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The answer to this can be found roughly halfway through Chapter 15, pages 308-9 in my copy of the book.
Diamond argues that there are three reasons why food production was very difficult in Australia. The first of these reasons was the lack of native mammals that could be domesticated. Australia lacked these because it had been cut off from the rest of the world and had only developed marsupials, most of which were killed off when humans came to Australia.
The second reason is that Australia has infertile soils and bad climate. Diamond says that the El Nino weather patterns make farming in Australia very difficult even now.
Finally, Diamond argues that there were very few domesticable plants in Australia. The only one that modern agriculture has been able to use is the macadamia nut. Only two of the top 56 wild grass species in the world are from Australia.
These three factors combined to mean that food production would be very difficult to accomplish in Australia. Therefore, Australian humans remained as hunter-gatherers.
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