Drought can cost people, businesses and governments money. These impacts may be local, and only affect those in the drought-stricken areas, or be widespread and impact people living outside the drought affected area.
It has an adverse impact on different sectors, such as agriculture, energy production, tourism, and recreation, and the following ways are how:
Impact on Agriculture
In the agricultural industry, dry conditions and lack of precipitation can damage or kill crops, negatively impacting farmers’ income. Crop loss also impacts consumers through increased food prices and the economic impacts of drought can be felt in other provinces and even countries.
Livestock producers are impacted by drought due to lack of drinking water and poor pasture conditions as well as increased prices of feed for livestock.
A lack of food and water, or increase in the price of food and water, can lead to ranchers selling or slaughtering more animals from their herd. An increase in animals slaughtered early in a drought year may cause an initial decrease in meat prices due to overabundance of meat. However, this is often followed by an increase in meat prices as a drought persists, as there are less animals and the price to feed and water the animals has increased.
Drought impacts both thermal energy production, where there may not be enough water to cool the process, and hydropower production where there may not be sufficient water to produce power.
Impact on energy production
Due to the decreased energy production there tends to be a shortfall in power across the territories that needed to be supplemented with diesel power generation. Diesel power generation is more expensive than hydropower generation and increases greenhouse gas emissions during combustion.
An example of drought having a negative financial impact on the energy industry according to the Albert Water Portal Society- is in 2001 when severe droughts in California and the Pacific Northwest significantly reduced hydropower generation. This resulted in tight electricity supplies and high prices. Power outages were largely avoided, however it is estimated the total regional economic impact of the drought was between $2.5 – 6 billion.
Impact on recreation and tourism
Drought can also hurt the recreation and tourism industry. Businesses, such as water sport rental shops, maybe financially impacted during a drought. Small businesses near a waterfront or in a vacation town that rely on a steady stream of tourists for business may also lose money.
As climate variability increases in the future, the economic impacts of drought may be more prominent. Droughts can be expensive for consumers with increased food and energy prices, as well as cost the municipality, province and country where they occur. If a drought is severe enough, it may also have an impact on the overall GDP of a nation.