Media Watch: Floods unlikely to lead to food cost blowout

The extensive flooding across Queensland’s agricultural heartland is unlikely to lead to a cost blowout on fruit and vegetables in coming months, according to one of Australia’s leading economists.

Chief economist of the Commonwealth Bank of Australia (CBA), Craig James, told ninemsn Money that the price of tropical fruits such as pineapples and melons may increase, but growers in other regions of Australia may lift production to cope with broader consumer demand for fresh produce.

“No one can assess the likely price impact, but consumers will respond as normal…not buying produce that rises in price and switching to cheaper alternatives,” he said.
“Shortfalls may be met via imports in some cases, by frozen product or supplies from other regions in Australia. And consumers will substitute high-priced or unavailable items for other fruits, vegetables, frozen products – or do without completely.”

A Woolworths spokesperson agreed and said there was no immediate danger to supply because the growing season in Queensland had just finished with most produce already transferred from the region.
He said that the only shortages would by lychees, sweet potatoes and melons.

Longer term it is more difficult to predict, but the spokesperson said that increased rain in other areas of Australia could mean positive things for supply.
“There could actually be an abundance of food in the rest of Australia,” he said.

However not all experts share these opinions. JPMorgan senior economist, Helan Kevans, told the Australian Financial Review that food prices are likely to “rise sharply” as a result of the floods.
“Crops including wheat and other grains, sugarcane, fruit and vegetables have been pushed higher, as have dairy prices,” she said.
And after cyclone Larry in 2006 the prices of bananas surged to $15 a kilogram from around $1.70.

The Woolworths spokesperson said the focus was on getting food into Queensland rather than vice-versa.
“We have contingency plans and we are taking alternative routes as the roads are all cut off,” he said.
“Supplies should be reaching Brisbane today and we are trucking across from Adelaide.”
According to the AFR, while the consumer price index was expected to increase by as much as 1.6 percent in the March quarter from 0.7 percent in the September quarter, the Reserve Bank of Australia would not be concerned about the effect of the floods on inflation.
Policy makers will instead focus on how the devastating floods will affect the pace of economic growth.

James said that total exports from Queensland were $4,199 million in November - 21 percent of total Australian exports.

“The floods in Queensland is likely to see more sedate trade surpluses take place in coming months,” he said