How will Australian farmers respond to droughts and floods?

As ongoing water problems force changes to Australian agriculture, will farmers demand more subsidies for water-hogging crops like rice and cotton or shift to less thirsty crops?

Daniel Munoz / Reuters / File
Floods drown circular irrigated crops near Theodore, Queensland, Jan. 2. Large parts of Australia's coastal northeast have experienced flooding in a spreading environmental disaster as thousands of residents fled their homes to avoid the runoff from a Christmas deluge. In recent years, drought posed a bigger threat than floods. How can farmers respond?

This article discusses the challenges that Australian farmers face as Mother Nature randomly rotates shocks of droughts and floods. Should these farmers quit and enter UCLA's Econ's Ph.D. program? Or, can they adapt and change their game?

"Buffeted by a cycle of dispiriting dry followed by overwhelming wet, the farmers are experiencing a fate highlighting the vagaries of Australia’s extreme weather. At the same time, it is also adding fuel to a continuing debate over the future of intensive agriculture on a continent drier than all the others save Antarctica.

“Oh, mate, it’s going to hurt us financially,” said Derek Schulz, who owns land downstream near the town of Grantham, which was largely destroyed in the flood. Where more than a week ago fields were ready for a fresh vegetable crop, there is now a plane of cracked mud and the scattered debris of crushed cars, tractors and torn homes.

“We’re carrying a huge amount of debt, we’re talking my wife and I carrying millions of dollars in debt. And to have a complete wipeout, that’s gonna hurt us,” he said. Australian farming is a business of high expenditures and thin margins, and Mr. Schulz said he expected many from the town would give up."

The article goes on;

"But he said it was indisputable that, as a result of climate change, “these extremes are becoming more intensified” — meaning more severe, and longer, droughts.
As a result, Australia must consider a less water-intensive agricultural future, Mr. Cocklin said. “People have to accept that the game’s changed,” he said, particularly in the case of water-hogging crops like rice and cotton."

SO, the economic issue here is how Australian farmer profitability is affected by substituting production from water intensive crops such as rice and cotton to less water intensive crops. I can't name what those crops are but in a world of international trade. Australia's farmers will figure out what their new comparative advantage is (taking into account the new drought conditions they will face due to climate change). The difference between their profits when they grew rice and cotton versus what their profits will be after they re-optimize taking into account drought conditions determines how much they lose in agricultural profits because of climate change. This article highlights that Australia was growing rice and cotton because of generous government subsidies (not due to some natural comparative advantage). In this sense, climate change may INCREASE the true productivity of Australian farming as it creates an imperative to push the Australian farmers away from production activities (growing rice and cotton) that were actually quite wasteful of a valuable natural resource (water). I could be wrong here but the deep economic issue is whether increased scarcity caused by climate change actually encourages economic efficiency as inefficient past silly policies (such as water subsidies for farmers) becomes too costly a policy to continue in the face of climate change.


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