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Abstract
Australian crop and livestock farmers face uncertain climate change and variability and a
challenge for adaptation decisions. These decisions can be (1) adjustments to practices and
technologies, (2) changes to production systems, or (3) transformation of industries, for
example, by relocation to new geographical areas. Adjustments to existing practices are easy
to make, relative to changes to production systems or transformations at the industry level.
Transformations require new investments and infrastructure and can leave assets stranded.
These transformations can be partially or wholly irreversible and hysteresis effects can make
switching difficult and mistakes costly to reverse. Real Options offers a framework to
structure thinking and analysis of these difficult choices. This paper generalises and extends
the principles of real options to capture the expected time until transformative thresholds are
crossed. An application to South Australian wheat dominant agriculture is explored.