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In each of the five major droughts of the past 30 years, reduced farm output took 0.7–1.1ppt off growth. The impact of this drought is likely to be similar in ANZ Research’s view, although good conditions in Western Australia will take the edge off the national impact.
Overall, ANZ Research expects farm GDP to continue falling into 2019, with a peak-to-trough decline of 25 per cent over two years.
Rural exports will also clearly be hard-hit as well as agricultural sector employment. The risks around these forecasts remain significant, and a larger impact cannot be discounted.
Farmers, as well as the associated regional communities, are likely to feel the effects of the drought on their incomes. Farmers do, however, have some buffers to help smooth the impact.
Between June 2016 and June 2017, the sharp rise in agricultural income (up 70 per cent) enabled farmers to increase their deposits in the Farm Management Deposit scheme (FMD).
The scheme allows farmers to make deposits of pre-tax income in years when income is high, which they can withdraw when earnings are low. The FMD has seen strong growth in deposits over the past few years, in line with the rise in agricultural incomes, which in turn reflects high commodity prices.
Some farmers are also able to access federal and state government relief payments and/or privately donated contributions.