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drought impacts, farm sector, multiplier effects, model validation


During the 2002 drought, farm sector economic factors were monitored to assess the likely statewide economic impacts. Timely moisture during the spring of 2003 resulted in a sizeable wheat harvest relative to recent years. Prices in the fall of 2003 have also been significantly higher for cattle and soybeans compared to prices in recent years. As a result, there have been inquiries as to the extent of economic recovery in the farm sector of South Dakota. The purpose of this paper is to outline the estimation procedure used to assess the drought in 2002, validate the extent of the impact, and discuss potential mitigating effects observed during 2003. The results suggest the direct costs to the farm sector in 2002 can best be described using a range of $650-800 million. The improved market conditions in 2003 would offset a portion of those losses at the state level. While the offset estimate is $477 million, a range of $375-550 million would better encompass the scope of the impact. Finally, while the aggregate farm sector will benefit in 2003, winter wheat and cow-calf producers most adversely affected by the drought will likely need additional time to recover.


Copyright 2003 by Matthew A. Diersen and Gary Taylor


Department of Economics, South Dakota State University

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