Australians warned of drought price hikes

Canberra, Apr 20: Australians were warned on Friday to expect sharp food price rises and the possible end of some farming in the nation's food bowl as the government braced to shut off water to drought-ravaged irrigators.

Prices for fresh produce, including citrus and stone fruits, grapes and apples, could triple within weeks of a mid-May water cut-off announced by Prime Minister John Howard, farmers said.

''It's like a bad dream that could spell the end of irrigated farming as we know it,'' fourth-generation farmer Bruce Atkinson told local newspapers.

Howard said yesterday irrigation would be stopped, along with water for environmental river flows, unless heavy rains fell across the continent within the next 6 to 8 weeks.

He asked Australians to pray for rain in the food bowl Murray-Darling River basin, an area the size of France and Spain which accounts for 41 per cent of the nation's agriculture.

''In over 100 years of streamflow and rainfall records, the key Murray-Darling Basin headwater catchments have never been as dry as this,'' Howard and Australian state leaders said in a rare joint statement released today.

Parts of Australia have been in the grip of drought for a decade. Analysts say the A0 billion Australion dollars (783 billion US dollars) economy would grow up to one per cent more in fiscal 2006-07 were it not for the drought.

Treasurer Peter Costello, who hands down the nation's budget on May 8, acknowledged Australia's economic climate was becoming more difficult as the dry intensified and demands for government aid to hard-pressed farmers mounted.

''If there's no irrigation the price of all crops that normally come out of the basin will go up and that will affectprices (inflation), there's no doubt about it,'' Costello told Australian Broadcasting Corp. radio.

Currency Blow To Exports

Cyclone Larry, which last year struck the coast of tropical Queensland state, caused banana prices to rise five times above normal levels, helping drive inflation to a 2006 peak of 4 per cent, well above the central bank's 2-3 percent target range.

''When we come to looking at the overall inflation, we always try to look through one-off effects like the bananas ... but it's not good news,'' Costello said.

As well, a strong Australian dollar, trading at 17-year highs above 83 US cents amid a global commodities boom driven by energy-hungry China, was delivering a double blow to Australian food exports, Costello said.

Annette Beacher, a senior economist at Citigroup, said food prices had been rising steadily for the last few years and supply disruptions could add to upward pressure.

But talk of massive price rises was probably overdone given foods could be easily imported and the current strength of the Australian dollar should help keep costs down, Beacher said.

''There shouldn't be any repeat of the huge spike in banana prices we saw last year,'' she said, noting banana prices had risen sharply because Australia barred imports.

Deputy Prime Minister Mark Vaile said the government would work with food suppliers to stop them overcharging.

Analysts said major food retailers were sitting on fat profit margins and could well absorb any sudden increase.

Howard promised there would be enough water for basic human consumption in cities, as well as towns in the Murray-Darling basin, which has a population of 1.9 million.

The basin provides 96 per cent of Australia's cotton. Rice production has collapsed to 106,000 tonnes in 2006/07 from 1.6 million tonnes before the current drought.

But Murray Valley Citrus Board chairman Robert Mansell said if the taps were closed for irrigation then drought-dormant fruit trees would die, driving debt-ridden farmers off the land.

''The sleep will be a long-term sleep. If we don't get any rain, we're gone,'' he said.

Reuters