Briefing paper

Still beating around the bush: the continuing impact of the mining boom on rural exports

25 Feb 2013
Description

Since the beginning of the mining boom Australia’s rural sector has lost $61.5 billion in export income. This includes $18.9 billion in 2011-12 alone. These losses have occurred because the mining boom has forced the Australian dollar to historic highs.

The damage the mining boom is doing to other sectors has created what has been dubbed the ‘two speed economy’. The booming mining industry has pushed up the Australian exchange rate and in doing so has cut the export earnings of trade-exposed parts of the economy.

The Australia Institute first estimated the significant export income losses that the rural sector faced because of the mining boom induced high exchange rate in its paper Beating around the bush: The impact of the mining boom on rural exports.

Since the release of that paper the mining boom has continued and the exchange rate has remained high. Still beating around the bush: the continuing impact of the mining boom on rural exports updates and estimates the recent extent of lost export income. It also provides an analysis of another two important rural commodities: cotton and wheat.

Most Australian exporters are price-takers. They do not set the world price but rather accept the current world price. So when the value of the exchange rate increases, the amount the exporter receives in Australian dollar terms falls.

The rural sector is heavily reliant on export earnings. In 2011-12 it exported almost $40 billion worth of produce, but in Australian dollar terms this has been reduced by $18.9 billion. This represents a decrease of 47 per cent in export income because of the high exchange rate attributable to the mining boom.

Within the rural sector the cotton growers have lost $1.3 billion in 2011-12 and $2.5 billion over the nine years of the mining boom. Wheat growers have been particularly hard hit losing $3 billion in 2011-12 and $8.3 billion over the boom.

Other important rural sectors have also been impacted. The beef and veal industry has also been adversely impacted with exporting income being cut by $2.3 billion in 2011-12 and $8.5 billion over the boom. The sugar industry lost $815 million in 2011-12 and $2.7 billion over the boom.

Just as the Reserve Bank of Australia tries to smooth the ups and downs of the economy with monetary policy, state and federal governments need to manage the ups and downs of the commodity cycle. The growth in the mining sector has come at a cost to other sectors of the economy, especially the rural sector – and these costs are substantial.

The idea that any growth in the mining sector will serve to enhance Australia’s income is simply untrue. The macro economy is far more complex, with unintended consequences like the high Australian exchange rate negatively impacting on non-mining sectors – particularly, as has been shown here, the rural sector.

The mining boom has not been managed well. It has been allowed to expand with little consideration for the collateral damage it causes to other sectors of the economy. The rural sector is one part of the economy that has been badly affected. There needs to be a stronger focus on the boom’s full effects rather than a reliance on the simple belief that unrestrained growth in the resource sector is in Australia’s national interest.

 

Publication Details
Published year only: 
2013
356
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