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  • Wendell Brock

Does Drought Really Dry Up the Economy?

Updated: Jul 17, 2023

By July those of us in the continental U.S. are in the full swing of summer. For most, that means picnics, swimming, camping trips, family reunions…and sometimes drought conditions. For many people this means water restrictions limiting how often we can water our lawn, but when examining the broader picture, we can see that drought has far reaching consequences. Drought has the capacity to impact all people across the many facets of our economy, potentially stalling growth.

Water is a vital resource, a scarcity of it can cost some countries as much as 6% of their GDP. According to, drought ranks third among environmental disasters, resulting in an average cost of about $9 billion per year making drought years extremely hazardous to our economy.

The most obvious and immediate effects of drought are found in our farmlands. The agriculture sector accounts for about half of all economic losses from drought. Without steady rainfall farmers will likely have a diminished harvest, creating a scarcity and increasing their costs as they are forced to use alternative methods in order to continue providing water. Through environmental and economic connections, this affects the food supply we see in our grocery stores, as well as feed for cattle and other livestock, which then increases the cost of meat and other animal products down through the supply chain. Beyond the current year’s drought, the lack of moisture damages the quality of soil, making it harder to grow healthy crops the following year, impacting future potential income of farmers.

The effect of drought on farmland doesn’t just end with food harvest or animals. Businesses that depend on farming, like tractor and farm equipment producers and sellers, also feel the pinch of losing business that a farmer can no longer afford or no longer needs due to damaged crops or lost livestock.

Farming is not the only industry that can experience the harsh impact of drought. Tourism and leisure businesses that are funded by water-based activities like boating, rafting, fishing, and even skiing suffer. When lakes, rivers, and reservoirs are low from a lack of rain or winter run-off these businesses experience decreased numbers and cancellations. Other waterfront type businesses that rely on tourism or seasonal visitors for their income like hotels, shops, and restaurants, will also experience the decline.

Where there is drought and dry wood and plants there are often wildfires. When this happens it can have an extended impact on the timber industry, which goes on to affect the cost of lumber, and ultimately the prices of the housing industry.

Droughts have an extensive reach that lie in the peripheral, all around, but not as quickly noticed. When water supplies dry up, the lack of moisture causes the ground to shrink. This contraction can damage structure foundations, roads, and water pipes, which puts added stress on personal, city, and business budgets. Power companies that rely on hydroelectric power face reduced energy production and even potential closures of facilities during extended periods of drought, resulting in higher energy costs for consumers. Water-based transportation like barges may have difficulty navigating in the low water levels of rivers and canals, which goes on to affect business that rely on those transports.

Droughts are more than just a dry period. All parts of our country are subject to droughts, not just out west in the deserts of Arizona, Nevada, Utah or California. Drought has the potential to greatly affect the economic standing of many people and businesses, making water management a key factor in economic growth and planning.

Photo 1 by Matt Palmer

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