Food prices and production in the aftermath of natural disasters: the case of Peru

We empirically investigate the economic impact of natural disasters on food prices and production. We address the key issues of data aggregation and counterfactual biases. Our data set consists of regional information on prices and production for fourteen food products in Peru. This granularity level of the data allows us to disentangle nominal from real effects, while we still can account for within-country differences. On the other hand, the random nature of intense rainfalls and droughts allows us to establish a natural counterfactual for each event by comparing between and within-regions. Our empirical results show that prices increase in the aftermath of disasters, while production strongly declines, which mask the price increases at the macroeconomic level. This is particularly apparent during extreme events. The supply channel turns out to be the main mechanism through which disasters affect prices. These effects are mostly heterogeneous. When conditioning on storage life-duration of the products, we find that prices of perishable products are affected by rainfalls only while those of semi-durable products by both rainfalls and droughts.