Impact of El Niño on Australian farm GDP

Overall, we assess this year’s El Niño as a moderate risk to farm production. We forecast farm GDP (2% of the total economy) to be flat to moderately lower (0 to -5%) in 2015-16, which will only marginally subtract from headline GDP.

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Overall, we assess this year’s El Niño as a moderate risk to farm production. We forecast farm GDP (2% of the total economy) to be flat to moderately lower (0 to -5%) in 2015-16, which will only marginally subtract from headline GDP.

Key Points

  • El Niño can severely affect winter, spring and summer rainfall in eastern Australia. The impact of any given El Niño event is highly variable. Many previous El Niño events have been associated with lower farm GDP. Real farm GDP declined between 0.7% and 25.4% during the last five El Niños, with an average decline of 12.6%.
  • Farm GDP constitutes around 2% of total Australian GDP, limiting the direct impact of El Niño on GDP. There are potential flow on impacts to other areas of the economy, but we expect these to be relatively small. We do not expect El Niño to affect exchange rates or the RBA’s policy settings.
  • The relatively late onset (outside Victoria) of the rainfall deficiency associated with this year’s El Niño has spared winter crops from a serious calamity, although conditions in Victoria are very challenging. We forecast wheat production to be similar to last year. Wheat represents 16% of agricultural production by value.
  • The beef industry is already experiencing a production slowdown. This will place some pressure on farm GDP irrespective of climatic conditions over summer. Dry conditions are causing production to spike and prices have tended lower in October, but if Queensland enjoys a decent wet season, prices could increase. Beef represents 17% of agricultural production by value.
  • Despite dry conditions in Victoria, milk production this season looks to be holding up and concerns around the impact of El Niño on New Zealand have pushed prices higher. Dairy represents 9% of agricultural production by value.
  • Conversely, El Niño could boost non-farm GDP. For example, there may be fewer weather disruptions to  mining production and/or increased electricity consumption.

For more details, please refer to the attached document.

Impact of El Nino on farm GDP (PDF, 800KB)