Assessing the tactical and strategic flexibility of farms

Abstract

Climate change has the potential to increase the variability of water supply to farms. The impact of this on farmers will depend on their capacity to absorb greater variability, or adapt to it, with no material impact on farm financial performance. The capacity of farmers to absorb an increase in the variability of water supply will depend in the first instance on the adequacy of the tactical responses available to them. Where this capacity is too low to match the increase in variability they will need to adapt to the increase. Farmers' capacity to adapt to an increase in the variability of water supply will depend on their ability to change strategy to suppress the effects of the increased variability. The lower the capacity of farmers to absorb, or adapt to, an increase in the variability of water supplies, the greater the extent to which any increase in variability will translate into greater financial volatility. Greater financial volatility may, in turn, create pressure for government to intervene to assist farmers. In this report we classify farms into types according to their capacity to absorb, or adapt to, greater variability in critical inputs like water supply. We then analyse the relative exposure of each type to increases in the variability of water supply. Finally, we identify logically-useful interventions that government might contemplate, consistent with maintaining the efficiency of Victorian agriculture.