introduction

While there is still much uncertainty surrounding the potential magnitude and likely impacts of climate change, there is consensus in the global scientific community that some climate change is already occurring and that further change is inevitable. Climate change is evident in both a change in average temperature and rainfall, as well as changes in the frequency and severity of extreme weather events, such as frosts, heat waves, droughts and floods (IPCC 2001). It is considered likely that continued greenhouse gas emissions at or above current rates will result in further global warming in this century. Moreover, even if the atmospheric concentrations of all greenhouse gases and aerosols are stabilised at 2000 levels, global temperatures are projected to continue rising (IPCC 2007).

While measures to reduce the growth of greenhouse gas emissions are an important response to the threat of climate change, adaptation to climate change will also form a necessary part of the response. In this context, adaptation refers to strategies that act to reduce the adverse impacts of climate change. Developing adaptation strategies is therefore an important part of ensuring that countries are well prepared to deal with any negative impacts that may occur as a result of climate change.

Adaptation to climate variability has been an ongoing necessity for the agricultural sector, particularly in countries such as Australia where extreme climatic conditions are common. Existing strategies to manage climate variability present opportunities for meeting the challenges of future climate change. The objective in this paper is to examine the possible impacts of climate change on Australia’s agricultural industries, including at a regional level, and to explore the potential role of adaptation in reducing some of the economic costs of these impacts.

impacts of climate change on agriculture
Despite rising confidence about the causes of climate change and the likelihood that climate change will occur, considerable uncertainty remains over its magnitude and its potential impacts. Estimates of the increase in potential global average temperatures range from 1.1°C to 6.4°C by 2100 (IPCC 2007). In addition, the range of projections reported in IPCC (2007) illustrates a considerable lack of agreement on the climate change impacts on many regions.

In the case of Australia, Whetton et al. (2005) suggest that regional changes in rainfall are highly uncertain. For example, projected changes in rainfall in the Northern Territory range between –40 and +40 per cent of current average levels, depending on the climate models used and the greenhouse gas emission scenarios explored. Nevertheless, there is growing consensus among climate scientists that the southern half of Australia is likely to become drier under the influence of higher global temperatures, and in parts of northern Australia wetter.

In practice, the impacts of climate change are likely to be widespread, affecting social, economic and biophysical systems. Potential impacts include the consequences of rising sea levels; effects on human health as a result of the increased incidence of tropical diseases; and changes in agricultural productivity. Stern (2006) estimated the cost of future climate change related damage, without adaptation, at between 5 and 20 per cent of global gross product, depending on the assumptions relating to the size of the temperature increase and the range of impacts that are included.

For agriculture, climate change is expected to affect productivity through increased average temperatures, changed rainfall patterns, increased levels of atmospheric carbon dioxide and increased climate variability. There may also be indirect effects through changes in the incidence of diseases and pests, and increased rates of soil erosion and degradation (Adams, Hurd and Reilly 1999).

The impact of changes in climate on agricultural productivity is likely to vary across agricultural industries. For example, crop production will be affected directly by changes in average rainfall and temperatures, and by possible changes in the distribution of rainfall during the year. The productivity of livestock industries will be affected by changes in the quantity and the quality of available pasture, as well as by the direct impacts of temperature changes and the increased likelihood of greater temperature extremes (Adams et al. 1999).

evidence on agricultural productivity changes
General circulation models — models of the global climate system — are used to predict future climate change and have, to date, focused on changes in temperature and average annual rainfall. The predicted impacts on these variables vary considerably depending on the choice of model and the projected greenhouse gas emissions scenario. In general, however, moderate increases in temperature are projected to lead to an increase in agricultural productivity in temperate regions, whereas in warmer regions, particularly those at lower latitudes, agricultural productivity is predicted to fall. Uncertainty surrounds the global aggregate impact on agricultural productivity, with estimates ranging from a small loss to a potential gain (Stern 2006). At the upper range of projected temperature increases (those above 3°C), agricultural productivity is expected to decline in all regions.

Studies of the projected changes in climate variability (that is, changes in the frequency and severity of extreme events) resulting from increased greenhouse gases in the atmosphere are less advanced than those of changes in average rainfall and temperature. Nevertheless, recent studies (for example, Tubeillo 2005) predict increased climate variability, including longer and more frequent droughts and heavy rainfall events. Such an outcome would be likely to increase the negative impacts of climate variability on agricultural production.

At the same time, experimental studies have shown that increased levels of carbon dioxide in the atmosphere may enhance the efficiency with which plants use water during photosynthesis (Steffen and Candadell 2005). Results have varied between crop types, and there is uncertainty about the degree to which experimental results will be validated in the field. However, several studies have shown that increased levels of carbon dioxide in the atmosphere, while beneficial to plants, will only partially offset the more negative impacts of climate change on agricultural productivity (see, for example, Adams et al. 1999; Stern 2006; Bindi and Howden 2004).

options for adaptation in agriculture
Adaptation to changes in climatic conditions, and particularly climate variability, has always been a feature of agricultural production, especially in Australia. Although the prospect of adapting to significant climate change is challenging, the historical precedent of managing significant climate variability provides a degree of confidence that further successful adaptation is possible (Kurukulasuriya and Rosenthal 2003).

Farm level strategies for adapting to climate change include, in the crop sector, diversification of crop varieties; species change; shifting planting seasons; changing crop management practices, such as spacing, tillage and rotation; nutrient, erosion and salinity management; moisture conservation; pest management; and taking advantage of seasonal forecasting for the crop sector (Howden et al. 2006). For livestock production, adaptation options include changing livestock breeds, managing pasture productivity and managing pests and disease.

Longer term adaptation strategies at the farm level include changing the enterprise mix, diversifying into off-farm employment, investing in nonfarm assets, and migrating to new industries and regions. Beyond the farm gate, potential strategies include the diversification of rural enterprises and research into new technologies (Ellis 2000; Nelson et al. 2005). Options available to irrigated agricultural industries also include improving water use efficiency and water trading (Beare and Heaney 2002).

The effectiveness and efficiency of adaptation strategies will vary across regions, agricultural activities, existing agricultural practices, as well as over time. Whether adaptation is effective or not can depend on perspective. Relocating agricultural production may be considered to be a successful form of adaptation at a national or international level, but as an unsuccessful strategy for rural communities that are highly dependent on agriculture for their livelihood.

regional impacts of climate change: an illustrative analysis
The potential impacts of climate change on the productivity of Australia’s agriculture sector will have direct effects on the size and profitability of farming, and indirect effects on the rest of the economy, particularly on regional communities that are heavily dependent on the agricultural sector for income and employment.
To illustrate the importance of the regional dimension to this issue, an assessment of the likely impacts of climate change has been undertaken in two case study regions: the northern and eastern Western Australian wheat belt; and the central western slopes and plains of New South Wales (map 1).

In the first region — the northern and eastern Western Australian wheat belt — the local economy is heavily dependent on agriculture, and the agriculture sector is concentrated on the production of two main commodities — wheat and wool. The region is expected to face relatively large changes in agricultural productivity as a result of climate change. It is representative of Australian farming regions that are potentially more exposed to negative climate change outcomes.

In the second region — the central western slopes and plains of New South Wales — agriculture is a less dominant component of the regional economy, and tourism, manufacturing and services industries make more significant contributions to regional economic output. Agricultural production in the region is more diverse than in the Western Australian region, and includes beef and barley production, as well as wheat, wool and sheep meat production. The region is representative of regions in Australia that have greater industry diversity and that are expected to face more moderate changes in productivity as a result of climate change.

In analysing the likely effects of climate change on the two case study regions, it is important to recognise the high degree of uncertainty surrounding regional differences in the direction and magnitude of climate change. To capture this uncertainty, the regional effects of climate change have been examined under two illustrative scenarios — a low rainfall scenario and a high rainfall scenario. Both illustrative scenarios are based on the midrange SRES A2 scenario that assumes that global temperatures will rise by approximately 3.3?C by 2100. The SRES scenarios were developed by the IPCC, and show projected greenhouse gas emissions growth under differing demographic and technological assumptions (Nakicenovic et al. 2000 ). More detail on the SRES A2 scenario can be found on the IPCC website (www.ipcc.ch/pub/sres-e.pdf).

The two scenarios are developed using two different climate models that calculate the impacts of the SRES A2 temperature change on rainfall and other climate variables. While the SRES A2 scenario projects temperature changes out to 2100, the analysis in this paper is limited to projected impacts over the period to 2030. By this time, the increase in temperature under the SRES A2 scenario is projected to be 0.9°C.
In the high rainfall scenario, which is based on projections from the Darlam125 model (Whetton et al. 2005), there is projected to be an increase in average rainfall for most regions of Australia. The exceptions are the southernmost area of the Australian continent and all of Tasmania. In contrast, in the low rainfall scenario, which is based on projections from the Hadcm3 model, it is projected that average rainfall will decline over large areas of Australia, including throughout the wheat–sheep zone (Whetton et al. 2005). The two illustrative scenarios are chosen to represent a wide range of possible climate change impacts on the Australian agricultural sector.

modelling the regional economic effects of climate change
The likely regional impacts of climate change on broadacre agriculture in Australia are estimated in a three step process:

» step 1 – the impact of projected climate change (that is, temperature and rainfall changes) on pasture growth is estimated using a point-scale version of the GRASP pasture production model (Littleboy and McKeon 1997). The pasture growth index generated by this model is a predictor of the dry matter pasture productivity of land in any given year, and encapsulates the effect of climate and soil type.

» step 2 – the forecast change in the pasture growth index as a result of climate change is used to derive an estimate of the corresponding change in total factor productivity for selected broadacre crop and livestock industries for all Australian states and territories and the targeted regions.

» step 3 – the changes in total factor productivity in the agriculture sector are used in ABARE’s AusRegion model to determine the impacts on key agricultural commodity outputs (wheat, beef, sheep meat and wool), as well as on gross regional product. These outputs are expressed as deviations from a reference case at 2030. The reference case represents growth in these variables in the absence of any climate change impacts. Detailed information on the AusRegion model is available from ABARE’s website (www.abareconomics.com).

impacts on pasture growth
The projected patterns of pasture growth across Australia under the two illustrative climate change scenarios are presented in map set 2. In the high rainfall scenario, pasture growth is projected to increase in most of Australia’s agricultural regions, as increases in rainfall and temperature relative to the historical average enhance conditions for plant growth. However in parts of southern Australia the projected changes in rainfall and temperature in this scenario lead to lower pasture growth.

In the low rainfall scenario, pasture growth is projected to decline across nearly all of the major crop growing regions of Australia. Parts of northern Australia are still projected to record increases in pasture growth under this scenario (relative to the reference case), although the size of the increases is small in absolute terms.

impacts on productivity
Assuming no policy driven or planned productivity improvements, the low rainfall scenario is estimated to result in a loss of agricultural productivity across much of southern Australia, particularly in the south west (map set 3). Productivity losses occur because crop yields decline in the face of lower rainfall, while livestock stocking rates decline as a result of reduced pasture availability. At the same time, an increase in agricultural productivity is projected in northern Australia where average rainfall under this scenario is higher relative to the reference case (that is, rainfall in northern Australia is generally higher under this scenario compared with the ‘no climate change’ scenario).

Under the high rainfall scenario (and in the absence of any policy driven or planned productivity improvements), the productivity of wheat and other crop production is projected to increase in all crop growing regions through the positive effect of higher rainfall on crop yields. The projected increases in crop productivity are proportionately higher in much of New South Wales, where the increases in rainfall under this scenario are projected to be higher than in most other regions. Higher rainfall is also expected to lead to higher pasture growth in most regions, leading to increased productivity in the beef and other livestock industries. The increase in livestock sector productivity under this scenario is projected to occur in all regions except the southern most parts of Western Australia, South Australia and Victoria and all of Tasmania.

In the two case study regions, the analysis suggests that broadacre agricultural productivity in the Western Australian region will be affected more significantly by climate change than the New South Wales region (table 1). For example, in the low rainfall scenario the productivity of wheat growing in the Western Australian region is estimated to be 7.3 per cent lower by 2030 compared with its level in the absence of climate change. In contrast, the corresponding decline in wheat growing productivity in the New South Wales region is 4.2 per cent.

1 projected change in total factor productivity at 2030 as a result of climate change change relative to the reference case
	low rainfall scenario		high rainfall scenario
	New South Wales	Western Australia	New South Wales	Western Australia
	%	%	%	%
wheat	–4.2	–7.3	2.7	2.8
beef	–1.7	na	1.1	na
sheep meat	–1.8	–6.1	1.2	2.3
wool	–2.2	–3.5	1.4	1.3
na Not applicable.

In both regions, however, the absolute magnitude of the impact of climate change on farm productivity, in the absence of any climate change (adaptation) response policy, is projected to be greater on crop industries than on livestock industries. This is because changes in rainfall resulting from climate change are estimated to have a proportionately greater impact on crop yields than they have on livestock production.

regional economic impacts
Assuming that other factors remain unchanged, a loss (or gain) in broadacre agricultural productivity as a result of climate change will lead to a rise (reduction) in agricultural production costs, leading to a loss (gain) in competitiveness and, hence, output. As discussed earlier, climate change is likely to result in productivity changes across different agricultural activities to varying degrees. The associated output effects on key agricultural commodities for each of the case study regions under the low and high rainfall scenarios are presented in table 2, based on analysis using ABARE’s AusRegion model. The output impacts are in line with the productivity impacts discussed earlier (table 1). For example, the modelling results show that wheat production in the Western Australian region will be the most affected, falling under the low rainfall scenario by more than 13 per cent relative to the reference case at 2030 and increasing under the high rainfall scenario by more than 4 per cent relative to the reference case at 2030 (table 2).

The analysis undertaken here indicates that the impacts of climate change on gross regional product in the Western Australian region are greater than in the New South Wales region (table 2). This reflects not only the extent of climate change impacts on particular agricultural activities in the region but also the relative size and structure of agriculture in the Western Australian region. As discussed earlier, agriculture in the Western Australian regional economy is more important and less diversified than in the New South Wales regional economy. At 2030, it is projected that agriculture will account for about 50 per cent of the Western Australian regional economy, compared with about 25 per cent in the New South Wales regional economy. In the same year, the share of wheat in the total value of agricultural production is projected to be more than 50 per cent in the Western Australian region compared with about 30 per cent in the New South Wales region.

2 regional economic impacts at 2030 change relative to the reference case
	low rainfall scenario		high rainfall scenario
	New South Wales	Western Australia	New South Wales	Western Australia
	%	%	%	%
gross regional product	–1.1	–6.5	0.6	2.2
wheat production	–6.8	–13.4	4.4	4.5
beef production	–0.9	na	0.9	na
wool and sheep
meat production	–2.1	–5.2	1.1	1.5
na Not applicable.

Under the high rainfall scenario, where average broadacre farm productivity in the region is expected to increase as a result of climate change, the Western Australian region is projected to be better off, with gross regional product increasing by 2.2 per cent relative to the reference case at 2030. Under the low rainfall scenario, the adverse impacts of a hotter and drier climate are likely to be significantly greater in the Western Australian region than in the New South Wales region. Gross regional product in the Western Australian region is projected to fall by 6.5 per cent relative to the reference case at 2030. The corresponding fall in the central western slopes and plains of New South Wales is projected to be 1.1 per cent (table 2).

role of on-farm technological adaptation
At a regional level, the role that on-farm adaptation methods, such as diversification of crop varieties, shifting cropping seasons or changing livestock breeds, could play in reducing the impacts of climate change on the agricultural sector is not well understood. Research shows that such methods could reduce the loss in yields associated with changes in temperature and rainfall patterns and, in the case of some commodities, even increase yields. Efforts to analyse the effects of adaptation technologies and practices on agricultural productivity under different climatic conditions are ongoing, but the costs and impacts of likely adaptation measures remain highly uncertain.

Against this background, an exploratory modelling approach is undertaken in this study. The approach is based on the assumption that a suite of potential adaptation measures in response to climate change would raise agricultural productivity by 0.05–0.15 per cent a year. To put this into perspective, average productivity growth in Australian broadacre agriculture over the past twenty years has been approximately 2 per cent a year. Hence, the assumed productivity growth in this scenario resulting from adaptation measures, in excess of the business as usual productivity growth, is relatively conservative.

The change in productivity in the two case study regions by 2030, taking into account both the impacts of climate change and the offsetting effects of assumed adaptation measures under the low rainfall scenario, are presented in table 3.

The effect of the adaptation measures is to reduce the impacts of climate change by almost 50 per cent (tables 1, 3). For example, in the Western Australian region, under the low rainfall scenario, climate change is projected to result in a productivity loss in wheat production of 7.3 per cent by 2030 (table 1). With adaptation measures in place, this climate impact is reduced to a 3.6 per cent loss in wheat productivity (table 3).

3 changes in total factor productivity under the low rainfall scenario at 2030, assuming adaptation responses to climate change (change relative to the reference case)
	New South Wales	Western Australia
	%	%
wheat	–2.1	–3.6
beef	–0.8	na
sheep meat	–0.9	–3.0
wool	–1.1	–1.7
na Not applicable.

Table 4 shows the impacts of climate change on the selected regional economies under the low rainfall scenario when the assumed adaptation measures are put in place. As expected, the adverse economic impacts of climate change on the case study regions are reduced substantially as a result of the implementation of the adaptation measures. For example, the impact of climate change on gross regional product in the Western Australian region changes from a fall of 6.5 per cent relative to the reference case at 2030 (table 2) to a loss of 3.3 per cent relative to the reference case when adaptation measures are put in place.

4 regional economic impacts at 2030 under the low rainfall scenario assuming adaptation responses to climate change (change relative to the reference case)
	New South Wales	Western Australia
	%	%
gross regional product	–0.5	–3.3
wheat production	–3.4	–6.7
beef production	–0.5	na
wool and sheep
meat production	–1.1	–2.6
na Not applicable.

While the above analysis provides a preliminary assessment of the regional economic impacts of climate change, there are a number of caveats that should be noted:

» the projected impacts of climate change remain highly uncertain, as demonstrated by the very different projections from the two climate models used in the analysis. Hence, the results from the case studies should not be interpreted as definitive — the focus in the analysis is on the potential economic impacts of two illustrative climate change scenarios.

» the analysis focuses on the impacts of climate change at 2030. Climate change is an ongoing phenomenon and it is projected that more severe impacts will become apparent in the latter half of this century. Nevertheless, examining the effects of climate change at 2030 provides an indication of the consequences of the likely early effects of climate change.

» the analysis is confined to dryland broadacre agriculture, but the productivity of irrigated agriculture will also change as a result of changes in water availability. However as irrigated crops form a small part of the agricultural industries in the case study regions, the omission of the impacts on irrigated agriculture is unlikely to substantially affect the overall regional results reported in the paper.

» the AusRegion model is a model of the Australian economy, and productivity changes in other countries resulting from climate change are not incorporated in the modelling. However, if the impacts of climate change were to be significant in other countries then Australia’s economic outcomes would be affected by changes in relative productivity, as well as changes in international competitiveness, commodity prices and trade flows.

enhancing the capacity for adaptation
The analysis presented here illustrates the exposure of some regions in Australia to adverse climate change outcomes and the potential role of adaptation in reducing or minimising these outcomes. However, the ability of the farm sector to implement cost effective and efficient adaptation strategies will depend on a wide range of factors.

At a national level, the factors that influence adaptive capacity include the level of national income, technological advancement, and relevant infrastructure (Brooks, Adger and Kelly 2005; Nelson et al. 2005, 2006). In general, Australia exhibits many of the characteristics necessary to ensure a high level of adaptive capacity in response to climate change.

At the farm level, the factors that influence adaptive capacity include farmer education, diversity of on- and off-farm income sources, and levels of income (Nelson et al. 2005; Brooks and Adger 2005). In particular, a lack of diversity of income sources is one of the critical factors constraining adaptation and resulting in high levels of vulnerability to external shocks (Nelson et al. 2005). However it is also an element of adaptive capacity that can be constructively influenced by government policy, through investment in technology and infrastructure and the human and social capital necessary to take advantage of new economic opportunities.

While there is debate about the relative importance of the roles of farmers and government in enhancing adaptive capacity, both groups have roles to play. Governments have traditionally played an important role in supporting Australian agriculture to deal with the effects of climate variability, particularly through their contribution to agricultural research and development. For example, government funding has played a critical role in facilitating research into new crop varieties in Australia and other countries, including the United States. More generally, much of the rapid growth in productivity in Australian agriculture over the past thirty years can be attributed to the adoption by farmers of innovations made available by rural research and development providers. Continued government support for research and development, particularly in areas such as the genetic adaptation of crops and new and improved information systems on climate change impacts and adaptation options, are likely to be critical in enhancing the overall capacity of Australian farmers to adapt to climate change.

Government is also important in ensuring that general policy settings promote rather than stifle adaptation. For example, price and income subsidies in agriculture that suppress changes in farm incomes resulting from climate induced changes in yields reduce the incentive for farmers to adapt (Fankhauser et al. 1999). Similarly, fixed or guaranteed water allocations for irrigated farming may reduce incentives for behavioural change in response to falling water supplies. Drought policy needs to take account of the effects that climate change will have on regional farm productivity to ensure the efficient use of resources. Climate change may alter the relative productivity of farming regions throughout Australia and the world, with the likely effect of changing trade patterns. Hence, over the longer term, trade regimes need to be open and responsive to these changes.

In Australia, the state and federal governments are already beginning to address the issue of adaptation through the Council of Australian Governments (COAG) process. The key elements of the National Adaptation Framework will include a schedule for medium to long term adaptation strategies, and a plan to strengthen knowledge of impacts and adaptation (National Resource Management Ministerial Council 2004). This is complemented by the National Resource Management Ministerial Council’s National Agriculture and Climate Change Action Plan 2006–2009. The objective in this action plan is to assist Australian governments to provide farmers and natural resource managers with a policy framework that embraces research and development and that promotes climate change adaptation and emission mitigation in agriculture.

Adaptation to climate change is an integral part of agricultural production now and will become more important into the future as the impacts of climate change become more evident. In developing a strategy for adapting to climate change, one key challenge is dealing with uncertainty. Significant uncertainty relates to the nature and extent of regional climate change impacts, impacts across agricultural industries, and impacts over time. The challenge for governments and agricultural industry stakeholders is to deal with these uncertainties through further research and the development of policies and farm management approaches that are flexible enough to deal effectively with a range of potential climate change outcomes.

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