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This article presents an econometric analysis of irrigation commodity area and revenue responses to varying commodity prices, water availability and climate conditions for the second half of a decade long drought in the Murray Darling Basin, Australia. We find statistically significant evidence of irrigation area decline with reductions in water allocations and irrigation revenue shrinking with area irrigated. Results also indicate hotter drier weather conditions experienced in the drought effected crops differently: some crop revenues suffered, while higher evapotranspiration and yield potential appeared to support higher revenue outcomes for other crops. Comparison revealed that marginal revenue changes in response to water allocations estimated are much less than those implicit in other economic assessments of water scarcity impacts for the same basin that used different methods. We find that triangulation of results between methods provides confidence in consistent results and reveals possible avenues for future research and methodological development. Refereed/Peer-reviewed

Climate variability, and its increase with climate change, pose substantial economic risks to agriculturalists and hence, limit their ability to respond to global challenges such as food security. Enterprise mix diversification is the most common, and is widely regarded as the most effective, strategy for mitigating multiple sources of short-term economic risk to agricultural enterprises. However, assessments of enterprise mix diversification as a strategy for mitigating climate risks to ensure long term viability of agricultural enterprises are sparse. Using the Lower Murray region in southern Australia as a case study, we combined APSIM modelling with Monte Carlo simulation, probability theory, and finance techniques, to assess the extent to which enterprise mix diversification can mitigate climate-induced variability in long term net returns from rain-fed agriculture. We found that diversification can reduce the standard deviation by up to A$200 ha(-1), or 52% of mean net returns; increase the probability of breaking even by up to 20%, and increase the mean of 10% of worst probable annual net returns (Conditional Value at Risk) by up to A$100 ha(-1). We conclude that enterprise mix diversification can also be an effective strategy for hedging against climate-induced economic risk for agriculturalists in marginal areas. Refereed/Peer-reviewed