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Abstract

Droughts are expected to become more frequent and more severe under all climate change scenarios. They are predicted, in turn, to result in a significant increase in the associated cost to the agricultural sector in New Zealand. This paper explores how drought hazards affected agricultural productivity and economic performance for different sectors (sheep and beef farming and dairy farming) between 2007 and 2016. We combine agricultural and financial farm-level panel data from Statistics New Zealand’s Longitudinal Business Database (LBD) with the drought index produced by the National Institute of Water and Atmospheric Research (NIWA). We estimate a set of fixed-effects panel regressions and find that drought events have negative impact on the agricultural productivity across all sectors, where the most vulnerable sector is dairy farming. Dairy sector’s operating profit is significantly reduced through increasing in operating cost due to proving feed for livestock during drought events. Results also show that droughts affect farms’ financial indicators such as their interest coverage, return on capital, business equity and debt to income ratio.

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