Economics of drought preparedness and response in irrigated agriculture

Graduation date: 2007The impact of recent severe droughts throughout the United States, the potential for climate change to intensify the frequency and severity of drought, and discussion about the future of government assistance in agriculture highlight the need for a transition from drought as ‘disaster’ to drought as ‘managed risk’. However, guidance for agricultural producers about optimal drought preparedness and response is insufficient. It is particularly unclear what optimal drought preparedness and response should look like, in practice, for farm systems with uncertain water supplies and intra- and inter-year dynamics. A mathematical programming model that captures the stochastic and dynamic aspects of an irrigated row crop farm is developed and used to explore the nature of optimal drought preparedness and response. Results indicate several important characteristics. First, drought has the potential to generate heterogeneous impacts, even across a set of homogeneous farms. Second, a farm system with inter-year dynamics can continue to experience the effects of drought after the drought itself subsides; additionally, the effects of drought in one year can intensify the impact of drought in subsequent years. Third, in the presence of discount and interest rates, crop diversification does not maximize expected profit, even though it is often considered a drought management tool. Fourth, the primary effect of water supply uncertainty is the abandonment of more fall-prepared fields. Hence, the multi-peril crop insurance program’s prevented planting provision is identified as an optimal drought preparedness tool, even if unsubsidized. Finally, the predicted effects of climate change for snowmelt-dependent farm systems require distinctly different forms of adaptation, and cause profit losses of different magnitudes. Because the model captures both intra- and inter-year dynamics, it provides 1) a more thorough understanding of the complex tradeoffs that producers face when preparing for and responding to drought, 2) a more complete picture of the dynamic impacts of drought, and 3) important insights about the administration of drought assistance programs. Lastly, it elucidates the meaning of optimal drought preparedness; a notion that has received increased attention in the policy arena, but whose practical form has been only vaguely alluded to