A multi-period positive mathematical programming approach for assessing economic impact of drought in the Murray-Darling Basin, Australia

In the last decade, the Murray-Darling Basin (MDB), Australia faced a severe drought which affected its agriculture production. Sustainable diversion limits as proposed in the Australian Government’s basin plan together with climate change is expected to impact on future agriculture production and development in the MDB. We developed a biophysical-economic mathematical model calibrated against the observed multi-period land use data utilising the positive mathematical programming (PMP) approach to evaluate the impacts on agricultural production activities of a range of climate events and policy options. This is an extension of our previous work where the model was calibrated against a single year and focus was on the southern MDB only. The multi-period calibrated model has strong predictive capacity as it matches simulated irrigated area, water use and gross value of irrigated agricultural product (GVIAP) well with the observed irrigated land, water use and GVIAP for all the crops in all the regions of the MDB across the highly variable climatic conditions from 2005 to 2009. The approach will be useful in assessing economic impacts of climate change on irrigation, farmers’ adaptation options and/or water policies including water markets and irrigation efficiency improvement.