The Cost of Drought: Evidence from 300,000 Farms in the USA

Nawon Kang, Mani Rouhi Rad and Rodolfo Nayga

No 404480, 2026 Annual Meeting, July 26 - 28, 2026, Kansas City, Missouri from Agricultural and Applied Economics Association

Abstract: Drought is one of the most consequential climate shocks facing agricultural produc- tion. This paper examines the cost of drought and producers' adjustment to it using panel data on more than 200,000 crop-producing farms in the United States. Using panel xed eects models with farm and state-by-year xed eects, we nd that each additional week of severe drought reduces prot by 2.2%, while each additional week of extreme-or-worse drought reduces prot by 6.2%. The dominant mechanism is re- duced production: drought lowers crop yields, increases the incidence of zero harvested acreage, and reduces the total value of production, while farm-level price responses are limited and government payments only partially oset losses. Farms with greater base- line irrigation capacity experience smaller drought-induced losses under severe drought and smaller drought-induced increases in government payments, consistent with irri- gation mitigating drought damages primarily through production stabilization. These findings show that drought is not only a yield shock, but a broader farm income shock.

Keywords: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 43
Date: 2026
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/404480/files/1 ... _Cost_of_Drought.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea26:404480

DOI: 10.22004/ag.econ.404480

Access Statistics for this paper

More papers in 2026 Annual Meeting, July 26 - 28, 2026, Kansas City, Missouri from Agricultural and Applied Economics Association Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().