Empirical effects of drought and climate

This research finds a strong relationship between more intense future drought and drops in farm profit.

Year on year drought is still uncommon in Aotearoa, giving farmers opportunities to recover – financially, mentally and environmentally. But uncontrolled climate change is likely to bring somewhat more severe and far more frequent drought.

This research draws on 70,000 tax returns and temperature and soil moisture data, to understand the historical relationship between local weather and farm profits in both the dairy and sheep+beef industries. Controlling for prices and farm management, the research shows a clear effect. Extrapolating on the clear relationship, future climate change scenarios were tested to understand how much future farm profit might be under pressure, due to reduced soil moisture and increased temperatures.

Under a high climate change scenario (RCP8.5) – the pathway representing little climate action and high economic growth – sheep and beef farmers could see a profit loss of up to 54% by the end of the century, subject to a high degree of uncertainty. Analysis suggests that sheep and beef farms are vulnerable to high temperatures as well as soil moisture loss, while dairy shows an unclear effect of high temperatures, but is clearly sensitive to soil moisture loss (according to this modelling).

Looking only at changes in soil moisture, both dairy and sheep and beef show a decrease in profit by 2100 (an average of 20% for dairy and 7% for sheep and beef). 

A more moderate climate change scenario (RCP4.5) suggests – unsurprisingly – more moderate losses  considering soil moisture changes alone.

One potential use of these results is to better understand how climate change might encourage farmers and growers to implement adaptation measures, or even to change what they farm and where. Due to large capital investments, it’s difficult for farmers to change the way they use their land. And the creeping pace of climate change will not likely force land-use change in the near future. Yet this research suggests that land-use change should at least be on the cards in some places.

Further analysis, led by Lynn Riggs of Motu Economic Policy and Research, examined the impact of past, present and future drought on employment. Overall, the relationship between drought and employment in New Zealand appears to be complicated, with soil moisture and temperature having different and sometimes offsetting effects within and across industries. Dairy shows the strongest correlation, with the relationship between monthly soil moisture and monthly employment consistently showing up as strong and positive.