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This article evaluates irrigated agriculture sector response and resultant economic impactsof climate change for a part of the Murray Darling Basin in Australia. A water balancemodel is used to predict reduced basin inflows for mild, moderate and severe climatechange scenarios involving 10, 20, 40 Celcius warming, and predict 13%, 38% and 63%reduced inflows. Impact on irrigated agricultural production and profitability are estimatedwith a mathematical programming model using a two-stage approach that simultaneouslyestimates short and long-run adjustments. The model accounts for a range of adaptiveresponses including: deficit irrigation, temporarily fallowing some areas, and permanentlyreducing irrigated area and changing the mix of crops.The results suggest that relatively low cost adaptation strategies are available for moderatereduction in water availability and thus costs of such reduction are likely to be relativelysmall. In more severe climate change scenarios greater costs are estimated, adaptationspredicted include a reduction in total area irrigated, investments in efficient irrigation, and ashift away from perennial to annual crops as the latter can be managed more profitablywhen water allocations in some years are very low.
