Drought grips over half of farmland

CANBERRA - Australia declared yesterday that more than half of the country's farmland was now in drought, but Treasurer Peter Costello said there was no need yet to cut economic growth forecasts.

Acting Prime Minister Mark Vaile said 44 farm areas had been added to the total area officially in drought, meaning more than half of the country's farmland was suffering from a lack of rain, compared with about a third previously.

To help drought-hit areas, the Government will provide an extra A$560 million ($641 million) on top of A$350 million in aid announced a week ago, he said.

More than 77,000 farmers are now eligible for financial help.

"We are in uncharted waters as far as this drought is concerned," Vaile said yesterday.

"We don't believe the day will ever come when the Australian community will be prepared to turn its back on its farming community, given the significant contribution that they make to our economy and to the culture of Australia."

Australia has about 130,000 farms, producing about A$103 billion a year in goods and A$28 billion in exports. Farming makes up about 12 per cent of economic activity.

Forecasters say Australia's wheat crop in the fiscal year to the end of next June is set to fall to less than half of the previous year's 25 million tonnes. Australia's wheat exporter, AWB, has suspended exports from the east coast in order to meet domestic needs.

In his May Budget, Costello forecast GDP would rise 3.25 per cent in the current fiscal year. He acknowledged yesterday the drought was worse than expected but said he wasn't ready to cut the growth forecast.

"The drought is very well established. It is worse than we expected in May when we were putting together the Budget forecasts," Costello said.

"Rural production has had a negative quarter and I would expect that rural production will have some further negative quarters."

But other areas of the economy might compensate for the fall in agricultural output, he said.

- REUTERS