Climatic variability is a significant factor influencing agricultural production decisions. Historically in Australia, farmers and governments have invested heavily in reducing the influence of this variability on agricultural production. This investment has included construction of large dams on major river systems throughout the country, primarily for irrigation purposes, and allocation and development of groundwater resources. This development policy has placed undue pressures on ecosystems and has significantly modified river systems. In 1994, the Council of Australian Governments began a period of water reform, entering a new management phase for water resources. A major turning point in this reform was promulgation of the National Water Initiative of 2004, where protection of river systems has since been underpinned by the three pillars of regulation, water planning, and water trading. These reforms have included assessment of the sustainable yield from aquifer systems, often found to be below current allocation and even extraction levels, as well as allocation of a proportion of flows to the environment. In many catchments, these water reforms have not only reduced irrigators' access to some types of water but also implicitly increased the effect of climate variability on their decision-making by increasing their reliance on pumping variable river flows.

These management and allocation pressures are compounded by stream- flow (and, to a lesser extent, climate) being much more variable in Australia than elsewhere. The interannual variability of river flows in temperate Australia (and southern Africa) is about twice that of river flows elsewhere in the world (Figure 12.1; Peel et al. 2001). This means that temperate Australia is more vulnerable than other countries to river flow-related droughts and floods. In such a challenging environment, forecasting tools that support improved decision-making resulting in efficiencies in water use and reduced risk-taking are highly desirable. The development and use of such tools is the focus of considerable research and extension activity in government and industry.

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