Modelling interactions between farm-level structural adjustment and a regional economy: A case of the Australian rice industry

• Impact of climate change and water policy on rice industry is empirically evaluated.
• The paper finds stronger evidence of structural adjustments in rice farming system.
• The regional CGE model demonstrate cost to the regional economy.
• Relocation of some rice production to the northern Australia could offset potential impact.
• Strong government support would be crucial to implement any possible relocation.

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 find 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.