Rudd warns of threat to farming

Australian agriculture is under threat from rising inflation, a strong currency that is damaging exports, and water shortages, Kevin Rudd, the prime minister, warned yesterday.

His comments came as the Reserve Bank of Australia lifted the benchmark cash rate by 25 basis points to 7.25 per cent, its fourth increase in seven months. The central bank has pushed interest rates to their highest for almost 12 years to rein in inflation, now at a 16-year high of 3.6 per cent.

"The long-term challenges to farming communities are very substantial," Mr Rudd told an Australian Bureau of Agriculture and Resource Economics (Abare) conference. "Combined with the high value of the Australian dollar, which has made exporters less competitive, the macroeconomic environment for many agricultural producers is challenging."

The Australian dollar last week traded at just under 95 US cents, its highest in 24 years. However, it slipped to just under 93 US cents yesterday as economists downgraded expectations of another interest rate rise following comments from the RBA that there had been some moderation in consumer spending. The Australian Bureau of Statistics said retail sales growth was flat during January, which compared with expectations of a 0.4 per cent rise.

Mr Rudd said apart from the current economic environment, the greatest long-term challenge for the agricultural sector was climate change, which "will substantially affect the long-term productivity and profitability of the Australian agriculture and food sector. It will change water availability and lead to more frequent droughts, floods and bushfires and alter the distribution of pests and weeds."

In its analysis of the econ-omic impact of climate change, Abare last year said Australia was likely to be one of "the most adversely affected" developed regions, given agriculture's importance to its economy. But Mr Rudd said the outlook had been improved by "seasonal developments and commodity price movements".