Michael Hayes

1
Lessons from the Economic Impacts of Drought
Michael Hayes National Drought Mitigation
Center School of Natural Resources University of
Nebraska-Lincoln
2
Importance
NIDIS should fill that gap by developing
methodologies to develop assessments.
Comprehensive baseline data on drought impacts
also will help verify the relative cost
effectiveness of risk management. p. 5
3
Billion Dollar DisastersNCDC, 1980-2006

• Disaster Events Damage
• Hurricanes 24 308
• Floods 12 55
• Droughts 12 151
• Tornadoes 8 14
• Fires 7 14
• Winter-related 7 22
• Total 70 564

4
Challenges (What do we know?)

• FEMA estimates annual losses at 6-8 billion
  (1995)
• 1988 39 billion (62B in 2004 )
• 2002, 2003, 2004, 2005 ???
• 2006 Texas 4.1 billion, Nebraska 342 million
• Congress has appropriated approximately 30
  billion in drought relief since 1988

5
(No Transcript)
6
Losses and Costs of the 1988 Drought(Riebsame,
Changnon, and Karl 1991)

• Federal Disaster Assistance 4.0
• Federal Crop Insurance 3.0
• Transportation 1.0
• Agricultural Output 15.0
• Energy Production Costs 0.2
• Food Costs 10.0
• Forests 5.0
• Agricultural Services 1.0
• TOTAL 39.2 billion

7
2002 Impacts

• 2.5 billion in indemnities (RMA)
• 9 billion drop in U.S. livestock cash receipts
• 9.5 billion drop in U.S. net farm income
• 7.2 million acres burned in wildfires
• Suppression costs 1.26 billion
• Homes lost 4,184
• Firefighters on July 28, 2002 28,000

8
Economic Loss Estimates Caused by Drought During
2002
9
Drought Impacts on Horticulture Industry in
Florida, 2000

• Direct Impact, Nurseries -64 million
• Direct Impact, Landscape Services
  -176 million
• Direct Impact, Retailers 61 million
• Direct Impact, All Sectors -179 million
• Direct Employment Impacts -6,944 jobs
• Value-Added Impacts -152 million

A. Hodges and J. Haydu, U. of Florida
10
Challenges

• Qualitative vs. quantitative impacts
• Direct vs. indirect
• Temporal and spatial scale issues
• Aggregation
• Co-linearity
• Role of relief payments, insurance, and/or
  reserve funds
• Data availability and quality
• Positive impacts

11
ChallengesRisk not all impacts are equal
12
Challenges

• Council of Governors Policy Advisors (1997)
  The concept of mitigation will be difficult
  unless officials understand the economic impacts
  and the positive quantitative benefits of
  mitigation actions.
• Multihazard Mitigation Council Report (2005) a
  dollar spenton hazard mitigation...provides the
  nation about 4 in future benefits. 14 ratio
• Prove it!

13
Socio-economic Baselines

• What baseline? What indicator? What sector?
• What time frame?
• What spatial resolution?
• What else is having an effect?
• Identify and develop standardized methodologies
  for collection and analysis

14
Baseline Indicator Examples2002 National

• 2.5 billion in indemnities (RMA)
• 9 billion drop in U.S. livestock cash receipts
  (ERS)
• 9.5 billion drop in U.S. net farm income (ERS)
• 7.2 million acres burned in wildfires
• Suppression costs 1.26 billion
• Homes lost 4,184
• Firefighters on July 28, 2002 28,000

15
Baseline Indicator Examples
16
(No Transcript)
17
(No Transcript)
18
(No Transcript)
19
Baseline Indicator Examples
20
Nebraska Departure of 2002 Net Farm Income Per
Acre from the 10-year Average (1992-2001)
21
Nebraska Departure of 2003 Net Farm Income Per
Acre from the 10-year Average (1992-2001)
22
RMA/NOAA Project

• Identify the relevant questions and issues
  important for determining the economic losses
  from drought
• time scales, spatial scales, sectors, positive
  impacts, secondary impacts (direct, indirect,
  induced), etc
• Begin the development of methodologies to
  determine the losses at the state, local, and
  sector-based levels
• New Mexico, Colorado, Nebraska
• Universities of New Mexico, Colorado, Nebraska
• Partnerships with State Drought Coordinators

23
Lessons

• Policy makers want large-scale economic estimates
• Is an estimate better than no estimate?
• Economic impacts from drought are more severe at
  regional and local scales
• Standardized methodologies will have to
  generalize to a certain extent
• How close is close enough?