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Mixed bag as drought stalls national economic growth

12 December 2006

POSITIVE figures this month for Australian farmers as the Westpac-NFF Commodity Index showed a 2.9% increase in the weighted global price of agricultural commodities in November.

"Even the continued strengthening of the Australian dollar against the US currency has not been able to deter a rise in the Commodity Index in Australian dollar terms," NFF Vice-President and Chair of the Farm Business and Economics Committee Charles Burke said.

"The Index was particularly buoyed in November by resurgence in the price of wool and falling world stocks in most grain sectors.

"Beef prices, which have been suffering on the domestic market as a result of drought forced herd liquidation, have also lifted on world markets as US exports continue to struggle to regain market share in the Japanese and Korean markets.

"So it is clear that Australia’s drought conditions are contributing to the strengthening world agricultural commodity prices.

"However, it is also becoming increasingly evident that the drought is now also impacting on Australia’s total domestic economy.

"This has put paid to critics who dismiss the affects drought has on the rural community and its flow-on impact through the national economy, as domestic economic growth slumped to its lowest level in November since 2003– recorded at just 0.3%, driving down the annual rate down to 2.2%.

"This saw a dramatic 35% reduction in farm incomes over 2005-06, and are tipped by the Australian Bureau of Statistics’ National Accounts to plummet by 72% this financial year."

Justin Smirk, Senior Economist with Westpac Banking Corporation, noted: "With the drought crippling farm output, the support of robust global commodity prices is promising.

"We expect the global environment will remain positive for export prices in 2007. As the farm sector was in a sound financial state at the start of 2006, we believe that the farm sector can rebound, as it has done from previous droughts, when the rains finally arrive."

Global prices during November lifted for Barley (6.0%), Beef (3.8%), Canola (7.9%), Dairy (1.1%) and Wool (12.0%). These price gains outweighed falls in the price of Cotton (-2.1%), Wheat (-3.3%), and Sugar (-1.3%), seeing the overall weighted index increase by 2.9% for the month.

[ENDS]

The Westpac-NFF Index is weighted according to the value of Australian agricultural exports and includes only rural commodities – unlike other price indices that are overshadowed by oil, mineral and energy prices. It provides daily movements based on prices of Australia’s eight key farm exports – wheat, barley, beef, wool, cotton, sugar, dairy and canola – in both $US and $A.

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