A Sunburnt Country: The Economic and Financial Impact of Drought on Rural and Regional Families in Australia in an Era of Climate Change

By Edwards, Ben; Gray, Matthew et al. | Australian Journal of Labour Economics, March 1, 2009 | Go to article overview

A Sunburnt Country: The Economic and Financial Impact of Drought on Rural and Regional Families in Australia in an Era of Climate Change


Edwards, Ben, Gray, Matthew, Hunter, Boyd, Australian Journal of Labour Economics


Abstract

Australia is indeed a sunburnt country, and is arguably becoming increasingly sunburnt. If most climate predictions are correct, much of Australia will experience droughts even more often. This paper uses the Rural and Regional Families Survey to explore the economic and financial implications of drought in regional Australia. Drought has significant negative economic impacts, with large effects on the experience of financial hardship and deterioration in household financial position- especially for farmers and farm managers who reported that the current drought had reduced property output substantially. The study also identifies some heterogeneous patterns of mobility within many drought-affected households. It is important that policy makers understand the complex processes of adjustment that occur in times of drought in order to enable them to prepare for the changes that will take place if our worst fears about climate change are realised.

I love a sunburnt country,

A land of sweeping plains,

Of ragged mountain ranges,

Of droughts and flooding rains.

I love her far horizons, I love her jewel-sea,

Her beauty and her terror-

The wide brown land for me!

My Country, Dorothea Mackellar*

1. Introduction

Despite the prevalence of drought in Australia over the years, there have been few studies that examine the impact of drought upon financial living standards and employment for families or households in regional and rural Australia. The existing studies have generally produced estimates of the impact of drought at the regional or industry sector level. Some studies (e.g., Australian Bureau of Agricultural and Resource Economics [ABARE], 2008) have provided estimates of the economic impacts of drought on farmers, but have not considered the flow-on economic effects to those who are not farmers but live in rural and regional areas. Other studies that have estimated the economic impacts of drought on farmers have also often been restricted to a small number of communities in specific locations with relatively small sample sizes.1 Moreover, most of these studies have been cross-sectional or have not collected information from similar communities that are not in drought, which makes identifying the effects of drought very difficult (Alston and Kent, 2004; Stehlik, Gray, and Lawrence, 1999).

It is projected that the frequency and severity of drought in Australia will increase as a result of climate change. A recent report from the Bureau of Meteorology (BOM) and CSIRO concluded that the extent and frequency of exceptionally hot years has increased and that this trend will continue (Hennessy et al., 2008). This report also projected that exceptionally low rainfall years are likely to become more frequent in Victoria, Tasmania, the south west of Western Australia, and agricultural regions of South Australia.

The lack of large-scale survey data on families in regional and rural Australia that could be used to estimate the economic and social impacts of drought-such as information on financial hardship, income, labour market variables, health status, relationship issues, family wellbeing and community social capital-led to the Australian Institute of Family Studies conducting the Rural and Regional Families Survey. The survey conducted computer-assisted telephone interviews (CATI) with 8,000 people living in rural and regional areas of Australia in late 2007. An equal number of interviews were administered in each area that, according to rainfall data, was in severe drought, was in moderate drought, had below average rainfall or had above average rainfall.

At the time the interviews were conducted there was widespread drought, with much of Australia experiencing one of the worst and most prolonged droughts on record (National Climate Centre, 2007). The available evidence to date suggests that this drought has had significant economic impacts on farmers.

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A Sunburnt Country: The Economic and Financial Impact of Drought on Rural and Regional Families in Australia in an Era of Climate Change
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