Droughts and farms' financial performance in New Zealand: a micro farm-level study

Arbeitspapier

We quantify the impacts of droughts in New Zealand on the profitability of dairy, and sheep and beef farms. Using a comprehensive administrative database of all businesses in New Zealand, we investigate the impact of droughts on farm revenue, profits, return on capital, business equity, debt to income ratio, and interest coverage ratio. Over the period we examine (2007-2016) about half of the districts experienced severe droughts, and almost 85% of districts were affected by more moderate droughts at least once. For dairy farms, there is a strong negative relationship between the occurrence of droughts two years earlier and farms’ revenue, profit and consequently their return on capital. More surprisingly, we found that current (same fiscal year) drought events have positive impacts on dairy farms’ revenue and profit; this effect is most likely attributable to drought-induced increases in the price of milk solids (New Zealand is the market maker in this global market). In general, dairy farmers ‘benefit’ more from drought events when compared to sheep/beef farms, whereas the latter sector has less impact on global prices. These findings are useful for shaping climate-change adaptation as there is a clear variation in the future climate-change projections of drought intensities and frequencies for different regions in New Zealand.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 7633

Classification and Topics

• Classification: Wirtschaft ; Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets ; Climate; Natural Disasters and Their Management; Global Warming
• Subject: drought ; profitability ; dairy ; sheep ; beef farming ; New Zealand

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Pourzand, Farnaz ; Noy, Ilan ; Saglam, Yigit
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/198993
• Last update: 10.03.2025, 11:45 AM CET