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Economy

Drought squeezing farm output, economies in Asia, Oceania

JAKARTA -- Bone-dry conditions are ravaging agricultural production in parts of Asia and Oceania, stunting growth in countries where farm goods are a major economic driver.

In Vietnam, in the grip of its worst dry spell in a century, rice output has plummeted, while Australia expects its wheat harvest to shrink by about 30%. In Thailand, parched conditions are forecast to push down growth by about 0.8 percentage point.

Behind the lack of rain is the El Nino weather phenomenon, which has sent temperatures soaring in Asia for the past two years. Agriculture account for a large chunk of gross domestic product in Asian countries, with the ratio coming to 11% for Thailand, and 18% for India and Vietnam. When agricultural production in these countries contracts, so does their GDP growth, both due to the direct impact and indirectly through the effect of weaker consumption caused by falling incomes for farmers.

Thailand, a leading rice exporter, is reeling from the arid conditions. Rainfall there since the beginning of the year has been lower than in the same period of last year, when the amount of precipitation sank to a 26-year low. The U.S. Department of Agriculture released a forecast in March saying that production of polished rice in the Southeast Asian country would retreat 19% on the year to 15.8 million tons this year.

In Nakhon Sawan Province, a rice-growing area of northern Thailand, broad stretches of dusty land underscore just how thirsty the paddies are. The all-important irrigation systems are dangerously dry. "The water we need for our everyday lives comes from irrigation ponds," lamented the head of the provincial government's irrigation office. The drought is impacting the area's entire economy. There has been a precipitous drop in auto sales there, for example.

Delta blues

In southern Vietnam, the Mekong River has run so dry that seawater has flowed upstream. According to the country's Ministry of Agriculture and Rural Development, about 41% of the roughly 1.7 million hectares of agricultural land in and around the delta have been affected by seawater. Rice production in southern Vietnam slipped by only 1.2% on the year in the January-March quarter but is likely to fall faster in the future.

In Australia and New Zealand, livestock farmers have disposed of cattle and sheep earlier than planned due to a shortage of feed grass. Rabobank expects wheat production in those countries to plunge 27% on the year in the current fiscal year. In Maharashtra, India's second-largest agricultural state, dry conditions are expected to reduce grain harvests by 40% and bean harvest by 10%.

Due to ample inventories, global prices of rice and wheat have not yet been affected by the lower production. Wheat futures prices for near-term contracts are at their lowest level in about six years on the Chicago market. The price of imported wheat sold by the Japanese government fell 7.1% on average for the April-September period from the October 2015 to March 2016 period. Japanese flour-milling companies are expected to trim shipment prices for wheat flour in or after early July.

The U.S. National Oceanic and Atmospheric Administration predicts that El Nino will run its course by around this summer in the Northern Hemisphere. 

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