How drought in Central America is pushing up the cost of living in Australia
What does a drought in Central America have to do with Australia’s cost of living?
- What does a drought in Central America have to do with Australia’s cost of living?
- Quite a lot, if the drought affects the Panama Canal.
- The 425 square kilometre Gatun Lake was built in the early 1900s to store water for the Panama Canal.
The impact of delays
- We see it in the prices we now pay for the goods we buy.
- Supply chain disruptions are only one of the many reasons why the cost of living is going up.
- My own report last year on food supply chains warned about the impact of global warming and the likelihood that disruptions in supply chains would lead to increased food prices.
What has the Panama Canal got to do with Australia?
- You may wonder how something as far away as the Panama Canal can affect Australian retail costs.
- The answer is that today’s supply chains are global and interconnected.
- A 2021 study by the Productivity Commission on supply chains noted they are complex.
- It said
modern supply chains often rely on inputs from across the globe and can consist of thousands of firms.
Shortages are reflected in prices
- Each firm’s shortages or surpluses have an impact on prices.
- If those suppliers sell to Australia, we end up paying higher prices too.
- Given extreme weather is becoming more common, and affecting our cost of living, what should be our response?
A proposed course of action
- Most important of course is to reduce our contribution to global heating.
- If governments do not meet their targets for emissions reduction the problems and costs will multiply.
- This would mean having more suppliers, all using different chains, so that if one fails, we have other options.