The major bushfires that lasted from August till December of 2019 has charred almost 11 million hectares of land, an area more than four-fifths the size of England. As a country that exports primary commodities, Australia is facing a loss of lands that they can farm in, resulting in a decrease in their primary products. Wheat, for example, is one of the top 5 most important commodity exports. Previously, Australia exported $3.57 billion of wheat to other countries, but due to the bushfires, Australia forecasts to cut wheat production by nearly 20% in 2020. As the possible production of wheat, as well as other primary commodities, drop, you may think that the farmers’ profit or total revenue will decrease.
The question is: Is it the reality?
In fact, this may not be true because primary commodities are a necessity for which there are very few substitutes. As shown in the diagram illustrated above, the prices of primary commodities in response to quantity demanded are expected to increase. On the other hand, the supply shifts to the left due to a decrease in production, as price equilibrium increases and quantity equilibrium decreases, the percentage of the former is larger than that of the latter, which means area ABCD is larger than area DEFG. Therefore, when total revenue increases, the boost of price acts as insurance to farmers and they will not suffer as much in the long term.
In the long term, Australian farmers are not seriously affected because they can set higher market selling prices to their goods. However, this does not indicate the economy is in a good situation. As the prices of primary commodities increase, the poor are unable to reach their necessity. So far the Australian government has subsidised farmers a grant of $75000 in order to lower the prices of primary products. However, more has to be done to secure the farmer’s profit and productivity and support the agricultural industry in maintaining a stable and reasonable price range of agricultural products.