Climate change has reduced Australian farms’ average annual profitability by 22%, or around $18,600 per farm, in the past two decades, according to the agriculture department.
In a report released on Wednesday, the Australian Bureau of Agricultural and Resource Economics and Sciences has found that since 2000 changes in climate have reduced the revenue of Australian cropping farms by a total of $1.1bn a year.
The report notes that average temperatures increased by about 1C since 1950 and compares Australia’s climate over the period 2000 to 2019 with the period from 1950 to 1999 by holding other variables, including farm output and commodity prices, constant.
Abares, the Department of Agriculture’s science and economics research division, has developed a statistical model called Farmpredict using data from 40,000 farm observations to simulate differences in more than 50 physical and financial farm variables.
Since 2000, climate change has had a negative effect on the profitability of broadacre farms in Australia. Only Northern Territory farms improved profitability, up 8.7%, with massive cuts to profit in Victoria (–37.1%), Western Australia (-25.8%) and New South Wales (-25.5%) attributed to climate change.
Cropping farms were the worst hit, with revenue down 8% or around $82,000 a farm, and a 35% reduction in profits, or $70,900 for a typical cropping farm.
Report co-author David Galeano said adaptation to climate variability “is certainly helping” – and without it farms would have experienced a 26% reduction in profit, and cropping farms’ profits would be down 49%.
Sheep farms experienced an 18.2% reduction in average annual profit, or $6,100 per farm. Beef farms were “less affected overall” with a reduction in average profits of 5%, although some areas – including south-western Queensland – were more affected than others.
Climate conditions have “also contributed to increased risk in terms of more variable cash income and profitability, particularly for cropping farms”, the report says.
Climate change increased downside risk, with the chance of “very low” profits – below 2% – more than doubling since 2000.
The Abares report says that the current drought across much of eastern Australia “has demonstrated the dramatic effects that climate variability can have on farm businesses and households”.
It says that drought-affected NSW recorded “large falls in profit in 2018–19” but less drought-affected regions, including Western Australia, increased profits due to high commodity prices for grain and livestock.
Abares warns that drought policy faces “an almost unavoidable dilemma: that providing relief to farm businesses and households in times of drought risks slowing industry structural adjustment and innovation”.
“In some cases, well-intentioned policies can also disadvantage farmers who have been better prepared – or luckier – than farmers who are provided assistance and relief, diluting management incentives and raising difficult equity issues.”
Sign up to receive the top stories from Guardian Australia every morning
It recommends that in addition to supporting farm households experiencing hardship, drought policy should “promote resilience and improved productivity”.
Climate change is making drought worse in Australia, although senior government figures including the Nationals leader, Michael McCormack, tend to emphasise that Australia’s climate has always been characterised by intermittent drought and flood.
The centrepiece of the Coalition’s drought policy is a $5bn drought future fund that will make annual payments of $100m to improve resilience.
In November the government announced an extra $1.5bn for drought relief, consisting of a $1bn concessional loan package for farmers and small businesses affected by the drought and $500m for “direct investment into communities”.
Modelling the effect of drought, the Abares report says a cropping farm will see profit decrease from around $230,000 in a typical year to a loss of $125,000 in a dry year.
For an Australian beef farm, profit falls from $60,000 in a typical year to a loss of $5,000 in a dry year.