Projected impacts of climate change on farm business risk in three regions of Western Australia

A farm simulation model known as STEP (Simulated Transitional Economic Planning) is used to examine the financial performance of a range of farms under current and projected climate in three regions of Western Australia. In two of the regions climate change is expected to cause more unfavourable production years, whilst in the other region more favourable production years are projected. Farms in regions where more adverse climate is projected are shown to experience increased business risk, in contrast to the findings for the other region. Characteristics of farms that increase their risk of business failure in the presence of projected climate change are small farm size, low initial equity and an enterprise mix that favours wool rather than crop production. For all types of farms, as would be expected, a favourable trend in the terms of trade increases farm business resilience. In the regions where adverse climate change is projected, crop dominant farms that currently have high equity appear capable of withstanding the projected adverse climate change whilst farms with similar characteristics in the other region are likely to prosper further, given their projected favourable change in climate.