A publication of the Agricultural & Applied AAEA The magazine of food, farm, and resource issues Agricultural & Applied Economics Association Economics Association 3rd Quarter 2012 • 27(3) Damages to Agriculture from Natural Disasters Kurt M. Guidry and J. Ross Pruitt JEL Classifications: Q10, Q18, Q51, Q54 Key Words: Disaster Assessment, Economic Impact Methodologies, Natural Disasters,

osses caused by natural disasters such as drought, exces- L Table 1: Estimated Impacts to the Louisiana Agricultural, sive rains or hurricanes have had dramatic impacts on ag- Aquacultural and Fisheries Industries from Natural ricultural revenue and costs and the well-being of humans Disasters, 2000 - 2011 and animals. Losses of capital assets and other farm infra- structure have had far-reaching effects on economic viabil- ity. Louisiana State University Agricultural Center (LSU AgCenter) personnel are uniquely positioned and often called upon to assess the economic damage resulting after the occurrence of such natural disasters. Unfortunately, Louisiana has had its share of natural di-

sasters over the last several years. Since 2000, assessments of (Million Dollars) Value1 the physical damage sustained to the agricultural industry Year Event Impact (Million Economic Estimated Dollars) Farm Louisiana Aggregate Estimated Gate Gate of Farm Impact As a Percentage (Percent) Value have been conducted and economic impacts have been es- 2000 Drought $571 $4,039 14.14% timated in eight out of 12 years for four major hurricanes, two tropical storms, three incidences of prolonged drought 2001 $225 $3,900 5.77% conditions, and one summer of excessive rains. The eco- 2002 Tropical Storm Isadore and $540 $3,490 15.47% nomic impacts associated with natural disasters have been Hurricane Lili estimated at nearly $5 billion to the Louisiana’s agriculture, 2004 Early Season Excessive Rains $232 $5,035 4.61% aquaculture, and fisheries industries. Followed By Drought While similarities can be found across agricultural di- 2005 Hurricanes Katrina and Rita $1,500 $4,685 32.02% sasters, the one thing that became increasingly evident over 2008 Hurricanes Gustav and Ike $1,100 $5,320 20.68% the years is that each disaster event has its own unique set of 2009 Excessive Rains at Harvest $363 $4,855 7.48% issues and impacts depending on the magnitude and dura- tion of the event. In some cases, as with drought conditions, 2011 River Flooding $436 $6,086 7.16% the impact tends to focus on lost revenue due to crop fail- and Drought ure and lower productivity. In others, as was the case with Total $4,967 $37,410 13.28% the 2005 hurricanes, the number and extent of the impacts Source: LSU AgCenter, Department of Agricultural Economics and can be much more varied and challenging. Identifying Agribusiness, Various issues of economic impact reports these impacts and potential effects through assessments of 1 The estimated combined farm gate value of plant, animal, and fisheries physical and quality losses and estimates of resulting eco- enterprises in Louisiana. nomic damages is important to policy makers, government

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1 CHOICES 3rd Quarter 2012 • 27(3) agencies, and researchers in targeting the time given is generally to come up be made on what issues could and assistance. Since these assessments are with an assessment of more immedi- could not be adequately addressed. often requested of Extension with ate agricultural damages. Unlike direct impacts, indirect im- very short timelines, having a set of pacts to rural economies were found strategic procedures has proven to be Challenges in Determining to be more difficult to identify and necessary to meet deadlines and still Agricultural Damage often evolve more slowly over time. maintain the reliability and accuracy Also, depending on the severity of the of the assessment. The short timeframe often faced when storm, economic linkages used in the developing damage estimates requires creation of an industry multiplier for Damage assessment requests are having a strategic plan or system for typically made by government agen- a region may no longer exist making conducting an assessment. During them invalid for assessment purposes cies and private organizations after a the first half of the previous decade, natural disaster. For Louisiana, these (Guidry, Caffey, and Fannin, 2008; damage assessments in Louisiana fo- Fannin and Guidry, 2010). requests usually come to the Exten- cused predominately on revenue loss- sion Service. The one common theme es associated with drought and exces- Evaluating Agricultural Damage in in the requests is that they all require sive rainfall. Given the direct nature the provision of estimates in a very of these impacts, little thought was Louisiana short time, often less than a month. given to developing a strategic plan Louisiana economic assessments of The desire to respond quickly to for addressing more complex issues. natural disasters were limited to es- these requests can compromise the When two major hurricanes made timating short-term direct economic ability to adequately and accurately in Louisiana, one in 2005 damage to agricultural commodities, depict the nature of the damage. Ex- and then again in 2008, this informal aquaculture, fisheries and agricultural perience has shown that damage esti- approach to developing damage as- industries. This was mainly because mates calculated in haste can be sig- sessments proved to be inadequate to LSU Agricultural Center personnel nificantly overstated. Overestimated address the numerous impacts associ- had the greatest knowledge and ex- damage does however provide addi- ated with the storms within a two to pertise in these areas. tional political leverage to increase the three week time frame that was being A step towards a strategic set of money received from federal disaster requested by policy makers. procedures to evaluate damages was programs (Kliesen, 1994). As such, The sheer magnitude of the 2005 to develop a survey through which there is a delicate balance that must and 2008 hurricanes showed the need information could be collected and be navigated between the timeliness for a system that would allow for an organized to be used in developing di- and accuracy of a damage assessment. effective flow of information from the rect economic impacts. This involved a Historically, agricultural damage parish (county) level to the state level. collaborative effort including all levels assessments have been used to provide Information on the physical damages of the Cooperative Extension Service. policy makers with a basis for seeking collected at the parish (county) level Once evidence emerged that sig- disaster assistance not provided in tra- had to flow to the state level where it nificant damage had occurred over ditional farm policy legislation. The was collected, summarized, and used a large enough geographic area to need to understand the depth and in developing economic impact esti- warrant an economic assessment, an breadth of the impacts is critical to ef- mates. Variability in data collection initial standardized survey was sent fectively assist the agricultural indus- made it extremely difficult to quickly to parish (county) level agricultural try in formulating a plan to respond and accurately develop statewide eco- agents and state-level commodity to and recover from a natural disaster. nomic impact estimates. It was found production specialists to get an over- While the agricultural industry can that having a system that provided view of the physical damage expe- experience multiple impacts, many guidelines to parish (county) level rienced. This survey was typically such as crop failures, yield reductions, personnel in conducting the physi- limited to gathering information re- or liquidation of livestock typically cal damage assessment and which garding yield losses and impacts on have an effect of a year or less. Other provided uniformity in the type and major commodities affected by the impacts such as saltwater intrusion or amount of information being collect- natural disaster. coastal erosion resulting from hur- ed, increased not only the timeliness ricanes are longer run in nature and of the assessment, but also provided To ensure that economic damage may need more comprehensive policy an avenue to increase the detail and assessments reflected a uniform con- solutions to restore agricultural pro- reliability of the estimates. sideration of losses, multi-year impacts ductivity or improve societal welfare. were qualitatively identified and dis- It also became apparent during cussed but were not included in the However, Extension’s initial role in the hurricanes that decisions had to

2 CHOICES 3rd Quarter 2012 • 27(3) economic damage totals. Indirect im- one of the most frequently used and yield loss as well as on acreage that pact issues were also identified but not referenced publications developed experiences partial yield loss. included in the economic damage to- by the LSU AgCenter. If available, Events that prevent harvest in a tals provided by the assessment report. these types of additional data sources timely fashion can often cause lower The initial survey sent to parish can be used to supplement data from grain quality and test weights in feed (county) level and commodity pro- USDA to add accuracy and credit- grain crops and lower fiber quality in duction specialists provided a stan- ability to damage assessments. cotton. Given that estimates for qual- dardized approach for identifying While an initial survey can be ac- ity losses are generally much more commodities, acres, and the expected complished and a damage assessment subjective than yield loss estimates, yield impacts. Yield impacts were re- developed within two to three weeks the survey only requests information quested on a percentage basis rather of the disaster event, there is generally on the number of acres that would than per bushel or per pound basis. a need for one or multiple subsequent be expected to have quality losses. This was done to prevent the potential assessments. This is particularly true This information is combined with for over-estimation based on overly depending on the time of the year information obtained from a survey optimistic predisaster yield potential. that the natural disaster occurs. Di- of commodity buyers throughout Past experiences suggest that overly saster events that occur early in the the state asking for the range in price optimistic predisaster yield estimates growing season can prove extremely discounts being seen for quality dam- can lead to overestimating yield im- difficult in assessing yield impacts. age. Once the average price discount pacts associated with the disaster. With several weeks or months before is determined, it is used to adjust the The information collected from the commodity is to be harvested, assumed market price for the com- these surveys are combined with pub- weather conditions that follow the modity to determine the economic lished data to develop economic esti- disaster event can have as much or impact of quality losses from the nat- mates of losses. Where possible, U.S. more impact on the final yield. As ural disaster. An important point here Department of Agriculture’s National such, a second assessment is typically is that the price discounts for quality Agricultural Statistics Service (NASS) conducted at or around harvest time. losses are only applied to those acres yield data is used to develop five year A second survey is sent to parish identified from the survey at the re- average yields that serve as a proxy for (county) Extension personnel which duced yield levels. Since the yield predisaster yields. Likewise, estimates requests much more detailed infor- loss is accounted for, applying a price from the World Agricultural Outlook mation for all impacted commodities discount to “normal” or predisaster Board’s World Agricultural Supply and on a wider array of issues. This survey yields would result in overestimating Demand Estimates report are used asks for updated estimates for acreage potential impacts. to establish baselines for commod- and yield losses and for other infor- Depending on when a disaster ity market prices used in determining mation that can be used to develop impacts the agricultural industry, revenue levels. With the number of impacts such as increased produc- prevented plantings can also be ex- assumptions that must be made to de- tion costs and infrastructure losses. perienced. Excessive drought or rain velop damage estimates within a short Again, this information is combined at planting can push planting beyond time frame and the inherently subjec- with USDA data along with other recommended time frames. In these tive nature of physical loss assessments, published data such as estimated instances, surveys provide estimates the ability to supplement assessments commodity production costs and re- on the number of acres that were not with data that is widely recognized and turns found in enterprise budgets de- able to be planted to the intended accepted helps to improve the accura- veloped by the LSU AgCenter. Once commodity and were not subsequent- cy and credibility of estimates. this information is collected and tab- ly planted to any other commodity. Louisiana is fortunate to have an ulated, it is sent to commodity pro- In this case, the impact is defined as annual publication developed by the duction specialists that help to verify a loss of net revenue to the producer. Department of Agricultural Econom- and validate the numbers. LSU AgCenter enterprise budgets ics and Agribusiness that provides are used to estimate net returns that acreage, yield, and price data by par- Crop Related Impacts would have been expected under nor- ish (county) for every commercially Drought or excessive rain conditions mal conditions and are used to deter- grown commodity in the state. The can result in fields going unharvest- mine the economic impact associated Louisiana Summary: Agriculture and ed but, more typically, will result in with prevented planted acres. Natural Resources is a cooperative ef- some percentage yield reduction and Another issue that is typical of fort with parish and state level Ex- quality loss. Information is gathered many of the disasters faced in Loui- tension personnel and has become on acreage that experiences a total siana is increased production costs.

3 CHOICES 3rd Quarter 2012 • 27(3) Increased production costs are more pay higher prices than what the ani- is economic damage estimates that typical with excessive rain events mal sold for. The difference per head are less reliable than for other agri- at harvest which reduce harvest ef- between the replacement value and cultural commodities. As sale barns ficiency and increase harvest time. the cull value is used to determine the infrequently post prices, important However, in the 2011 drought, in- economic estimate for forced liquida- information on the number of head creased irrigation demand was a sig- tion of breeding stock. Higher than liquidated pre- and post-disaster and nificant impact faced by many agri- normal mortality is also accounted price of animals sold is lost. cultural producers. Surveys provide for in calculated economic damages information on acreages impacted for all classes of cattle. Issues and Lessons Learned by increased production costs as well The drought that Louisiana ex- While conducting damage assess- as other information needed to esti- perienced in 2011 added a new di- ments can be viewed as an inexact sci- mate the economic impact of these mension to calculation of livestock ence, years of conducting assessments increased costs. damage estimates. Previous experi- in Louisiana have provided several les- ences with natural disasters had not sons which might be applied in other Livestock Related Impacts led to accounting for early weaning states. First and foremost, a strategic Assessing economic damages result- of calves to help maintain available plan for conducting and implement- ing from natural disasters to a live- pasture for mature females. Extension ing the assessment is critical to guard stock industry requires a different agents provided state specialists with against potential biases as well as the approach than for row crops. Yield estimates on the number of calves temptation to overestimate damages. losses from hay production are ac- that were early weaned and the aver- Also, a plan is critical to be able to counted for in a similar manner to age difference in sale weight due to address in as accurate manner as pos- crop damage estimates as hay produc- drought compared to normal wean- sible policy makers, industry leaders, tion may suffer a reduction in yield, ing weights. Using information from and others with a vested interest in but also a decrease in the number of USDA AMS’ Market News Service the assessment. Since moving toward annual cuttings. Prices from USDA and selected auction markets in Loui- a standardized, strategic approach af- AMS’ Market News Service are used siana, the reduced value of calves sold ter the 2005 hurricanes, the ability to to calculate an economic estimate of was calculated. quickly respond to Louisiana agricul- the total decrease in hay production. As in other states, one challenge tural damage assessment requests has Hay prices are also important to value that has arisen in developing eco- improved as has the level of detail and the lost grazing potential associated nomic damages for the cattle industry the number of critical issues that are with pastures. Parish (county) Exten- has been a lack of price information. able to be addressed. The strategic sur- sion agents provide state specialists Market News Service cattle prices for vey approach has accomplished this with information on the number of Louisiana have not been available by creating an environment in which acres and days that grazing was im- since September 2010. The Market all personnel involved have a clearer pacted which are then used to place News Service is a partnership be- understanding of why and how the an economic value on the lost grazing tween USDA AMS and participat- assessment will be conducted. potential through increased feeding ing states to document prices and Every attempt is made to balance of purchased hay. Losses are assumed transaction volumes of agricultural accuracy with timeliness. Credibility using typical stocking rates and con- commodities. Limited and sporadic of the disaster estimates is improved sumption of forages per cow. pricing information is available from by limiting initial assessments to ma- Reduced grazing potential and selected auction markets in Louisiana jor commodities directly impacted hay production are only two aspects through the Louisiana Department and by supplementing assessments of livestock disaster estimates. Direct of Agriculture and Forestry’s (LDAF) with published data from respected impacts on livestock production are website. However, available prices are sources. Follow-up can be done at a also assessed through forced liquation self-reported by the sale barns and later time to conduct a more detailed, of breeding stock above normal cull- may not cover the bulk of sales as comprehensive assessment of the im- ing rates. The value of those breeding with the Market News Service. Ad- pacts of a natural disaster. However, stock which are forced to be liqui- ditionally, those barns that self-report in the future proposals for reducing dated is calculated, but this only ac- prices through the LDAF website do data collected and the number of re- counts for part of the economic loss. not offer unbiased, third party veri- ports provided by the USDA and by Should producers who cull above fication which USDA AMS’ Market state agencies may make use of pub- normal rates wish to replenish their News Service provides. The result lished data more limited. breeding stock, they typically have to of using prices from biased sources

4 CHOICES 3rd Quarter 2012 • 27(3) Another lesson learned is that the impact depended on weather condi- Guidry, K.M. (2005). Assessment of timing of the natural disaster will tions in the subsequent year. A year damage to Louisiana agriculture, likely impact the accuracy of assess- with average to above average rainfall forestry, and fisheries sectors by Hur- ments. If a natural disaster event is ex- would likely mitigate the impacts ricane Rita. LSU AgCenter Extension perienced during the early part of the of salt levels deposited by the storm Service Report, October 2005. growing season, the exact nature of surge. Including estimates in the as- Guidry, K.M. (2009). Updated esti- the impact on yield and quality will sessment for the 2005 hurricanes mates of the impact to agriculture not likely be known for several weeks on the potential of storm surge on from excessive rains in September or months until harvest is completed. subsequent production would have and October 2009. LSU AgCenter As a result, initial estimates need to brought in an additional level of er- Extension Service Report, Decem- err on the conservative side. Impacts ror to the assessment. To prevent this ber 2009. will likely look worst shortly after an type of error, assessments by the LSU event. Taking an aggressive stance in AgCenter limit estimates of economic Guidry, K.M. (2011). Updated es- estimating damage at that time, par- damages to current year disasters. timates of the impacts to agri- culture from Mississippi River ticularly when harvest is still several Finally, as noted in the discussion weeks away can lead to over estima- flooding. LSU AgCenter Extension of valuing the sale of breeding stock Service Report, June 2011. tion. In addition, crops are remark- and its replacement cost, consider- ably resilient and often can and will ation is given to the values of stock and Guidry, K.M., and Caffey, R. (2008). recover considerably following a flows for capital assets. Sales of capital Estimated impact to agriculture, natural disaster particularly if ideal assets such as breeding stock will result forestry, and fisheries from Hur- weather conditions follow the event. in higher farm incomes in the year of ricane Gustav and Ike. LSU Ag- Impacts on commodities from a natural disaster, but farm incomes Center Extension Service Report, natural disaster can vary significantly will decline in subsequent years unless December 2008. from disaster to disaster and within a that stock asset is replaced. Estimates Guidry, K.M., and Pruitt, J.R. (2011). disaster event. For some commodi- attempt to account for the increased Preliminary estimates of drought ties, the impact may be limited to cost incurred by agricultural produc- impacts to Louisiana agriculture in yield losses while others may have ex- ers to replace capital assets where ap- 2011 (staff report 2011-09). Ba- perienced yield losses in addition to propriate. While producers have an ton Rouge, LA: LSU AgCenter quality losses and increased produc- incentive to replace capital assets and Department of Agricultural Eco- tion costs. Lumping all of the impacts restore production as quickly as pos- nomics and Agribusiness. into one single damage estimate may sible following a disaster, each disaster Guidry, K.M., and Shoalmire, L. miss the fact that a commodity was is different in nature. As a result, it can (2004). Estimated economic faced with multiple issues and im- be difficult to accurately determine the damages sustained to Louisiana pacts. Where possible, assessments true length of the disaster’s impact and agriculture from adverse weather conducted by the LSU AgCenter how long it will take an operation to conditions in 2004. LSU AgCen- are categorized by major impacts on return to normal. ter Extension Service Report, No- specific commodities such as yield re- vember 2004. duction, quality losses and increased Guidry, K.M., and Shoalmire, L. production costs. For More Information (2001). Estimated losses to Loui- The same shortcoming of lump- Fannin, J.M., and Guidry, K.M. siana agriculture from Tropical ing different types of impacts into a (2010). Developing economic Storm Allison. LSU AgCenter Ex- single damage estimate can be found assessments in response to natu- tension Service Report, September by combining both short-term and ral disasters: A strategic plan for 2001. longer-term impacts. Potential multi- executing extension’s mission. Guidry, K. M., Caffey, R., and Fan- year impacts that seem evident dur- Journal of Extension, 48(3), 1 – 7. nin, J. M. (2009). How big is the ing the current production year can Available online: http://www.joe. number and why should we care? change drastically in a few months org/joe/2010june/tt1.php An evaluation of methods used to as weather conditions change. For measure the economic impacts to the example, during the 2005 hurricanes Guidry, K.M. (2005). Assessment of food and fiber sector from the 2008 one of the multiyear impacts expect- damage to Louisiana agriculture, hurricane season. Selected Poster ed was a reduction in yields on acre- forestry, and fisheries sectors by Presented at the Annual Meetings age that had been impacted by storm . LSU AgCenter of the Southern Agricultural Eco- surge. However, the full nature of that Extension Service Report, October 2005. nomics Association, Atlanta, GA.

5 CHOICES 3rd Quarter 2012 • 27(3) Guidry, K.M., Shoalmire, L., and Johnson, G. (2002). Estimated economic losses to Louisiana ag- riculture from adverse weather events in 2002. LSU AgCenter Ex- tension Service Report, December 2002. Kliesen, K.L. (1994). The economics of natural disasters. The Regional Economist, April 1994. Available online: http://www.stlouisfed.org/ publications/re/articles/?id=1880 Louisiana State University Agricul- tural Center Cooperative Exten- sion Service. (2011). Louisiana Summary of Agriculture and Nat- ural Resources. Available online: http://www.lsuagcenter.com/ agsummary/ Ortego, A., Guidry, K.M., Dunn, M., and Shoalmire, L. (2000). Estimates of drought damage to Louisiana farmers, forest land owners, and aquaculture produc- ers for 2000. LSU AgCenter Ex- tension Service Report, December 2000. United States Department of Ag- riculture World Agricultural Outlook Board. (2012). World Agricultural Supply and Demand Estimates. Available online: http:// usda.mannlib.cornell.edu/Man- nUsda/viewDocumentInfo. do?documentID=1194

Kurt Guidry ([email protected]. edu ) is Gilbert Durbin Professor and Extension Economist, Department of Agricultural Economics and Agribusi- ness, Louisiana State University Agri- cultural Center, Baton Rouge, Louisi- ana. J. Ross Pruitt (rpruitt@agcenter. lsu.edu) is Assistant Professor and Ex- tension Economist, Department of Ag- ricultural Economics and Agribusiness, Louisiana State University Agricultural Center, Baton Rouge, Louisiana.

6 CHOICES 3rd Quarter 2012 • 27(3)