Govt warns drought may force supermarket food price hike

The Federal Agriculture Minister, Warren Truss, is warning supermarket prices may go up because of the affect of drought on farm production.

The Australian Bureau of Agricultural and Resource Economics' (ABARE) quarterly commodity report predicts farm production will fall by 16 per cent this financial year because of the drought.

That will wipe $4 billion from the economy, slowing the rate of economic growth by 0.5 per cent.

Mr Truss says the prices of some grocery items may go up but there will not be food shortages.

"Things would have to deteriorate to a much greater extent than they are now before there would be empty shelves on our supermarkets," Mr Truss said.

The ABARE report shows the value of commodity exports will remain steady at $90 billion, with gains in the resource sector offsetting falls in farm exports.

ABARE expects the drought will have a significant impact on the agricultural sector and economic growth.

The quarterly ABARE report into Australia's commodities says the drought will have a major effect on the gross value of farm production, forecast to fall by 16 per cent to $32.2 billion in this financial year.

Farm exports are also expected to decline by 7.4 per cent to $28.7 billion.

The drought is also predicted to have an impact on the wider economy, cutting the rate of economic growth in Australia by half a percentage point or $3.8 billion.

Despite the adverse effects of the drought, the value of Australia's commodity exports is expected to remain around $90 billion due to gains in the resources sector.