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

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  • Kang, Nawon
  • Rouhi Rad, Mani
  • Nayga, Rodolfo

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.

Suggested Citation

  • Kang, Nawon & Rouhi Rad, Mani & Nayga, Rodolfo, 2026. "The Cost of Drought: Evidence from 300,000 Farms in the USA," 2026 Annual Meeting, July 26 - 28, 2026, Kansas City, Missouri 404480, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea26:404480
    DOI: 10.22004/ag.econ.404480
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