Heterogenous Impacts of Climate on Agricultural Industries Farm Exit Patterns in the Murray-Darling Basin of Australia

Abstract

Over time, the number of farm businesses in the Murray-Darling Basin (MDB) in Australia has fallen considerably. This chapter applies a fixed effects regression model to regional-level data to assess the heterogeneous impacts of climate on four major agricultural industries in the MDB (livestock, dairy, broadacre, and horticulture). Two climate variables (annual average daily maximum temperature and annual total rainfall) are used to predict net change in farmer number of each industry during four 5-year periods between 1991 and 2011. The results suggest that hotter annual average maximum temperature and lower annual rainfall result in farm exit in all industries. However, the impacts of temperature and rainfall on net change in farmer number vary across different industries, with also a much larger impact of increased temperatures on farm exit than rainfall reductions. Farm numbers in broadacre and livestock industries (that are more likely to be dryland agricultural based) are more impacted by hotter temperatures and reduced rainfall than dairy and horticultural industries. Policies – both at the macro-scale for climate change and the micro-scale for adaptation – are urgently needed in Australia.