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State-contingent analysis of farmers’ response to weather variability: Irrigated dairy farming in the Murray Valley, Australia

Mallawaarachchi, Thilak, Nauges, Céline, Quiggin, John and Sanders, Orion (2017) State-contingent analysis of farmers’ response to weather variability: Irrigated dairy farming in the Murray Valley, Australia. Australian Journal of Agricultural and Resource Economics, 61 (1). pp. 36-55.

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The agricultural sector is commonly regarded as one of the most vulnerable to climate change. Current understanding of the impact of climate change on this sector relies on the underlying assumptions about farmers’ possible responses to weather variability, including changes in crop choice, input combinations and land management practices. Many previous analyses rely on the implicit (and restrictive) assumption that farmers operate under a fixed technology set across different states of nature. This assumption, represented through stochastic production or profit functions, is commonly made but seldom tested, and may understate farmers’ responses to climate change if state-contingent production technologies are, in reality, more flexible. The potential for farmers to adapt production technologies in response to unforeseen events is at the core of the state-contingent approach. Advanced in Chambers and Quiggin (2000), the theory contends that producers can manage uncertainty through the allocation of productive inputs to different states of nature. In this article we test the assumption that farmers’ observed behaviour is consistent with the state-contingent production theory using farm-level data from Australia. More precisely, we estimate the milk production technology for a sample of irrigated dairy farms from the southern Murray–Darling Basin over the period from 2006-07 to 2009-10.

Item Type: Article
Language: English
Date: January 2017
Refereed: Yes
Uncontrolled Keywords: dairy industry, Murray–Darling basin, state-contingent theory, weather variability
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 20 Oct 2016 12:40
Last Modified: 08 Oct 2019 23:03
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