The economic impacts of natural disasters
We would like to acknowledge the difficult conditions many of our friends in bushfire affected areas have faced over the holiday period and the considerable hardship and stress the fires have caused. We hope conditions improve and communities can begin the recovery process soon. For those in local government, there are many resources being shared to help you support your communities, such as the upcoming webinar series and Bushfire Recovery Hub from Economic Development Australia (EDA).
This is part two of a four-part series looking at challenges that we repeatedly see local councils grappling with as an impediment to economic development in their area. In this piece, Keenan Jackson looks at the impact of both ‘creeping’ disasters such as drought, and disasters where the impact is more immediate, such as bushfires, cyclones and floods, and examines what local government can do to support their communities before, during and after these events.
Series: What blocked economic development in 2019?
- Part 1 – skill shortages
- Part 2 – natural disasters
- Part 3 – part-time / casualisation of the workforce
- Part 4 – what happens when the population tap is turned off?
Natural disasters are commonplace in Australia and are expected to be exacerbated with the impacts of climate change. People in regional areas live and work with the constant threat of floods, fires, and tropical cyclones. One of the major themes over the last year has been the ongoing impacts of drought which have had disastrous impacts on small rural communities. This, of course, has been superseded most recently by the ongoing bushfires which were of course enabled by drier conditions.
Drought – the ‘creeping disaster’
The long dry
The past three years have seen substantially dry conditions over much of eastern Australia with rainfall over the 34-month period to October 2019 being the lowest on record for the Murray–Darling Basin and for New South Wales.
In addition, the Gippsland region in Victoria has also experienced its driest 34 months on record. Deficiencies are now widespread in other states meaning this truly is a national disaster.
Economic effects of drought on Agriculture
Low rainfall and continued dry conditions have an obvious impact on many farm-based businesses. However, impacts can differ depending on the commodity:
- Cropping farms
Experience large reductions in output, leading to considerable losses offset partially by lower input costs
- Livestock farms
Short term revenue gains from increases in livestock sold, offset by price falls, but long-term losses due to a decline in the quantity and quality of stock levels
Surging prices for fodder and water mean input costs impact farm sustainability. This is only partially offset by high dairy exports and small increases in milk prices.
It is important to note that not all regions with strong agriculture-based economies experienced downturns in 2018/19. For example, areas in Victoria with a large share of sheep industry farms are estimated to have experienced increases in real farm cash income due to peaking wool prices in late 2018, counteracting increasing expenditure on fodder.
In addition, the effects of drought can present an unclear picture when looking at headline figures alone as changes in commodity prices can offset production losses.
Flow on impacts
Drought conditions don’t just impact Agriculture, they affect other industries considerably, especially manufacturing, retail and wholesale. A 2018 NSW Business Chambers drought survey found that 84 per cent of regional businesses in NSW had been negatively impacted by the dry conditions. Local retail can suffer in many regional towns as farmers and industry suppliers’ disposable incomes fall.
Impacts on food product manufacturing can vary depending on the input. Meat related processing can benefit initially from an abundance of supply; however, the dairy industry can suffer through higher input costs. These supply chain impacts can take a while to flow through.
Recent work we did with Bega Valley Shire in NSW highlights this. The local dairy industry has benefited from increased exports but impacts on value-added have been seen in the last year due to input price rises leading to what one of the largest companies in Bega Valley – Bega Cheese – has described as “one of the most difficult dairy farming years” ever in Australia.
We recently produced a webinar showing councils how they can use publicly available data to demonstrate economic impacts in their region as a result of drought.
Immediate disasters (floods, cyclones, fires)
Whenever major disasters hit, it doesn’t take long before people in the media start questioning the economic impacts of the event. What is often discussed is the economic cost of the disaster, however, the estimates tend to cover a range of different things including lost production (tourism, agriculture), loss of life, housing, infrastructure, insurance claims, rebuilding costs etc. Some of these ‘costs’ can actually generate economic benefits (insurance claims, for example).
For some regions, the cost of the current fires will be substantial. For example, Eurobodalla in NSW’s south. The area normally attracts around 2.5 million domestic visitor nights a year, half of which occur in the March quarter. Tourism and Hospitality supports almost 14% of all jobs in the economy, double the NSW average.
When thinking about the impact at a local level, it is important to note that, depending on when, and if, the recovery and rebuild efforts commence, a major fall in GRP may not last beyond a year.
As a recent article suggests, rebuilding a stock of assets (historically developed over a long period of time) can lead to massive upswings in construction driven economic growth.
For example, in February 2011, the category 5 Cyclone Yasi rolled across the NE Qld Coast causing major resident evacuations and damage on a large scale. The worst affected areas were in the Cassowary Coast Regional Council area, especially places like Tully and Mission Beach. It was estimated that almost a third of houses in Tully were damaged or destroyed. Looking at GRP for the area we can see it actually grew substantially in the year post Cyclone. One look at building approvals data reveals why – it highlights the substantial rebuilding of homes, and to a lesser extent non-residential buildings, in 2011/12. The fall in GRP in 2012/13 is simply the result of the conclusion of construction and return to relatively normal production levels.
What can Local Government do?
Councils often play an important role before, during and after disasters to plan, coordinate community activities and to administer policies/programs. Other things they can do from an economic development perspective include:
- Evaluating the risk
An economic risk assessment is an important tool to help prepare for disasters and also inform economic development strategies. This can be conducted as part of an overall SWOT for the economy.
- Estimating the impacts
Council can use economic impact tools such as the one included in economy.id to calculate potential impacts of lost production, tourism revenue, and/or benefits of rebuild projects.
- Seeking opportunities from the rebuild
Take the opportunity to build the resilience of your businesses and workforce to environmental disasters. Sometimes in the rush to replace economic assets, conversations around improving or adjusting business as usual practices are overlooked. When the grant funds open, make sure the community has had the opportunity to think about longer-term resilience and not just short term recovery.
- Learning from others
Contact other councils who have experienced similar disasters or utilize some of the toolkits and information available via organisations such as EDA Australia.
How we can help
.id would love to help any council who needs assistance using our tools to explore the potential impacts of the disasters and to inform economic development planning during the recovery phase. If your community has been affected by natural disaster, please contact us here.
One thing looking at natural disasters highlights is the importance of annual estimates. Relying on non-frequent data such as Census information can produce unreliable assumptions. Imagine what estimates of your economy would look like if a disaster, or rebuild, occurred during August of a Census year, which is why we work with NIEIR to provide annual economic data for small areas and local economies in our economic profiles (economy.id).