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Climate change and adaptation in Australian wheat dominant agriculture: a real options analysis

Author

Listed:
  • Hertzler, Greg
  • Sanderson, Todd
  • Capon, Timothy
  • Hayman, Peter
  • Kingwell, Ross S.

Abstract

Australian crop and livestock farmers face uncertain climate change and variability and a challenge for adaptation decisions. These decisions can be (1) adjustments to practices and technologies, (2) changes to production systems, or (3) transformation of industries, for example, by relocation to new geographical areas. Adjustments to existing practices are easy to make, relative to changes to production systems or transformations at the industry level. Transformations require new investments and infrastructure and can leave assets stranded. These transformations can be partially or wholly irreversible and hysteresis effects can make switching difficult and mistakes costly to reverse. Real Options offers a framework to structure thinking and analysis of these difficult choices. This paper generalises and extends the principles of real options to capture the expected time until transformative thresholds are crossed. An application to South Australian wheat dominant agriculture is explored.

Suggested Citation

  • Hertzler, Greg & Sanderson, Todd & Capon, Timothy & Hayman, Peter & Kingwell, Ross S., 2013. "Climate change and adaptation in Australian wheat dominant agriculture: a real options analysis," 2013 Conference (57th), February 5-8, 2013, Sydney, Australia 152196, Australian Agricultural and Resource Economics Society.
    • Handle: RePEc:ags:aare13:152196
    DOI: 10.22004/ag.econ.152196
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    References listed on IDEAS

    as
    1. McCown, R. L. & Hammer, G. L. & Hargreaves, J. N. G. & Holzworth, D. P. & Freebairn, D. M., 1996. "APSIM: a novel software system for model development, model testing and simulation in agricultural systems research," Agricultural Systems, Elsevier, vol. 50(3), pages 255-271.
    2. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
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    Keywords

    Agricultural and Food Policy; Environmental Economics and Policy; International Relations/Trade;
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