Agricultural Systems 123 (2014) 3442

Contents lists available at ScienceDirect

Agricultural Systems
journal homepage: www.elsevier.com/locate/agsy

Modelling interactions between farm-level structural adjustment and a

regional economy: A case of the Australian rice industry
Shahbaz Mushtaq a,, Geoff Cockeld a, Neil White b, Guy Jakeman c
a

Australian Centre for Sustainable Catchments, University of Southern Queensland, Toowoomba 4350, Australia
Queensland Department of Agriculture, Fisheries and Forestry, Toowoomba, Australia
c
ACIL Tasman Pty Ltd., Canberra, Australia
b

a r t i c l e

i n f o

Article history:
Received 6 December 2012
Received in revised form 6 August 2013
Accepted 30 August 2013
Available online 15 October 2013
Keywords:
Climate change
Water and environmental policy
Structural adjustment
Rice
Geographic relocation
Regional economic model

a b s t r a c t
Climate change and on-going water policy reforms will likely contribute to on-farm and regional structural adjustment in Australia. This paper gathers empirical evidence of farm-level structural adjustments
and integrates these with a regional equilibrium model to investigate sectoral and regional impacts of
climate change and recent water use policy on rice industry. We nd strong evidence of adjustments
to the farming system, enabled by existing diversity in on-farm production. A further loss of water with
additional pressures to adopt less intensive and larger-scale farming, will however reduce the net number of farm businesses, which may affect regional rice production. The results from a regional CGE model
show impacts on the regional economy over and above the direct cost of the environmental water,
although a net reduction in real economic output and real income is partially offset by gains in rest of
the Australia through the reallocation or resources. There is some interest within the industry and from
potential new corporate entrants in the relocation of some rice production to the north. However, strong
government support would be crucial to implement such relocation.
2013 Elsevier Ltd. All rights reserved.

1. Introduction
Climate change and increasing demands for water, including for
environmental ows, are forcing Australian state and federal governments to rethink how they value, use and manage water. While
statist developmentalism1 remains as a strong strand of thinking in
Australian agricultural narratives, there are arguments for radical
revisions of use and consumption patterns (Mercer et al., 2007;
Schoeld et al., 2003; Khan et al., 2008). A key challenge in the management of irrigation water under climate change, is maintaining regional and perhaps even national economic development without
seriously undermining the environments ability to provide those resources into the future (Grafton et al., 2011; Mercer et al., 2007;
Connell and Grafton, 2011; Yohe and Schlesinger, 2002).
In response to climate change and fears of irreversible environmental degradation, Australian governments are attempting to
introduce a system of water management, the Murray Darling Basin Plan (the Plan), to halt the decline in environmental conditions
and resource security and provide a foundation for managing
climate change (Connell and Grafton, 2011). The Plan tries to
reect a more detailed understanding of the complexity of
Corresponding author. Tel.: +61 (7) 4631 2019; fax: +61 (7) 4631 5581.
E-mail address: Shahbaz.Mushtaq@usq.edu.au (S. Mushtaq).
Refers to government-led promotion of extensive use and development of
natural capital (Mercer et al., 2007).
1

0308-521X/$ - see front matter 2013 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.agsy.2013.08.010

humanenvironment interactions under climate change, with a

major challenge being the estimation of the cost of reallocating
water from extractive uses, such as irrigated agriculture, to environmental ows (Grafton and Jiang, 2010a,b). The regional impacts
of changing allocations including climate change impacts could be
considerable and could signicantly impact regional resilience
(Martin, 2012), especially given that agricultural production was
for many years a mainstay of regional development (Davison,
2005) and many communities are highly dependent on irrigation
systems. We aim to investigate the impact of such reallocations
on the rice industry along with the broader regional implications
by combining farm-level structural adjustment and regional economic impact modelling. We selected the rice industry as a case
study because, although rice growing in Australia is highly protable, several years of severe drought (20022009), known as the
Millennium drought, led many to call for its elimination because
of its extensive water use and the consequent effects on fragile
aquatic ecosystems.
In the past various economic models, such as regional hydroeconomic optimisation models, regional CGE models incorporating
water trading, and market-based models, have been used to evaluate the impact of droughts, climate change impacts and water
buyback programs in Australia (Grafton et al., 2011; Connell and
Grafton, 2011; Grafton and Jiang, 2010a,b; Quiggin et al., 2008;
Horridge et al., 2005; Peterson et al., 2005; Adamson et al., 2009;
Connor et al., 2009; Goesch et al., 2009; Dixon et al., 2010; Qureshi

S. Mushtaq et al. / Agricultural Systems 123 (2014) 3442

35

Fig. 1. Key rice producing area in Riverina (NSW) Murray Irrigation, Murrumbidgee and Coleambally Irrigation areas.

et al., 2007). Although all of these researchers aim to identify and

quantify the economic impacts to irrigated agriculture of reduced
surface water diversions, their focus was regional and national,
rather than industry specic, which ignores on-farm and local
adaptations
Our paper focuses on the rice industry and builds the body of
knowledge in two ways. First, we explore the dynamics of farm-level structural adjustments as a result of increased water scarcity,
and second, we explore the interface between farm-level production decision-making, a regional economy and national water policy. We nd strong evidence of rapid structural adjustment in rice
farming system in response to low water availability, based on
analysing production in the drought years. We then used climate
projections, based on various warming patterns to develop future
scenarios.
The results from the economic modelling show that for one
2070 scenario, the implementation of the MDB plan and expected
climate change would decrease the regional (southern inland NSW
where most rice is produced) real income by $896 million. However, this decrease is partially offset by the gains achieved
($682 million) in rest of the Australia. We note that it may be possible, subject to further agronomic studies, to offset the national effects by expanding production in areas such as the Ord River in
Western Australia and the Burdekin region of Queensland.
We began the study with an examination of the national and regional signicance of the rice industry and the signicance and impact of climate change, in order to show how water policy and
future climate could constrain the rice industry and affect the regional economy.

hot and dry conditions of southern NSW. Several factors combine

to make rice production in Australia successful: the high quality
grain owing to the climate, which provides plenty of sunlight
and suitable temperatures, excellent water quality, good soils, expert producers who obtain an average of around 10 t/ha while
increasing water use efciency (RGA, 2011) and the tight integration of the production, commercial, and research arms of the
industry. Taking into account processing and packaging operations,
the rice industry directly employs over 8000 people and supports
more than 60 towns. Indirectly, the industry supports 33,000 people, mostly in the Riverina (SunRice, 2010).
Australia has one of the highest average yields of rice (10 t/ha)
in the world and over the past thirty years there have been substantial increases in irrigation and total water productivity. The
long term water use efciency for rice has increased by more than
60% from the 1980s to 2008 (Lacy et al., 2009) and Australian producers use 50% less water than the world average (RGA, 2011). Net
returns from medium grain rice can be close to $2000 per ha while
long grain rice can make around $1750 per ha, which are relatively
high rates of return in Australian agriculture. The value chain is
mainly and unusually producer-driven2 and the barriers to entry include high start-up costs, resource limitations and the lingering impacts legacy of the state-sponsored commodity marketing
organisations, characteristic of post-war agricultural policy in Australia, which at various times included compulsory centralised marketing and licensing and quota schemes. From that centralised
system, more contemporary marketing parameters include product
specications and standards and environmental regulations for
production.

2. Rice industry signicance and challenges under climate and

water policy change

2.2. Challenges under climate change and water policy

2.1. Signicance
The Australian industry has a relatively small number of producers, geographically concentrated in the Riverina region of
NSW (Fig. 1), generating considerable export income as well as value added production. Australian rice is only 0.2% of world production but exports (80% of the rice produced) are more than 4% of
world trade. Australian rice varieties (for example Japonica) are different to those grown in monsoonal wetland countries such as
Thailand and Indonesia and were specially developed to suit the

In the future, water will probably be more expensive, less available and allocations will be less secure, particularly for water
intensive industries such as rice and so production will be signicantly inuenced by droughts and water buy-backs. In the past,
signicant gains have been achieved in improving rice water use
efciency but there are likely to be diminishing returns from pursuing this within the current systems (Humphreys et al., 2006).
2
Producer-driven chains are those in which companies that produce the product
control the networks within the chain. Producer-driven chains are most common in
capital and technology intensive industries where high barriers to entry exist in
production (Kaplinsky, 1999).

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S. Mushtaq et al. / Agricultural Systems 123 (2014) 3442

Fig. 2. Historical rice area and yield.

Since, the establishment of the rst commercial crop of rice in

1924, there has been a gradual increase in rice area and yield
(Fig. 2a and b). However, drier winters, demand for water for mining and domestic consumption, and the national government purchasing of water for the environment has meant that rice
production is unlikely to return to the peak production of the
1990s. There are signicant concerns about the longer term impact
of climate change and climate variability on water availability.
Noticeable reductions in water availability from 2002 to 2010,
as a result of prolonged drought, resulted in a signicant decline
in the area planted (Fig. 2a). According to climate modelling, it is
expected that average water availability will decline and that the
frequency of extreme events will increase (Sanders et al., 2010).
CSIRO modelling based on the median climate change scenario,
while acknowledging the uncertainty in these predictions, projects
an 11% decline in surface water availability in the north of the MDB
and a 13% decline in the southern MDB (CSIRO, 2008). The southern part of the basin is more dependent on winter rainfall, which
is expected to generally decrease in Australia. The Millennium
drought illustrates the difculties that would be faced if there
are to be more extended dry periods and constrained water supply.
There was signicantly reduced rainfall and above average temperatures from 200102 to 200910 and basin inows were much
lower than average and consequently allocations to irrigators declined, resulting in an irrigation drought (Sanders et al., 2010). Total rice area in Australia has a strong linear relationship with total
water allocations (Fig. 3a) and there also seems to have been a decrease in the number of farms growing rice (Fig. 3b).
Some efciency gains can be achieved through: the adoption of
new irrigation practices, such as Alternate Wetting and Drying
(AWD) and Aerobic rice (Humphreys et al., 2006); reduced water
use in rice production through more accurate determination of
the least permeable soils using revised rice soil suitability criteria

(Beecher et al., 2002); optimising sowing dates that move ponded

periods outside peak evaporation periods (Humphreys et al.,
2005); and investments in more water efcient irrigation methods
such as lateral move and centre pivot irrigators (personal communication with Blue Ribbon Rice and Pulse Exporters, March 2011).
Nonetheless, these currently seem unlikely to offset a reduction
of available water of the order of 2635%, so the Australian industry is likely to contract based on current parameters and consequently there will likely be changes that affect farm protability
and regional economies.
3. Methodology
In tracking potential regional economic changes, the rst step is
an examination of the evidence of farm-level structural adjustments in response to water scarcity using the past droughts as a
proxy for on-going water shortages. It is assumed that the decisions made by farmers affect industries (and vice versa) and local
and regional communities. These farm-level structural adjustment
decisions and regional impacts are linked through a CGE model
that enables the analysis of issues at the industry, global, national,
state and regional levels and the determination of the impacts of
various economic changes on production, consumption and trade
at the macroeconomic and industry levels. In the case of the regional rice model, a reference case simulation was developed (business-as-usual) with which various water availability scenarios
were compared.
3.1. Structural adjustment assessment
The empirical analysis evaluates the evidence of structural
adjustment in rice farming with increasing water scarcity.
Structural adjustments comprising the decisions by farmers to

Fig. 3. Relationship between annual water allocation and rice area and rice farms in southern NSW, Riverina, Australia.

S. Mushtaq et al. / Agricultural Systems 123 (2014) 3442

continually adjust the size and nature of their farming operations

to improve efciency and protability, contribute to economic
growth and higher living standards (Harris, 2006; Nelson et al.,
2005; McColl and Young, 2005; Frontier Economics, 2010). As described by Musgrave (1982), structural change is the aggregate response at the regional, industry and national level to the myriad of
adjustment decisions made at the business or individual level.
There have been at least ten national rural structural adjustment
schemes since the 1930s, each building upon the knowledge
gained from those that came before them (McColl and Young,
2005) but most structural change in rural industries Australia is
autonomous (undertaken by the farm business without external
assistance) (Cockeld and Botterill, 2006).
A number of hypotheses related to structural adjustment in the
rice industry were tested using regression modelling. The hypotheses include that water shortages will result in: an increase in farm
sizes to make a viable living; decreases in the total rice area; the
substitution of rice with dryland wheat while increasing the total
farm area; water trading in low water availability years when
prices are high to support income; and changes in off-farm income
and nancial impact. Limited data availability on key factors such
as water use volumes and trading activity, and for water charges
and other costs incurred in the use of irrigation water and length
of data sets (only last 20 years of data), restricted the scope of
the modelling.
The Australian Bureau of Agricultural and Resource Economics
(ABARE) Farm Survey data was used for the analysis. The details
of the survey and methods are available at http://www.abare.gov.au/publications_html/surveys/surveys/surveys.html. This survey
provides a broad range of information on the economic performance of farm business units in the rural sector since 1990. Information collected from each farm in the survey includes details of
area sown, area harvested, quantity produced, quantity sold, gross
receipts and the volume of water used for each crop (with dryland
and irrigated crops identied separately). Unit prices received per
hectare were calculated for each crop from these data. Apart from
the ABARE farm survey, there were data from the Australian Bureau of Statistics (ABS), rice industry publications and informants
from organisations such as the Rice Growers Association (RGA)
of Australia and SunRice, Blue Ribbon Seed & Pulse Exporters and
irrigation companies.
3.2. Regional Computable General Equilibrium modelling
ACIL Tasmans CGE model, Tasman Global, was used to estimate
the regional level economic impacts of the different scenarios. Tasman Global is an iterative dynamic model that estimates relationships between variables at different points in time. This is in
contrast to comparative static models, which compare two equilibria (one before a policy change and one following). A model such as
Tasman Global is benecial when analysing issues where both the
timing of adjustments and the adjustment paths that economies
follow are relevant. The model provides a representation of the
whole economy, set in a national and international trading context,
starting with individual markets, producers and consumers and
building up the system via demands and production from each
component. When an economic shock or change is applied to the
model, each of the markets adjusts according to the set of behavioural parameters that are underpinned by economic theory. A
key advantage of CGE models is that they capture both the direct
and indirect impacts of economic changes while taking account
of economic constraints (such as land and labour supply). Another
advantage of CGE models is that they are able to capture a wide
range of economic impacts across a wide range of industries in a
single consistent framework that enables rigorous assessment of
a range of policy scenarios.

37

For this analysis the model has been aggregated:

 Three levels, namely the Southern Rice region, the Rest of Australia, and the Total Australia.
 34 industries/commodities to provide the maximum detail possible for the key industries related to this analysis.
The economic impacts of an event, project or policy are often
summarised by quoting the change in Gross Domestic Product
(GDP), which is a measure of the economic output of the Australian
economy. At the state level, the GDP equivalent is called GSP (Gross
State Product) while changes at the regional level are called GRP
(Gross Regional Product). (To reduce the potential confusion with
the various acronyms, the term economic output is used in the
discussion of the results.) Although changes in real GDP are useful
measures for estimating how much the output of an economy may
change, changes in the real income of a region are more important
since they provide an indication of the change in economic welfare
of the residents. Indeed, it is possible that real economic output can
increase with no, or possibly negative, changes in real income. In
Tasman Global, changes in real income at the national level are synonymous with real gross national disposable incomes (RGNDI) as
reported by the ABS.
To eliminate the impact of nominal price movements, economic
variables such as the change in economic output are reported as
deviations from their real rather than nominal values. Similarly,
all aspects not directly related to the assumed changes in the rice
industry have been kept constant across all the scenarios (including, for example, productivity growth, national population and all
demand and supply elasticities).
3.3. Rice water availability scenarios
Three scenarios were developed based on the evidence of farmlevel adjustments, discussions with rice industry informants and
key researchers and informed by climate change trends and governments water policies.
 Baseline scenario: For the baseline scenario, the 2004 water
availability was selected. This is the no rice reduction scenario. Over the last decade water availability uctuated signicantly in the Riverina but the baseline water availability
scenario assumes that irrigators operate close to historical
levels of production with average water availability (50%
allocation).
 Scenario 1 Future period 2030: This is based on CSIRO
(2008) projections, whereby under the best estimates and
future development scenario, runoff will decrease by 11%. A
further reduction in water availability for water recovery
for environmental purposes as a result of a new MDB Plan
is assumed, for a total reduction of 15%, compared to the
baseline scenario (50% water availability). Using a liner
regression model of rice areas as a function of water availability (see Fig. 2a), a 15% reduction in water availability will
reduce the rice area by about 18,500 ha. For simplicity, is it
assumed that the same area will be converted to irrigated
and dryland wheat 10,000 ha to irrigated wheat, which
requires less water than rice(with 12 irrigations), and
8500 ha to dryland wheat.
 Scenario 2 Future period 2070: For the future period of 2070,
based on projections from CSIRO (2008), a 27% reduction in
water availability is predicted. Assuming a further reduction
in water availability for water recovery for environmental purposes as a result of a new MDB Plan, it is expected that a total
reduction of 30% may occur, compared to the baseline scenario.
Using the linear regression model (Fig. 2a) a 30% reduction in

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S. Mushtaq et al. / Agricultural Systems 123 (2014) 3442

water availability is expected to reduce the rice area by about

37,200 ha, which will be converted to irrigated (17,500 ha)
and dryland wheat (20,000 ha).
Furthermore, the average rice yield is assumed to return, as a
starting point, from its recent high to its long term trend of 9 t/
ha. Then subsequent productivity improvements of 0.4% a year
(equal to the rate over the past 20 years) are assumed to occur such
that the average rice yield is 9.7 t/ha by 2030 and 11.3 t/ha by
2070.
4. Results and discussions
4.1. Characteristics and drivers of structural adjustment in rice farms
Rice farmers are continually faced with pressures to adjust to
changing environmental, climatic and economic conditions. The
external drivers of structural adjustment in Australian agriculture
are well known and include declining terms of trade, technology
induced productivity changes, and productivity changes associated
with changes in the natural resource base including climate change
(Hyder Consulting, 2010). However, water and non-water related
key pressure points relevant to structural adjustment have been
identied (Frontier Economics, 2010).
The main elements of the structural adjustments over the last
10 years in rice growing areas as observed by Hyder Consulting
(2010), Sanders et al. (2010) and Marsden Jacob Associates et al.
(2010) are:
 Rice farmers have increased farm size. This includes the purchase of additional land (both dryland and irrigated land).
 During low water availability years, rice farmers sought other
sources of income and decreased the area of rice crops (and in
some instances, farmers did not grow rice at all). Sources of
off-farm income have included investments in the share market, off-farm employment, contract sowing and harvesting and
operating a produce store.
 Water selling, mainly of temporary water allocations, was a key
tactical response during low water availability years.
 Changes in crop mixes and less reliance water intensive crops.
Alternative low water intensive crops, including cereals such
as wheat and barley, are generally planted during winter.
 Additionally, Marsden Jacob Associates et al. (2010) found in a
survey that, with reductions of 20% in water availability relative
to the long-term average, a quarter of rice farmers would exit
and a further quarter would change their activity, but half
would not change their activities. This water reduction would
also increase the level of borrowing by about 20%.

continuously adapting to climate variability and climate change

(and consequent reduced water availability) through changing
crop mixes and farm restructuring. The regression results indicate
that rice area per farm is generally declining and being replaced by
winter dryland wheat. The reduction in rice will have broader impacts, for example, rice industry mills and storage depots were left
stranded and were shut down as a result of lower level of rice supply during 200708.
Rice area and water trading: Bjornlund and McKay (1999)
showed that water markets facilitate farm adjustment and structural change within the irrigation industry. To maintain a liveable
income during drought periods, when water allocations and low
and prices are relatively high, some farmers adjust their operations
by temporarily trading water to other growers to take advantage of
higher water prices. Fig. 6 shows the relationship of water trading
to rice area in the Coleambally Irrigation Area (CIA), Riverina
(NSW); rice area is signicantly inuenced by water trade-in. However, over the last 5 years CIA is trading-out water to satisfy the demand of high value crops. In some instances, rice farmers purchase
temporary groundwater in order to continue growing relatively
water intensive crops, including rice (Sanders et al., 2010). This
could perhaps be to satisfy forward contracts.
Rice area and price: Rice prices provide important signals to
farmers to potentially make adjustments to their farming operation to that maintain or improve their protability. The relationship between rice area and price was modelled using change in
rice area against previous year and changes in lagged changes in
rice prices with previous year (Fig. 7). The relationship was not
found to be signicant but the positive coefcient of lagged rice
price shows a direct relationship with rice area, and indicates that
price does inuence rice area. This nding was consistent with
Connor et al. (2012) who also nd statistically insignicant relationships between observed land area and prices. This result is
not surprising given the limited variation in prices. If however,
water becomes scarce and therefore more expensive, either in actual or opportunity costs, this suggests that producers will still
consider rice if and when the price is high enough.
Financial impact: The reductions in the available water have signicantly inuenced farm business prot and overall family income. Fig. 8 indicates that farm businesses are no longer making
economic prots. Farmers have managed to sustain family income
through off-farm activities but a large decline in agricultural prot
is reducing overall family income. During 20072008, under extremely low water availability (<10% water allocation), overall average family income per farm and farm business prot was
$27,893 and $109,536, respectively. Clearly, this is not sustainable in the long-run and, when considering future climate change,
considerable adjustment (in terms of cropping pattern or off-farm
activities) will be required to sustain reasonable family income.
Alternatively, relocation of rice production could be an option.

4.2. Empirical evidence of structural change in rice farming

4.3. Regional economic impact assessment through CGE model
In this section, we use the production data to test the proposition that rice production is sensitive to water availability.
Farm sizes, irrigated area and rice area: Rice farms are more exible than purely dry land farms as the operators can reduce rice
area and shift to less water intensive crops. It is hypothesised that
increased water scarcity in the Riverina has resulted in an increase
in farm size while reducing total rice and irrigated area. Fig. 4a and
b, and the accompanying regressions on rice area, total irrigated
area and total area under farm operation support the hypothesis.
The average total farm area is increasing signicantly, which could
be attributed to the decreasing number of farms (including rice
farms see Fig. 3b).
Crop switching: rice to wheat: An assessment of crop switching in
the Riverina (as shown in Fig. 5) indicates that farmers are

The macroeconomic impact of water policies and climate

change impacts and the subsequent structural adjustment, are presented in terms of changes in real economic output, real income
and changes in employment. For these results, the initial impact
of the scenario relates to the assumed changes in agricultural output in the southern rice region. These changes then affect other regions total economic output with changes in the demand for
labour and capital. Capital is naturally mobile (albeit sluggishly)
between all regions based on changes in the rates of return, while,
labour is assumed to be fully mobile. Consequently, the supply of
factors in the Rest of Australia is also impacted by the changes in
demand in the Riverina regions. At the national level, the adjustments in the Rest of Australia act to reduce the magnitude of the

S. Mushtaq et al. / Agricultural Systems 123 (2014) 3442

39

Fig. 4. Water availability, rice Area, total irrigated area and area operated (per farm) in Riverina, NSW, Australia.

Fig. 7. Relationship of rice area (per farm) to price.

Fig. 5. Water allocation and wheat and rice production by area per farm in Riverina
from 1992 to 2009, NSW, Australia.

Fig. 6. Relationship of net water trading (water trading in-water trading out) and
rice area in the Coleambally Irrigation Area in Riverina, NSW, Australia.

aggregate impacts experienced in the southern rice region

(Riverina).
The macroeconomic results from both scenarios are discussed
simultaneously for clearer comparison of regional impact of water
policy and climate change.
Real economic output: Table 1 summarises the projected changes
in real economic output and real income for each region under

Fig. 8. Relationship of water availability and farm business prot and total family
income, Riverina, NSW, Australia.

scenario 1 and 2 while Figs. 911 show the year on year changes
in real outputs, real income and employment.
The loss of water and consequent switching away from rice to
wheat is projected to change the real economic output of the
Southern Rice region by:

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S. Mushtaq et al. / Agricultural Systems 123 (2014) 3442

Table 1
Cumulative change in real economic output and real income under scenario 1 and 2, relative to the reference case (in 201011 terms).
Real economic outputa
Scenario 1: 202930
201011$m
Southern Rice
Rest of Australia
Total Australia

44
29
15

Real incomeb

Scenario 2: 206970
201011$m
135
118
17

NPV (201011 to 206970)

201011$m
896
682
215

Scenario 1: 202930
201011$m
71
44
27

Scenario 2: 206970
201011$m
155
125
30

NPV (201011 to 206970)

201011$m
1266
900
366

Notes: Totals may not add due to rounding. NPV = Net Present Value (calculated using a 4% real discount rate). It should be noted that the NPV calculation only includes the
impacts through to 206970 even though the impacts will be likely to continue producing beyond this articial time horizon.
a
The term real economic output is used instead of Gross Regional Product (GRP). The sum of the GRP of all three regions equals the change in Australian GDP.
b
Real income for Australia is synonymous with real gross national disposable income (RGNDI) as used by the ABS. In this modelling real income is a measure of the change
in economic welfare.

Fig. 9. Projected changes in real economic output, relative to the reference case
(201011 dollars).

Fig. 11. Projected changes in employment level, relative to the reference case.

the Rest of Australia as the supplies of scarce labour and capital

(but not land or natural resources) are increased.
At the national level, real economic output (or real GDP) is projected to change by:
 $15 million in 202930 (in 201011 terms),
 $17 million in 206970 (in 201011 terms),
 A cumulative total of $215 million in net present value terms
over the 59 years to 206970 (using a four per cent real discount rate).

Fig. 10. Projected changes in real income, relative to the reference case (201011
dollars).

Real income: As the Southern Rice region exports almost all of its
agriculture production, the changes in agriculture exports has a
further effect on the regions terms of trade (of the same sign). Consequently the projected change in real income is greater than the
projected change in real economic output.
The real income (in 201011 terms) is projected to change by
(See Table 1):
$71 million in 202930 and by $155 million in 206970 in
the Southern Rice region,
 $44 million in 202930 and by $125 million in 206970 in the
Rest of Australia,
 A national total of $27 million in 202930 and $30 million in
206970.


 $44 million in 202930 (in 201011 terms),

 $135 million in 206970,
 A cumulative total of $896 million over the 59 years to 2069
70 (using a four per cent real discount rate).
In a region with around 295,000 people, this is a signicant
change, with the change by 206970 representing an average
decrease in real economic output of around $550 per person projected to be living in the Southern Rice at this time.
Nationally, employment has been assumed to remain constant
between the scenarios, hence there is a net movement of labour
from the Southern Rice region to the Rest of Australia. Consequently, it is projected that there will be an offsetting impact on

As with the projected changes in real economic output, these

are signicant at the regional level. In the Southern Rice region,
the projected change in real income in 206970 is equivalent to
an average decrease of over $600 per person living in the region
at that time. At the national level, real income is noticeably lower
than real economic output highlighting the lower total return to
factors resulting from the loss of highly productive land and

S. Mushtaq et al. / Agricultural Systems 123 (2014) 3442

associated purchasing power of Australian output. Consequently,

the projected changes in water availability and consequent production of agriculture commodities essentially results in a regionally signicant reallocation of resources and wealth around the
nation with a small impact on the total output or wealth of Australia as a whole.
Employment: The structural adjustments as a result of climate
change and water policy will reallocate resources from the Southern Rice to the rest of Australia, which is evident from the projected changes in employment shown in Fig. 11. Southern Rice is
expected to lose around 460 jobs, relative to the reference case,
with all of the people lling these jobs assumed to be moving to
the rest of Australia. In fact, the losses are so high that total population in 206970 is around 10% lower than in 2012.

41

water scarcity as resulting in the appropriate prices, given the previously subsidised public irrigation schemes. With these assumptions and the thought that there are adjustments in other regions
that limit the national economic impacts, there are arguments for
no or little government intervention.

Acknowledgements
This project was conducted with funding from the Department
of Agriculture, Fisheries and Forestry (DAFF), Canberra. We are extremely grateful to the many people who have contributed in a
variety of ways to this project, including key rice industry.

References
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Climate change and on-going policy reform will reduce the
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