As severe drought grips the west coast of the United States for the third time this century the effects are being felt locally.
Parts of south-west of the United States, notably in California and Nevada, have now entered ‘extreme’ or ‘exceptional’ drought as measured by the US Drought Monitor (figure 1). These extremes follow in quick succession to the most recent four-year drought which ended in 2017 which was considered the most extreme drought on record.
These conditions are now impacting agricultural production, in particular almonds. California produces about 80% of the global almond supply. Last year it produced a record crop of close to 600 million tonnes utilising the largest ever planted acreage. However, with water in scarce supply (Figure 2) farmers are facing tough decisions about whether to water their trees or not. As a result, the US Department of Agriculture has recently downgraded their estimate for the 2021 almond crop by 12.5% on their previous estimate which was only released in May 2021.
These conditions are now impacting agricultural production, in particular almonds. California produces about 80% of the global almond supply. Last year it produced a record crop of close to 600 million tonnes utilising the largest ever planted acreage. However, with water in scarce supply (Figure 2 left: Orville Lake) farmers are facing tough decisions about whether to water their trees or not. As a result, the US Department of Agriculture has recently downgraded their estimate for the 2021 almond crop by 12.5% on their previous estimate which was only released in May 2021.
However, it goes further. With the current drought coming not long after the previous 2012-2016 drought, some almond growers have started culling some of their orchards and re-assessing their future crop options. Other crops including rice and cotton have also seen steep declines in plantings this year.
This is expected to result in positive outcomes for Australian producers, as according to the CEO of the Almond Board of California, “world-wide demand certainly isn’t satiated”.
Last week the annual Almond Insights report was released by the Australian Almond Board; it reports that total Australian almond plantations have seen a more than 16 fold increase in the 20 yers from 2000-2020 (3,546 hectares in 2000 to 58,523 hectares in 2020). This trend has been directly influenced by the severity of the Californian droughts. This has had significant economic impacts that can be felt across many levels of the Australian economy:
- the almond industry currently contributes around 10,000 jobs to the Australian workforce, a number growing annually.
- In 2020 the industry contributed $1.633 Billion to the economy ($1 in every $1000 in the Australian GDP was contributed by almonds alone).
- In 2020 Australia harvested 114,426 tonnes of almonds. Exports during the 2020-21 marketing year (March to February) were valued at $545 million. Most of Australia’s exported almonds were sent to Asia Pacific and Oceania (67%) and Europe (22%).
- Over the last 10 years total exports have tripled, from 21,315 tonnes (kernel weight equivalent) to 76,693 tonnes in the 2020-21 marketing year. The domestic market has doubled over the same period (from 15,631 to 31,603 tonnes).
These factors have been part of the driving influencers of the fortunes of local listed almond producer, Select Harvest, which has seen its share price rise by 48% over the last six months.
Recent producer commentary reports that the drought in California has already pushed up almond prices by between 5% and 10% over the past six weeks.
On a more pertinent level, these permanent plantings represent a significant increase in the longer-term average water required for production in the southern Murray -Darling Basin. Kilter Rural monitors such trends as bellwethers for the water market.
To find out more about our offerings in the water investment space please contact us at invest@kitlerurral.com.