Global and Local Drought Costs Evaluations

Meanwhile, existing evaluations of drought costs, although highly valuable, remain partial and are often contradictory. Table 5.1 provides some wide- ranging quantifications of drought impacts from the literature. For agriculture, a critical factor affecting the costs of droughts is the possibility to substitute surface water with groundwater resources. Use of groundwater is associated with additional pumping costs, due partly to falling groundwater levels (Howitt et al. 2014, 2015), but the future costs of such groundwater substitution seem to be unknown. In another example, the severe drought occurring in Spain and Portugal in 2005 reduced total European cereal production by 10 percent (UNEP 2006). EEA (2010) indicates that the average annual costs of droughts in the European Union doubled between 1976 and 1990, and 1991-2006, reaching EUR 6.2 billion after 2006, although it is not clear if this doubling was due to increased frequency and severity of droughts or due to the increased area of the European Union caused by new countries joining.

Many countries in Africa, especially in the Sahel region, have long been prone to severe droughts causing massive socioeconomic costs (Mishra and Singh 2010), but quantifications are generally more difficult to find for all developing countries. Uganda lost on average USD 237 million annually to droughts during the last decade (Taylor et al. 2015). Sadoff et al. (2015) found that droughts were likely to reduce gross domestic product (GDP) in Malawi


Selected Examples of the Costs of Droughts

Drought Costs per Annum (USD Billion)


Geographical Unit





Below et al. (2007)


Early 1990s


FEMA (1995)




Riebsame et al. (1991)




Howitt et al. (2014)




Howitt et al. (2015)




Wong et al. (2009)



European Union

EEA (2010)

by 20 percent and in Brazil by 7 percent. According to Sadoff et al. (2015), the countries that are most vulnerable to GDP losses due to droughts are located in eastern and southern Africa, South America, and South and Southeast Asia. Indeed, the World Bank reports that the frequency of droughts has been increasing in India (World Bank 2003). The magnitude of drought costs also seems to be increasing over time in India (World Bank 2003) and Morocco (MADRPM 2000), due mainly to the increasing value of drought- vulnerable assets. Another issue with these assessments is that they do not really capture costs in the sense of drought costs due to inaction, but implicitly cover the mitigating effects of various measures of either relief or risk management. For comparability and consistency, all assessments of the costs of droughts should be clear about which categories of costs they cover—from the broad categories described in Figure 5.2 or as described in Meyer et al. (2013).

Comprehensive evaluations of the costs of action versus inaction need to be informed by drought risk assessments. These would include analyses of drought hazards, vulnerability to drought, and drought risk management plans (Hayes et al. 2004). Analyses of drought hazards are important because proper risk assessments are impossible without knowledge of historical drought patterns and evolving probabilities of drought occurrence and magnitudes under climate change (Mishra and Singh 2010). This requires weather and drought monitoring networks with sufficient coverage, as well as sufficient human capacity to analyze and transform this information into drought preparedness and risk mitigation action (Pozzi et al. 2013; Wu et al. 2015). However, the operational forecasting of drought onset, its severity, and potential impacts several months in advance has not been broadly possible so far, especially in developing countries (Enenkel et al. 2015). Hallegatte (2012) indicates that the development of hydrometeorological capacities and early warning systems in developing countries to levels similar to those in developed countries would yield annual benefits of between USD 4 and 36 billion, with benefit-cost ratios between 4 and 35 (Pulwarty and Sivakumar 2014). Peck and Adams (2010), citing the case of the Vale Oregon Irrigation District in the United States, demonstrated that longer lead time weather forecasts are essential to enable appropriate responses to droughts. For example, if agricultural producers lack the knowledge that a second drought will shortly follow the first, they may mistakenly increase their future drought costs by expanding their earlier, vulnerable activities as a way to recoup their past losses. In this regard, in addition to physical meteorological infrastructures, wider innovative applications of available information and communication technologies, such as remotely sensed satellite data, have been instrumental in tracking vegetation cover change over long periods of time and with wide geographical coverage (Le et al. 2016). Similarly, mobile phone networks could help trace rainfall patterns with increased time and scale resolutions, especially in contexts where it could be time-consuming and costly to build physical weather monitoring infrastructure (Dinku et al. 2008; Hossain and Huffman 2008; Yin et al. 2008; Zinevich et al. 2008).

Although, as stated above, the literature on the impacts of droughts is fairly extensive, there is a lack of studies comparing the costs of inaction versus action. For example, Salami et al. (2009) traced the economy-wide effects of the 1999-2000 drought in Iran and found the total costs to be equal to

4.4 percent of the country's GDP. The same study also found that applying water-saving technologies to increase water-use productivity by 10 percent would reduce losses due to drought by 17.5 percent or USD 282 million. Furthermore, changing cropping patterns to suit the drought conditions allowed losses to be reduced by USD 597 million. Taylor et al. (2015) evaluated the viability of government drought risk mitigation strategies through increasing water-use efficiency, implementing integrated water resource management, and improving water infrastructures in Uganda. The results indicated that the rate of return could be more than 10 percent. Harou et al. (2010) used the case of California to show that mitigation action such as water markets could substantially reduce the costs of drought impacts, while Wheeler et al. (2014) showed how such markets have worked for Australia's Murray River Basin. Most of these examples of drought costs are linked to agriculture, yet droughts also have impacts in urban areas (Box 5.1).

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