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Beating Around the Bush

  • Year: 2012
  • Author: Matt Grudnoff
  • Country: Australia
  • State/Region: All Regions

Since the beginning of the mining boom Australia's rural sector has lost $43.5 billion in export income. This includes $14.9 billion in 2010-11 alone. These losses have occurred because the mining boom has forced the Australian dollar to historic highs.

The damage the mining boom is doing to other sectors has created what has been dubbed the 'two speed economy'. The booming mining industry has pushed up the Australian exchange rate and in doing so has cut the export earnings of trade-exposed parts of the economy.

Most Australian exporters are price-takers. They do not set the world price but rather accept the current world price. So when the value of the exchange rate increases, the amount the exporter receives in Australian dollar terms falls.

The rural sector is heavily reliant on export earnings. In 2010-11 it exported over $36 billion worth of produce, but in Australian dollar terms this has been reduced by $14.9 billion. This represents a decrease of 41 per cent in export income because of the high exchange rate attributable to the mining boom.

Within the rural sector the beef and veal industry has also been adversely impacted with exporting income being cut by $2 billion in 2010-11 and $6.2 billion over the boom. The sugar industry lost $566 million in 2010-11 and $1.8 billion over the boom.

Just as the Reserve Bank of Australia tries to smooth the ups and downs of the economy with monetary policy, state and federal governments need to manage the ups and downs of the commodity cycle. The growth in the mining sector has come at a cost to other sectors of the economy, especially the rural sector – and these costs are substantial.

The idea that any growth in the mining sector will serve to enhance Australia's income is simply untrue. The macro economy is far more complex, with unintended consequences like the high Australian exchange rate negatively impacting on non-mining sectors – particularly, as has been shown here, the rural sector.

The mining boom has not been managed well. It has been allowed to expand with little consideration for the collateral damage it causes to other sectors of the economy. The rural sector is one part of the economy that has been badly affected. There needs to be a stronger focus on the boom's full effects rather than a reliance on the simple belief that unrestrained growth in the resource sector is in Australia's national interest.

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