Crop destruction from Queensland's floods, which has lifted to Aus$2.5bn the losses to Australia's farm output from its sodden summer, threatens a "spike" in fruit prices and "persistent" inflation in meat.
The impact on Australia's food prices from the flooding, which is spreading towards New South Wales, will prove worse than that caused by 2006's Cyclone Larry, Queensland's worst storm in nearly a century, which sent fruit and vegetable inflation to 30%, National Australia Bank said.
"There are more factors at play this time around," NAB agribusiness economist Michael Creed said.
Besides the broader range of horticultural operations affected, with everything from cucumbers to sweet potatoes crops hit and "reports of thousands of rockmelons being washed out of the ground", meat and seafood supplies would also be disrupted this time.
Queensland is responsible for about 35% of Australian meat output and 20-30% of domestic horticulture crops, besides producing nearly all the country's sugar and more than one-third of is cotton.
'Spike in prices'
"We can certainly expect a spike in consumer prices for fruit and vegetables in the coming quarters," Mr Creed said, while foreseeing "significant upward pressure on red meat prices".
It was as yet too early to gauge the impact of the floods on livestock farms, although "some regions could record significant losses", with the threat of follow-on disease posing "some fairly large downside risks".
However, even if losses proved minimal, livestock prices will still be supported by the herd expansion encouraged by the better pasture conditions which follow the inundations.
"Meat price inflation is likely to persist for some time as the conditions post-flood will be further conducive to restocking demand."
The impact on all-in Australian inflation was likely to be a boost of about 0.75 points in the March quarter, potentially lifting the rate over the year to 4.7%.
The comments come amid growing concerns worldwide over food prices which have been swollen by a string of weather setbacks to crops, and already led to riots in Algeria and Mozamnbique.
Cotton and sugar losses
Overall, farmers have now lost some Aus$2.5bn in production to the wet summer, Mr Creed added, lifting his estimate from Aus$1bn last month.
Cotton farmers had lost out on some 400,000 bales production, he said, cutting his estimate to 3.4m bales, well below some other forecasts, including Commonwealth Bank of Australia's 3.5m-tonne figure.
For sugar, the season's heavy rains had cost about 700,000 tonnes in production.
"Nonetheless, it should be stressed that the agriculture sector will expand in 2010-11,albeit at a slower rate than what we anticipated," Mr Creed added.
"Additionally, good subsoil moisture, pasture conditions and rising water storage levels point to a solid production outlook for next season."
