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Queensland floods:
The economic impact
Special Report
January 2011
www.ibisworld.com.au | (03) 9655 3881 | info@ibisworld.com
The floods in Queensland and the rest of
Australia have besieged an area larger
than France and Germany combined. The
floods will have a significant impact on
the Australian economy, in addition to
world commodity and agriculture prices.
No longer the poor cousin of the more
prosperous southern states, Queensland
accounts for approximately 20% of the
Australian economy, 60% of global
coking coal exports and 28% of
Australia’s fruit and vegetable
production. As a result of the floods,
IBISWorld has downgraded its GDP
forecast for 2010-11 from 2.9% to 2.6%.
The floods are expected to have a
negative short-term effect on economic
growth. IBISWorld estimates that the
floods will subtract 0.6 percentage points
from our previous GDP forecast for the
third quarter of 2010-11 (which ends
March 31). IBISWorld estimates that the
floods resulted in $2 billion in lost coking
coal production. However, spot prices are
rising for coking coal and are expected to
reach US$350 to US$400 per tonne,
which is likely to result in contract prices
averaging US$300 in March. This rise
should partially compensate miners for
lost production.
Agriculture will also be hit hard, with
an estimated $1.6 billion worth of crops
having been destroyed. Sugarcane,
cotton, some vegetables and grains have
suffered major losses. This is expected to
flow on to a short-term price spike for
food, with prices expected to rise by up
to 200%. The lost wheat production is
expected to exacerbate existing global
wheat shortages, caused by poor
production worldwide, particularly in
the US and Russia. This is likely to cause
a further increase in global wheat prices.
There was significant damage to
infrastructure across Queensland, and
an estimated 18,000 residential and
commercial properties were significantly
affected in Brisbane and Ipswich. Lost
productivity was also significant, as
Brisbane’s CBD closed and work halted
on commercial projects. In addition,
tourism slowed as domestic and
international visitors cancelled or
changed trips.
From April 2011 onward, the floods will
provide a boost to economic growth
through rebuilding, which is expected to
last until 2012-13 and total $10 billion.
The construction sector will boom as
damaged infrastructure and property is
repaired, including roads, rail, bridges,
ferries, houses, businesses, energy and
sewerage networks. Retail stores will
experience increased demand as durable
Queensland’s share ...of Australia’s economy
20%
GDP rise in 2010-11
2.6%
Unemployment in June 2011
4.7%
Reconstruction cost
$10bn
...of Australia’s fruit and
vegetable production
28%
Forecasts for Australia
...of global coking coal
exports
60%
IBISWorld has
downgraded its
GDP forecast for
2010-11 from
2.9% to 2.6%
www.ibisworld.com.AU Special Report January 2011   2
Queensland floods: The economic impact
From April
onward, the
floods will
provide a boost
to economic
growth through
rebuilding,
which is
expected to last
until 2012-13
goods damaged in the floods are replaced.
Agriculture is also expected to benefit in
the long run from increased soil moisture.
All levels of government have pledged
support for the recovery. The Federal
Government has begun distributing
emergency assistance grants of up to
$1,000 per person, which should begin
to have an immediate stimulatory effect.
The Federal Government is responsible
for funding 75% of repairs and
rebuilding. However, the Federal
Government has maintained its pledge
to return the budget to surplus by
2012-13, which means that other budget
savings must be found. Queensland
Government will be responsible for 25%
of rebuilding. This will place pressure on
the state’s budget, as revenue decreases
through March, due to lost production.
The recent $14 billion in asset sales will
help to alleviate some pressure and
Standard  Poor’s indicated at the
beginning of the flooding that the state
government’s credit rating is not likely
to be affected.
The floods are also likely to result in
upward pressure on inflation and
interest rates. Rising food prices are
forecast to add up to 0.8 percentage
points to the Consumer Price Index,
which would fuel inflation higher than
the 2% to 3% target range in the short
term. However, the Reserve Bank of
Australia is unlikely to increase interest
rates on this basis unless higher food
prices are sustained.
A greater inflationary risk in the
medium term is the reconstruction.
Unemployment fell to 5% in December
2010, which is generally the point where
further falls in unemployment will
generate accelerating wage inflation.
IBISWorld forecasts that unemployment
will fall to 4.7% by the end of 2010-11
and 4.5% by the end of 2011-12. The
reconstruction is expected to exacerbate
already strong demand for construction
workers and engineers, generated by an
intensifying mining investment boom.
With limited spare capacity in the
economy, the rebuilding is expected to
further accelerate wages growth leading
to wider inflationary pressures and,
consequently, upward pressure on
interest rates. Some offsetting
Revenue by sector
2009-10 2010-11 2011-12
Construction
Revenue ($ billion) 273.54 295.00 311.00
Growth (%) 2.1 7.8 5.4
Tourism
Revenue ($ billion) 82.31 83.61 85.72
Growth (%) -1.1 1.6 2.5
Transport
Revenue ($ billion) 117.25 116.38 121.64
Growth (%) 0.5 -0.7 4.5
Mining
Revenue ($ billion) 148.7 186.1 193.2
Growth (%) -15.0 25.2 3.8
Agriculture
Revenue ($ billion) 51.69 53.33 52.62
Growth (%) -0.9 3.2 -1.6
www.ibisworld.com.AU Special Report January 2011   3
Queensland floods: The economic impact
The floods are
expected to strip
$2.5 billion from
the earnings of
the Australian
mining sector in
2010-11
downward pressure on interest rates is
expected due to the strong Australian
dollar and interest rate rises in 2010,
which are likely to subdue the retail,
manufacturing and tourism sectors.
IBISWorld expects the cash rate to finish
the 2011 calendar year at 5.5%.
Mining
The Queensland floods are expected to
take a heavy toll on the mining sector, with
sector revenue forecast to be $2.5 billion
weaker as a result. The floods have
severely affected the coal mining industry,
with most major miners in the affected
area declaring full or partial force majeure
on coal contracts, as the weather forced
them to halt production and disrupted
vital rail and port infrastructure. This has
forced ports to run down coal stockpiles,
creating an export shortfall of over 1
million tonnes per week. More than 15
million tonnes of coal that would otherwise
have shipped have been lost since the
floods began in December. IBISWorld
expects lost coal shipments to total $2
billion by the end of 2010-11. With
Queensland supplying about 60% of the
world’s coking coal exports, the floods are
expected to propel coking coal spot prices
to US$350 to US$400 per tonne, levels
not seen since before the financial crisis.
Thermal coal prices have also risen
sharply since the onset of the floods and
are expected to test their 2008 highs. In
addition to the US-based companies that
are scrambling to fill the shortfall in
global coal markets, this shortage should
benefit NSW-based coal producers like
Gloucester Coal and Coal  Allied. The
industry could take months to recover
from the deluge, with production unable
to restart until flood waters are drained
from mine pits and roads; damage to
infrastructure is repaired; and rail and
port access points are restored.
Miners are also expected to be
hampered by environmental regulations
on water discharges from mine pits and
legal issues arising from declaring force
majeure on contracts and failing to
adhere to strict health and safety
standards. In addition to the coal
industry, the floods have also affected
the Mining Services industry. Mine
closures, production halts and
disruptions to roads and railways are
expected to flow through to mining
contractors like Leighton Holdings,
Downer EDI and Macmahon Holdings,
threatening hundreds of millions of
dollars in revenue. The floods have
affected the Oil and Gas Production
industry, with coal seam gas drilling
halted in the Surat basin. They have also
affected other mining industries in the
state, with some aluminium and bauxite
mines being forced to halt production.
With the floods expected to strip $2.5
billion from the earnings of the
Australian mining sector this financial
year, IBISWorld estimates the sector
will generate $186.1 billion in 2010-11.
Agriculture
The recent heavy rainfall and flooding in
Queensland will devastate the Australian
agriculture sector this year, causing
losses of up to $1.6 billion. The recent
deluge has caused widespread damage
across many agriculture industries
including food, crops and livestock.
Major problems for these sectors include
crop loss, rain damage, waterlogging,
quality downgrades, delays or disruptions
to harvests, and transport problems due
to flooded fields, roads and damaged
infrastructure. IBISWorld expects the
worst affected sectors within Australian
agriculture to include the following.
Fruit and vegetables
The Queensland horticulture industry is a
crucial link in Australia’s food chain.
Queensland supplies 28% of Australia’s
fruit and vegetables, making it the leading
producer of fresh produce in the country.
The recent flooding threatens to reduce
Australia’s supply of fresh fruit and
vegetables, given that 14% of the nation’s
produce is sourced from many flood-
affected areas.
It is believed that the flooding and
consistent rainfall across Queensland’s
food-producing regions has resulted in
widespread loss, damage and disrupted
www.ibisworld.com.AU Special Report January 2011   4
Queensland floods: The economic impact
harvests for fruit and vegetables like
pumpkins, tomatoes, capsicum, celery,
avocados, lettuce, zucchini, broccoli,
certain types of potatoes, mangos
bananas, melons, tropical fruit, grapes
and seedless watermelon. All these factors
combined suggest that industry revenue
for Australia’s fruit and vegetable growers
is likely to decline by 10% overall for 2010-
11, representing a combined loss of
approximately $561 million.
Cotton
With Queensland accounting for nearly
half of Australia’s cotton production,
Australia stands to lose a considerable
portion of the national harvest this year
due to the devastating floods.
IBISWorld forecasts losses ranging
between 300,000 and 500,000 bales,
which means an overall decline for
Australia’s entire cotton crop for
2010-11 is likely to be damaged or
written off due to flooding.
As a leading cotton exporter, the
expected fall in Australia’s cotton crop
has deepened concern over tightening
cotton supplies on the world market. In
turn, this has caused further spikes in
global cotton prices, which soared in
2010 as global production fell due to
adverse weather across the US and
China, and flooding in Pakistan.
As such, IBISWorld is expecting a 17%
contraction for Australia’s cotton
industry with revenue likely to fall by
over $200 million. On a positive note,
improved production across New South
Wales is likely to help compensate for the
drop in Queensland cotton production.
Moreover, cotton growers are expected to
benefit from greater water availability in
the short term, with the recent
replenishment of irrigation dams and
improved soil moisture content.
Sugar
Australia is a leading exporter of sugar
on the global market, and Queensland
sugarcane growers produce 95% of the
country’s annual sugar crop. This is one
of the worst affected agriculture
industries, and IBISWorld expects a 27%
decline in revenue for sugarcane
farmers. Sugarcane fields are now
waterlogged in some areas, thereby
preventing this year’s sugarcane harvest
for many growers.
As a result of these declines, leading
exporter Queensland Sugar Limited has
already started purchasing sugar from
Brazil and Thailand to supplement the
fall in Australian production. This also
means that many Australian growers
have not been able to capitalise on rising
sugar prices that recently hit a 30-year
high. Looking ahead, it is likely that rain
damage to many fields will also destroy a
considerable portion of Australia’s crop
in 2011-12.
Grains
IBISWorld research indicates that the
impact of the Queensland floods is likely to
reach $400 million for the grain industry.
This will have a limited effect on industry
revenue as a whole, given that the
Queensland grain crop accounts for only
10% of national grain production in
Australia. According to Queensland’s peak
Agricultural revenue losses, 2010-11
Industry
Lost revenue
($ million)
2010-11
(% change)
2011-12
(% change)
Vegetable Growing 271.6 -8.3% -2.0%
Citrus, Banana and
Other Fruit Growing
289.7 -11.8% -1.0%
Grain Growing 400.0 -4.8% -1.0%
Sugarcane Growing 400.0 -26.6% -4.9%
Cotton Growing 257.0 -17.1% -10.0%
www.ibisworld.com.AU Special Report January 2011   5
Queensland floods: The economic impact
agricultural body AgForce, the recent deluge
has hit all of Queensland’s broadacre
crop-growing areas with some parts of
southern Queensland virtually written off
before harvest. Analysts are expecting grain
losses of up to 500,000 tonnes, including
wheat, barley and sorghum.
The biggest problem for grain
agriculture exporters has been shipment
delays due to the closure of critical
ports, such as those in Brisbane, due to
flood risk and damage. This means grain
farmers fortunate enough to complete
their harvest before the worst of the
recent deluge are currently unable to
capitalise on the current spike in global
grain prices. On the bright side, there is
a possibility that farmers may be able to
re-plant crops if weather conditions
improve, thus recouping some of their
current losses.
Livestock
IBISWorld expects a mixed impact on the
meat and livestock sector, with some
farmers managing to move livestock from
flood-affected areas before flooding.
However, the true extent of the effect is
yet to be felt, with farmers likely to return
to farms over the next week. Moreover,
news reports do confirm some livestock
being washed away and some being
isolated as a result of the floods.
Finally, transporting livestock to
slaughter houses seems to be the most
imminent problem for farmers, given
flooded roads and damage to transport
infrastructure. IBISWorld expects that
this will put further strain on the supply
of livestock for slaughter given that
farmers across the country are currently
restocking herds, thanks to improved
rainfall and weather conditions in 2010.
Thus, lower slaughter figures due to
transport problems in flood-affected
areas could ultimately flow on to higher
meat prices later this year.
Construction
The urgency of rebuilding a sodden
Queensland, coupled with the willingness
of Federal and state governments to offer
any assistance necessary, indicates that
despite a brief lapse in activity in Brisbane
and southern Queensland, the construction
sector is likely to experience a mini boom
as a result of the recent floods.
Construction will be temporarily
halted in much of the state (and some
other flood-affected regions of Australia)
as roads become impassable and as
construction equipment gets bogged
down in saturated earth. Work has
stopped on an estimated $5 billion
worth of contracts, but much of this will
resume once the water has cleared. In
fact, in these regions construction tends
to be muted as a result of ordinary rains
in January and February. The long-term
implications are less severe. The cost of
replacing destroyed infrastructure,
restoring power lines, rebuilding roads
and bridges, and reinforcing buildings
whose foundations were weakened by
prolonged submersion will lead to an
expected $10 billion boost in
construction spending over the coming
30 months.
Construction revenue
Year
Original forecast
($ billion)
Revised forecast
($ billion)
Annualised change
(%)
2010-11 293.78 295.00 3.6
2011-12 306.71 311.00 5.4
2012-13 319.28 325.00 4.5
2013-14 330.68 330.68 1.7
2014-15 343.25 343.25 3.8
2015-16 357.49 357.49 4.2
2016-17 371.44 371.44 3.9
www.ibisworld.com.AU Special Report January 2011   6
Queensland floods: The economic impact
About 15,000 properties have been
affected by significant flooding, with 5,000
businesses affected. In Ipswich a further
3,000 homes and businesses have been
flooded. The Local Government
Association of Queensland estimates that
70,000 to 90,000 km of council roads have
been damaged (councils are responsible for
80% of roads). There has also been flood
damage to rail lines and public transport –
the extent of which is not yet known.
Estimates currently indicate that QR
National will miss its original profit target
by $80 million due to damage and the
shutdown of coal mines. There has also
been significant damage to the Queensland
sewer system.
Initial work will involve the clean-up and
demolition of existing buildings and
infrastructure. This is set to be completed
in the first half of 2011. Likewise, activity
will begin immediately on the reconnection
of utilities, notably electrical, gas and water
infrastructure. Meanwhile, small-scale
repair and maintenance to existing
transport infrastructure (roads, bridges,
ports, rail) will be completed by the end of
September. Road works in particular are a
priority and will comprise the bulk of
construction spending. Many roads, having
been submerged for days, cannot be merely
re-laid, but must be torn up and rebuilt at
significant extra cost. Because demolition
work must be completed before rebuilding
can commence, this will be delayed
compared with smaller-scale road repairs.
The housing sector is also primed to
benefit. Total new construction of housing
as a result of the floods is set to be about
15,000 homes, valued at $4 billion over
the two years through June 2013 – a boost
to Australia’s total housing construction of
5% per annum. More specifically, this will
represent a 40% increase in the
Queensland market.
IBISWorld also expects approximately
$1 billion to $2 billion in additional
spending on commercial and institutional
premises over two years. The damage to
these buildings was partly contained by
greater use of concrete and steel, as
distinct from the timber and plasterboard
of most residential housing.
Insurance
In Australia, general insurers underwrite
insurance policies to protect individuals
and businesses from losses to property,
houses and cars due to an insured event
(e.g. flood). The number of claims
customers make and the claims’ total
dollar value can be quite volatile from year
to year, as these figures depend on the
frequency and severity of catastrophes.
Because some natural disasters are
more likely to occur within certain
geographic regions of Australia,
insurance underwriters use reinsurers as
a means of spreading that risk. This is
done to minimise insurers’ total
exposure if the insured event occurs, by
passing the risk on to reinsurers that do
not have exposure to such risks in their
portfolio. Thus, to cap their liability,
Australian insurers have ceded a large
part of the flood insurance cover to
major global reinsurers such as Swiss
Re, Munich Re, General Re and Lloyd’s
of London.
Reflecting this, the major providers of
insurance to Queensland flood victims –
Suncorp and IAG – have much of their
exposure reinsured. This is because
floods are a frequently recurring event in
Queensland during this time of year,
which insurers have adequately shielded
themselves against by capping their
liability. In addition to this, more than
half of the riskiest customers residing in
Queensland have been denied flood
insurance coverage because they live in
areas that are considered to be too risky
for insurers to cover for this type of
event. Thus, many people who were
affected by the floods will have no
insurance policy in place.
As far as coverage is concerned,
Suncorp estimates that the cost to them
from benefits paid out to customers
claiming for damages as a result of the
latest flooding in south-east Queensland
will be limited to $70 million to $90
million. The company estimates that its
payouts from December’s inland
flooding will total between $130 million
and $150 million. IAG has estimated
exposure of $10 million to $30 million
www.ibisworld.com.AU Special Report January 2011   7
Queensland floods: The economic impact
for December’s inland flooding. The
company has yet to put a number on the
latest south-east Queensland floods, but
they have stated that their exposure is
limited to $150 million, with claims
beyond that covered by reinsurance. All
up, IBISWorld expects general insurers
to pay out about $500 million in claims
related to the floods. General insurers
are, however, likely to face higher
reinsurance costs as a result of their
bloated claims this year, cutting into
their bottom lines.
Transport
The transport sector is likely to lose
$467.4 million in January 2011, due to
the floods. This could more than double,
depending on the extent of the damage
and how long it takes to get back to
normal production levels in both the
agriculture and mining sectors.
Queensland’s middle coast region is a
major supplier of coal; in particular the
state provides 60% of global coking coal
exports. The majority of this coal is
exported through the Port of Gladstone
and the Dalrymple Bay Coal Terminal,
near Mackay, QLD. The Port of
Gladstone is one of Australia’s largest
ports, with Gladstone Ports Corporation
having earned $337.9 million in 2009-
10. Although the Port of Gladstone
remains open, it is operating well below
capacity as it is rapidly depleting its
stockpile of coal. Dalrymple Bay Coal
Terminal is also operating with the
Goonyella rail network supplying coal
but at only 70% of capacity.
The second largest port in Queensland
is the Port of Brisbane container
throughput, now representing over 19%
of the east coast container market. The
extremely high water in the Brisbane
River has resulted in the port being
closed, which is likely to lead to a
shortage of consumer goods. The Caltex
refinery in Brisbane has been closed for
a week due to the rains and will not
return to full capacity until the port
reopens. If fuel needs to be transported
overland for other capital cities,
Australia’s fuel prices are likely to rise.
Nearly 10% of the world’s coal-
carrying ships serve the Queensland coal
industry, and the delay in reloading and
the potential of port shutdowns will have
a major impact on shipping companies.
Currently, more than 100 ships are
waiting to be loaded with coal, with port
operators forecasting a turnaround of 22
days. As a result of so many ships lying
idle, shipping rates have fallen
dramatically to just $10,000 per day –
the lowest level since February 2009,
and well below October’s recent high of
$46,284 per day.
Rail operators are also being heavily
affected by the floods. The recently
floated QR National is the worst-affected
railway, with several lines closed or
under water. The Blackwater network
was flooded, and lines in Toowoomba
and the Lockyer Valley are also closed.
Damage and a derailment on the Moura
coal line resulted in the line’s closure
until 13 January. It is unclear how much
damage has been caused to tracks, but
the repair bill could be over $ 1 billion.
The highways have also been blocked
or washed away by the rising water. The
Queensland trucking industry was worth
$7.0 billion, with $213.6 million being
lost due to the floods. Goods that would
normally be trucked in to Rockhampton
are being barged down the coast from
Mackay. Despite the floods, annual
Insurance claims
Year
Payouts
($ billion)
Growth
(%)
2009-10 24.78 N/A
2010-11 25.10 1.3%
2011-12 24.83 -1.1%
Transport revenue losses, 2010-11
Industry or sector
Lost revenue
($ million)
Overall transport sector 467.4
Road 213.6
Rail 26.0
Ports 37.4
International shipping 5.0
www.ibisworld.com.AU Special Report January 2011   8
Queensland floods: The economic impact
revenue for the industry is expected to
increase, as tonnes of materials needed
for reconstruction will be transported
across the state.
Tourism
The floods represent a major additional
piece of bad news for the tourism
industry, which is already struggling
due to the strong Australian dollar.
With footage of Queensland under
water being beamed to viewers around
the world, tourism agents and
operators have experienced an instant
spate of cancellations. The recent
heavy rain has not caused major
flooding in northern Queensland, but
the run-off of large volumes of fresh
water and sediment onto the Great
Barrier Reef is a threat to the health of
the coral and the clarity of the water
for scuba diving tours.
IBISWorld estimates that revenue for
the tourism industry in 2010-11 was to
have been $84.20 billion, with the floods
likely to cut this by 0.7%, or $590
million, to $83.61 billion. While
cancellations are already coming in from
international visitors, the domestic
tourism industry will be less affected.
Queensland accounts for about a quarter
of Australia’s total visitor nights, but any
visitors lost to the flood-affected areas in
the short term are likely to holiday
elsewhere in Australia, which is
effectively neutral for the national figure.
While tourism infrastructure in key
tourism areas of Queensland, such as
Cairns, the Whitsundays, and the Gold
Coast, has been largely unaffected, there
exists a public relations challenge for
tourism boards and individual operators
to communicate that they’re still
open  for business and are safe to visit.
While some tourists will visit flood-
affected areas in the coming months,
as  a gesture of solidarity to beleaguered
local  operators, the big picture remains
that  the tourism industry will lose a
lot  more than it will gain from this
natural disaster.
It is expected that the industry will
rebound in 2011-12, as stories of the
flooding fade in the minds of prospective
visitors, and as the clean-up effort
restores much of the flood-affected area
to its previous condition. The impact of
Oprah Winfrey’s visit to Australia, and
subsequent broadcasts across the world,
is very timely for the Australian tourism
industry, enabling footage of Australia at
its best to also be seen on the television
screens of foreigners who have
witnessed reports of the flood.
Total tourist nights (domestic and international visitors)
32%NSW
2%
TAS
25%
QLD
2%
ACT
2%
NT
20%
VIC
11%
WA
6%
SA
SOURCE: WWW.IBISWORLD.COM.AU
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QLD_floods_special_report

  • 1. Queensland floods: The economic impact Special Report January 2011 www.ibisworld.com.au | (03) 9655 3881 | info@ibisworld.com The floods in Queensland and the rest of Australia have besieged an area larger than France and Germany combined. The floods will have a significant impact on the Australian economy, in addition to world commodity and agriculture prices. No longer the poor cousin of the more prosperous southern states, Queensland accounts for approximately 20% of the Australian economy, 60% of global coking coal exports and 28% of Australia’s fruit and vegetable production. As a result of the floods, IBISWorld has downgraded its GDP forecast for 2010-11 from 2.9% to 2.6%. The floods are expected to have a negative short-term effect on economic growth. IBISWorld estimates that the floods will subtract 0.6 percentage points from our previous GDP forecast for the third quarter of 2010-11 (which ends March 31). IBISWorld estimates that the floods resulted in $2 billion in lost coking coal production. However, spot prices are rising for coking coal and are expected to reach US$350 to US$400 per tonne, which is likely to result in contract prices averaging US$300 in March. This rise should partially compensate miners for lost production. Agriculture will also be hit hard, with an estimated $1.6 billion worth of crops having been destroyed. Sugarcane, cotton, some vegetables and grains have suffered major losses. This is expected to flow on to a short-term price spike for food, with prices expected to rise by up to 200%. The lost wheat production is expected to exacerbate existing global wheat shortages, caused by poor production worldwide, particularly in the US and Russia. This is likely to cause a further increase in global wheat prices. There was significant damage to infrastructure across Queensland, and an estimated 18,000 residential and commercial properties were significantly affected in Brisbane and Ipswich. Lost productivity was also significant, as Brisbane’s CBD closed and work halted on commercial projects. In addition, tourism slowed as domestic and international visitors cancelled or changed trips. From April 2011 onward, the floods will provide a boost to economic growth through rebuilding, which is expected to last until 2012-13 and total $10 billion. The construction sector will boom as damaged infrastructure and property is repaired, including roads, rail, bridges, ferries, houses, businesses, energy and sewerage networks. Retail stores will experience increased demand as durable Queensland’s share ...of Australia’s economy 20% GDP rise in 2010-11 2.6% Unemployment in June 2011 4.7% Reconstruction cost $10bn ...of Australia’s fruit and vegetable production 28% Forecasts for Australia ...of global coking coal exports 60% IBISWorld has downgraded its GDP forecast for 2010-11 from 2.9% to 2.6%
  • 2. www.ibisworld.com.AU Special Report January 2011   2 Queensland floods: The economic impact From April onward, the floods will provide a boost to economic growth through rebuilding, which is expected to last until 2012-13 goods damaged in the floods are replaced. Agriculture is also expected to benefit in the long run from increased soil moisture. All levels of government have pledged support for the recovery. The Federal Government has begun distributing emergency assistance grants of up to $1,000 per person, which should begin to have an immediate stimulatory effect. The Federal Government is responsible for funding 75% of repairs and rebuilding. However, the Federal Government has maintained its pledge to return the budget to surplus by 2012-13, which means that other budget savings must be found. Queensland Government will be responsible for 25% of rebuilding. This will place pressure on the state’s budget, as revenue decreases through March, due to lost production. The recent $14 billion in asset sales will help to alleviate some pressure and Standard Poor’s indicated at the beginning of the flooding that the state government’s credit rating is not likely to be affected. The floods are also likely to result in upward pressure on inflation and interest rates. Rising food prices are forecast to add up to 0.8 percentage points to the Consumer Price Index, which would fuel inflation higher than the 2% to 3% target range in the short term. However, the Reserve Bank of Australia is unlikely to increase interest rates on this basis unless higher food prices are sustained. A greater inflationary risk in the medium term is the reconstruction. Unemployment fell to 5% in December 2010, which is generally the point where further falls in unemployment will generate accelerating wage inflation. IBISWorld forecasts that unemployment will fall to 4.7% by the end of 2010-11 and 4.5% by the end of 2011-12. The reconstruction is expected to exacerbate already strong demand for construction workers and engineers, generated by an intensifying mining investment boom. With limited spare capacity in the economy, the rebuilding is expected to further accelerate wages growth leading to wider inflationary pressures and, consequently, upward pressure on interest rates. Some offsetting Revenue by sector 2009-10 2010-11 2011-12 Construction Revenue ($ billion) 273.54 295.00 311.00 Growth (%) 2.1 7.8 5.4 Tourism Revenue ($ billion) 82.31 83.61 85.72 Growth (%) -1.1 1.6 2.5 Transport Revenue ($ billion) 117.25 116.38 121.64 Growth (%) 0.5 -0.7 4.5 Mining Revenue ($ billion) 148.7 186.1 193.2 Growth (%) -15.0 25.2 3.8 Agriculture Revenue ($ billion) 51.69 53.33 52.62 Growth (%) -0.9 3.2 -1.6
  • 3. www.ibisworld.com.AU Special Report January 2011   3 Queensland floods: The economic impact The floods are expected to strip $2.5 billion from the earnings of the Australian mining sector in 2010-11 downward pressure on interest rates is expected due to the strong Australian dollar and interest rate rises in 2010, which are likely to subdue the retail, manufacturing and tourism sectors. IBISWorld expects the cash rate to finish the 2011 calendar year at 5.5%. Mining The Queensland floods are expected to take a heavy toll on the mining sector, with sector revenue forecast to be $2.5 billion weaker as a result. The floods have severely affected the coal mining industry, with most major miners in the affected area declaring full or partial force majeure on coal contracts, as the weather forced them to halt production and disrupted vital rail and port infrastructure. This has forced ports to run down coal stockpiles, creating an export shortfall of over 1 million tonnes per week. More than 15 million tonnes of coal that would otherwise have shipped have been lost since the floods began in December. IBISWorld expects lost coal shipments to total $2 billion by the end of 2010-11. With Queensland supplying about 60% of the world’s coking coal exports, the floods are expected to propel coking coal spot prices to US$350 to US$400 per tonne, levels not seen since before the financial crisis. Thermal coal prices have also risen sharply since the onset of the floods and are expected to test their 2008 highs. In addition to the US-based companies that are scrambling to fill the shortfall in global coal markets, this shortage should benefit NSW-based coal producers like Gloucester Coal and Coal Allied. The industry could take months to recover from the deluge, with production unable to restart until flood waters are drained from mine pits and roads; damage to infrastructure is repaired; and rail and port access points are restored. Miners are also expected to be hampered by environmental regulations on water discharges from mine pits and legal issues arising from declaring force majeure on contracts and failing to adhere to strict health and safety standards. In addition to the coal industry, the floods have also affected the Mining Services industry. Mine closures, production halts and disruptions to roads and railways are expected to flow through to mining contractors like Leighton Holdings, Downer EDI and Macmahon Holdings, threatening hundreds of millions of dollars in revenue. The floods have affected the Oil and Gas Production industry, with coal seam gas drilling halted in the Surat basin. They have also affected other mining industries in the state, with some aluminium and bauxite mines being forced to halt production. With the floods expected to strip $2.5 billion from the earnings of the Australian mining sector this financial year, IBISWorld estimates the sector will generate $186.1 billion in 2010-11. Agriculture The recent heavy rainfall and flooding in Queensland will devastate the Australian agriculture sector this year, causing losses of up to $1.6 billion. The recent deluge has caused widespread damage across many agriculture industries including food, crops and livestock. Major problems for these sectors include crop loss, rain damage, waterlogging, quality downgrades, delays or disruptions to harvests, and transport problems due to flooded fields, roads and damaged infrastructure. IBISWorld expects the worst affected sectors within Australian agriculture to include the following. Fruit and vegetables The Queensland horticulture industry is a crucial link in Australia’s food chain. Queensland supplies 28% of Australia’s fruit and vegetables, making it the leading producer of fresh produce in the country. The recent flooding threatens to reduce Australia’s supply of fresh fruit and vegetables, given that 14% of the nation’s produce is sourced from many flood- affected areas. It is believed that the flooding and consistent rainfall across Queensland’s food-producing regions has resulted in widespread loss, damage and disrupted
  • 4. www.ibisworld.com.AU Special Report January 2011   4 Queensland floods: The economic impact harvests for fruit and vegetables like pumpkins, tomatoes, capsicum, celery, avocados, lettuce, zucchini, broccoli, certain types of potatoes, mangos bananas, melons, tropical fruit, grapes and seedless watermelon. All these factors combined suggest that industry revenue for Australia’s fruit and vegetable growers is likely to decline by 10% overall for 2010- 11, representing a combined loss of approximately $561 million. Cotton With Queensland accounting for nearly half of Australia’s cotton production, Australia stands to lose a considerable portion of the national harvest this year due to the devastating floods. IBISWorld forecasts losses ranging between 300,000 and 500,000 bales, which means an overall decline for Australia’s entire cotton crop for 2010-11 is likely to be damaged or written off due to flooding. As a leading cotton exporter, the expected fall in Australia’s cotton crop has deepened concern over tightening cotton supplies on the world market. In turn, this has caused further spikes in global cotton prices, which soared in 2010 as global production fell due to adverse weather across the US and China, and flooding in Pakistan. As such, IBISWorld is expecting a 17% contraction for Australia’s cotton industry with revenue likely to fall by over $200 million. On a positive note, improved production across New South Wales is likely to help compensate for the drop in Queensland cotton production. Moreover, cotton growers are expected to benefit from greater water availability in the short term, with the recent replenishment of irrigation dams and improved soil moisture content. Sugar Australia is a leading exporter of sugar on the global market, and Queensland sugarcane growers produce 95% of the country’s annual sugar crop. This is one of the worst affected agriculture industries, and IBISWorld expects a 27% decline in revenue for sugarcane farmers. Sugarcane fields are now waterlogged in some areas, thereby preventing this year’s sugarcane harvest for many growers. As a result of these declines, leading exporter Queensland Sugar Limited has already started purchasing sugar from Brazil and Thailand to supplement the fall in Australian production. This also means that many Australian growers have not been able to capitalise on rising sugar prices that recently hit a 30-year high. Looking ahead, it is likely that rain damage to many fields will also destroy a considerable portion of Australia’s crop in 2011-12. Grains IBISWorld research indicates that the impact of the Queensland floods is likely to reach $400 million for the grain industry. This will have a limited effect on industry revenue as a whole, given that the Queensland grain crop accounts for only 10% of national grain production in Australia. According to Queensland’s peak Agricultural revenue losses, 2010-11 Industry Lost revenue ($ million) 2010-11 (% change) 2011-12 (% change) Vegetable Growing 271.6 -8.3% -2.0% Citrus, Banana and Other Fruit Growing 289.7 -11.8% -1.0% Grain Growing 400.0 -4.8% -1.0% Sugarcane Growing 400.0 -26.6% -4.9% Cotton Growing 257.0 -17.1% -10.0%
  • 5. www.ibisworld.com.AU Special Report January 2011   5 Queensland floods: The economic impact agricultural body AgForce, the recent deluge has hit all of Queensland’s broadacre crop-growing areas with some parts of southern Queensland virtually written off before harvest. Analysts are expecting grain losses of up to 500,000 tonnes, including wheat, barley and sorghum. The biggest problem for grain agriculture exporters has been shipment delays due to the closure of critical ports, such as those in Brisbane, due to flood risk and damage. This means grain farmers fortunate enough to complete their harvest before the worst of the recent deluge are currently unable to capitalise on the current spike in global grain prices. On the bright side, there is a possibility that farmers may be able to re-plant crops if weather conditions improve, thus recouping some of their current losses. Livestock IBISWorld expects a mixed impact on the meat and livestock sector, with some farmers managing to move livestock from flood-affected areas before flooding. However, the true extent of the effect is yet to be felt, with farmers likely to return to farms over the next week. Moreover, news reports do confirm some livestock being washed away and some being isolated as a result of the floods. Finally, transporting livestock to slaughter houses seems to be the most imminent problem for farmers, given flooded roads and damage to transport infrastructure. IBISWorld expects that this will put further strain on the supply of livestock for slaughter given that farmers across the country are currently restocking herds, thanks to improved rainfall and weather conditions in 2010. Thus, lower slaughter figures due to transport problems in flood-affected areas could ultimately flow on to higher meat prices later this year. Construction The urgency of rebuilding a sodden Queensland, coupled with the willingness of Federal and state governments to offer any assistance necessary, indicates that despite a brief lapse in activity in Brisbane and southern Queensland, the construction sector is likely to experience a mini boom as a result of the recent floods. Construction will be temporarily halted in much of the state (and some other flood-affected regions of Australia) as roads become impassable and as construction equipment gets bogged down in saturated earth. Work has stopped on an estimated $5 billion worth of contracts, but much of this will resume once the water has cleared. In fact, in these regions construction tends to be muted as a result of ordinary rains in January and February. The long-term implications are less severe. The cost of replacing destroyed infrastructure, restoring power lines, rebuilding roads and bridges, and reinforcing buildings whose foundations were weakened by prolonged submersion will lead to an expected $10 billion boost in construction spending over the coming 30 months. Construction revenue Year Original forecast ($ billion) Revised forecast ($ billion) Annualised change (%) 2010-11 293.78 295.00 3.6 2011-12 306.71 311.00 5.4 2012-13 319.28 325.00 4.5 2013-14 330.68 330.68 1.7 2014-15 343.25 343.25 3.8 2015-16 357.49 357.49 4.2 2016-17 371.44 371.44 3.9
  • 6. www.ibisworld.com.AU Special Report January 2011   6 Queensland floods: The economic impact About 15,000 properties have been affected by significant flooding, with 5,000 businesses affected. In Ipswich a further 3,000 homes and businesses have been flooded. The Local Government Association of Queensland estimates that 70,000 to 90,000 km of council roads have been damaged (councils are responsible for 80% of roads). There has also been flood damage to rail lines and public transport – the extent of which is not yet known. Estimates currently indicate that QR National will miss its original profit target by $80 million due to damage and the shutdown of coal mines. There has also been significant damage to the Queensland sewer system. Initial work will involve the clean-up and demolition of existing buildings and infrastructure. This is set to be completed in the first half of 2011. Likewise, activity will begin immediately on the reconnection of utilities, notably electrical, gas and water infrastructure. Meanwhile, small-scale repair and maintenance to existing transport infrastructure (roads, bridges, ports, rail) will be completed by the end of September. Road works in particular are a priority and will comprise the bulk of construction spending. Many roads, having been submerged for days, cannot be merely re-laid, but must be torn up and rebuilt at significant extra cost. Because demolition work must be completed before rebuilding can commence, this will be delayed compared with smaller-scale road repairs. The housing sector is also primed to benefit. Total new construction of housing as a result of the floods is set to be about 15,000 homes, valued at $4 billion over the two years through June 2013 – a boost to Australia’s total housing construction of 5% per annum. More specifically, this will represent a 40% increase in the Queensland market. IBISWorld also expects approximately $1 billion to $2 billion in additional spending on commercial and institutional premises over two years. The damage to these buildings was partly contained by greater use of concrete and steel, as distinct from the timber and plasterboard of most residential housing. Insurance In Australia, general insurers underwrite insurance policies to protect individuals and businesses from losses to property, houses and cars due to an insured event (e.g. flood). The number of claims customers make and the claims’ total dollar value can be quite volatile from year to year, as these figures depend on the frequency and severity of catastrophes. Because some natural disasters are more likely to occur within certain geographic regions of Australia, insurance underwriters use reinsurers as a means of spreading that risk. This is done to minimise insurers’ total exposure if the insured event occurs, by passing the risk on to reinsurers that do not have exposure to such risks in their portfolio. Thus, to cap their liability, Australian insurers have ceded a large part of the flood insurance cover to major global reinsurers such as Swiss Re, Munich Re, General Re and Lloyd’s of London. Reflecting this, the major providers of insurance to Queensland flood victims – Suncorp and IAG – have much of their exposure reinsured. This is because floods are a frequently recurring event in Queensland during this time of year, which insurers have adequately shielded themselves against by capping their liability. In addition to this, more than half of the riskiest customers residing in Queensland have been denied flood insurance coverage because they live in areas that are considered to be too risky for insurers to cover for this type of event. Thus, many people who were affected by the floods will have no insurance policy in place. As far as coverage is concerned, Suncorp estimates that the cost to them from benefits paid out to customers claiming for damages as a result of the latest flooding in south-east Queensland will be limited to $70 million to $90 million. The company estimates that its payouts from December’s inland flooding will total between $130 million and $150 million. IAG has estimated exposure of $10 million to $30 million
  • 7. www.ibisworld.com.AU Special Report January 2011   7 Queensland floods: The economic impact for December’s inland flooding. The company has yet to put a number on the latest south-east Queensland floods, but they have stated that their exposure is limited to $150 million, with claims beyond that covered by reinsurance. All up, IBISWorld expects general insurers to pay out about $500 million in claims related to the floods. General insurers are, however, likely to face higher reinsurance costs as a result of their bloated claims this year, cutting into their bottom lines. Transport The transport sector is likely to lose $467.4 million in January 2011, due to the floods. This could more than double, depending on the extent of the damage and how long it takes to get back to normal production levels in both the agriculture and mining sectors. Queensland’s middle coast region is a major supplier of coal; in particular the state provides 60% of global coking coal exports. The majority of this coal is exported through the Port of Gladstone and the Dalrymple Bay Coal Terminal, near Mackay, QLD. The Port of Gladstone is one of Australia’s largest ports, with Gladstone Ports Corporation having earned $337.9 million in 2009- 10. Although the Port of Gladstone remains open, it is operating well below capacity as it is rapidly depleting its stockpile of coal. Dalrymple Bay Coal Terminal is also operating with the Goonyella rail network supplying coal but at only 70% of capacity. The second largest port in Queensland is the Port of Brisbane container throughput, now representing over 19% of the east coast container market. The extremely high water in the Brisbane River has resulted in the port being closed, which is likely to lead to a shortage of consumer goods. The Caltex refinery in Brisbane has been closed for a week due to the rains and will not return to full capacity until the port reopens. If fuel needs to be transported overland for other capital cities, Australia’s fuel prices are likely to rise. Nearly 10% of the world’s coal- carrying ships serve the Queensland coal industry, and the delay in reloading and the potential of port shutdowns will have a major impact on shipping companies. Currently, more than 100 ships are waiting to be loaded with coal, with port operators forecasting a turnaround of 22 days. As a result of so many ships lying idle, shipping rates have fallen dramatically to just $10,000 per day – the lowest level since February 2009, and well below October’s recent high of $46,284 per day. Rail operators are also being heavily affected by the floods. The recently floated QR National is the worst-affected railway, with several lines closed or under water. The Blackwater network was flooded, and lines in Toowoomba and the Lockyer Valley are also closed. Damage and a derailment on the Moura coal line resulted in the line’s closure until 13 January. It is unclear how much damage has been caused to tracks, but the repair bill could be over $ 1 billion. The highways have also been blocked or washed away by the rising water. The Queensland trucking industry was worth $7.0 billion, with $213.6 million being lost due to the floods. Goods that would normally be trucked in to Rockhampton are being barged down the coast from Mackay. Despite the floods, annual Insurance claims Year Payouts ($ billion) Growth (%) 2009-10 24.78 N/A 2010-11 25.10 1.3% 2011-12 24.83 -1.1% Transport revenue losses, 2010-11 Industry or sector Lost revenue ($ million) Overall transport sector 467.4 Road 213.6 Rail 26.0 Ports 37.4 International shipping 5.0
  • 8. www.ibisworld.com.AU Special Report January 2011   8 Queensland floods: The economic impact revenue for the industry is expected to increase, as tonnes of materials needed for reconstruction will be transported across the state. Tourism The floods represent a major additional piece of bad news for the tourism industry, which is already struggling due to the strong Australian dollar. With footage of Queensland under water being beamed to viewers around the world, tourism agents and operators have experienced an instant spate of cancellations. The recent heavy rain has not caused major flooding in northern Queensland, but the run-off of large volumes of fresh water and sediment onto the Great Barrier Reef is a threat to the health of the coral and the clarity of the water for scuba diving tours. IBISWorld estimates that revenue for the tourism industry in 2010-11 was to have been $84.20 billion, with the floods likely to cut this by 0.7%, or $590 million, to $83.61 billion. While cancellations are already coming in from international visitors, the domestic tourism industry will be less affected. Queensland accounts for about a quarter of Australia’s total visitor nights, but any visitors lost to the flood-affected areas in the short term are likely to holiday elsewhere in Australia, which is effectively neutral for the national figure. While tourism infrastructure in key tourism areas of Queensland, such as Cairns, the Whitsundays, and the Gold Coast, has been largely unaffected, there exists a public relations challenge for tourism boards and individual operators to communicate that they’re still open  for business and are safe to visit. While some tourists will visit flood- affected areas in the coming months, as  a gesture of solidarity to beleaguered local  operators, the big picture remains that  the tourism industry will lose a lot  more than it will gain from this natural disaster. It is expected that the industry will rebound in 2011-12, as stories of the flooding fade in the minds of prospective visitors, and as the clean-up effort restores much of the flood-affected area to its previous condition. The impact of Oprah Winfrey’s visit to Australia, and subsequent broadcasts across the world, is very timely for the Australian tourism industry, enabling footage of Australia at its best to also be seen on the television screens of foreigners who have witnessed reports of the flood. Total tourist nights (domestic and international visitors) 32%NSW 2% TAS 25% QLD 2% ACT 2% NT 20% VIC 11% WA 6% SA SOURCE: WWW.IBISWORLD.COM.AU Subscribe and become an industry expert Subscription packages can be tailored to meet your individual or company’s needs. Benefits of subscription include substantial discounts on report prices, exclusive data access and rates on customised research to help you move quicker than the competition. Including key statistics, analysis, historical data and future forecasts, IBISWorld Industry Reports provide the information you need to make sound business decisions – now and into the future. For more information, please call us today on: (03) 9655 3881
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