State.

In fact, 28 per cent of WA farmers achieved or exceeded their budgeted level of gross farm income.

This would have been helped by the high prices for grain, wool and meat that have cushioned the effect of lower production.

Nevertheless, the Insight survey found that nearly half of all farmers in WA plan a major cut-back in expenditure this year.

This could have a significant economic impact given the amount of money at stake.

Each year, WA farmers spend about $800 million on plant and machinery, $700 million on chemicals and $500 million on fertiliser.

Insight found that the main areas targeted for cut-backs are plant and machinery, on-farm spending such as fencing, water and buildings and superannuation contributions.

Insight director Ray Wilson said a surprising finding was that even farmers who were in a strong financial position but suffered a poor season would be cutting their expenditure.

“The negative impact on suppliers and service providers will be exacerbated if there is a poor start to the 2004 season,” he said.

Mr McKenzie said small businesses were already feeling the pinch, especially in hard-hit towns such as Morawa and Mullewa.

“It’s been very difficult for small businesses focusing on merchandise and crop-related inputs because the cropping area has fallen,” he said.

Wesfarmers’ half-year results, released last month, highlighted the impact of the drought.

Its Wesfarmers Landmark business, which trades nationally, suffered a 14 per cent fall in revenue as a result of reduced merchandise sales and livestock revenue.

Wesfarmers also said it expects further growth in fertiliser sales, but only in WA.

Cartage contractors were another group adversely affected by the lower grain harvest and reduced volume of farm inputs.

This has been partly offset by the increased amount of livestock movement for agistment due to a lack of feed and water. 

While many farmers were cutting their spending, Mr McKenzie said this needed to be kept in perspective.

In most parts of the State, the poor 2002-03 season followed a run of good seasons, so most farmers were in a sound financial position.

“What most people don’t realise is that many farm businesses are extra-ordinarily profitable,” Mr McKenzie said.

“There are still a lot of very well capitalised farms, even in the eastern Wheatbelt.”

This could help explain the buoyant sales of farm machinery around WA.

Mr Hansen agrees that the vast majority of farmers are in good shape, with significant off-farm investments, good farm equipment and low debts.

“Farming is a profitable, vibrant industry making good dollars for a lot of people, consistently,” he said.

Looking ahead, the fate of many farmers and off-farm businesses rests, as always, with the weather.

The inherent uncertainty surrounding the weather outlook has been highlighted by two very different rainfall predictions released during February.

Department of Agriculture climatologist David Stephens told the 2003 crop updates conference that there was an 80 per cent chance of average to above average rainfall across the WA wheatbelt.

The Commonwealth Bureau of  Meteorology took a different view. It said the chance of above median rainfall in south-west WA was only 30 per cent to 40 per cent.

With forecasts like that, it is no wonder farmers look to the skies for an answer.

p See farm finance report, page 32


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