Historic drought cost region over $ 1 billion
Dr. John Martinez, Professor of Economics, and Dr. Robert Forrester, Professor of Finance, MSU Texas
For three and a half years, from the fourth quarter of 2011 to the first quarter of 2015, a dark veil of uncertainty hung over Wichita Falls and the surrounding communities. This is due to unique environmental circumstances enveloping the region – the Great Drought! This period (2011Q4-2015Q1), which we call the “Great Drought” had devastating consequences for the region.
Over a billion dollars lost
Based on our econometric analysis, the economic cost of the drought to the region was $ 876 million in lost revenue over the three-year period, 2012-2014. For each of these three years, the water capacity levels were below 45%. Levels in the fourth quarter of 2011 and the first quarter of 2015 were also well below average. Adding a semester – the fourth quarter of 2011 and the first quarter of 2015 – to the analysis pushes the overall cost for the three and a half years to just over $ 1 billion.
Locals are unlikely to be surprised at the scale of the disaster caused by the latest drought. However, what many residents may not have fully understood is the existential threat the region faced if the drought had continued. Fortunately, the rains finally came in mid-2015. If the drought had lasted half a year longer, let alone a full year longer, the economic consequences would have been dire.
Below 50 percent
According to the Texas Water Development Board, the average levels of the lakes serving Wichita Falls were on average 74% of their full capacity over the fifty-year period, 1969 – 2019. Before the Great Drought, the region had only experienced three years. – 1971, 1980 and 2000 – when capacity levels fell below 50% before rising again the following year. [See the chart below.]
What made the Great Drought so devastating was that water levels fell below 48% for every quarter (or 3 month period) during that time. For the entire 14-quarter period (2011Q4-2015Q1), lake levels were on average only 33%, meaning they were only one-third full. For three consecutive years, from 2012 to 2014, the annual average was less than 45% of the capacity for each individual year, reaching 24.9% in 2014.
VAR model used to estimate the cost of drought
Tracking the precise cost of drought is an extremely difficult business. What new businesses or planned expansions in existing facilities have not materialized due to the drought? Such counterfactuals are difficult to estimate. Nonetheless, using an advanced econometric technique – such as an autoregressive vector model (VAR) – it is possible to make reasonable estimates of the economic costs of the Great Drought on the local economy.
$ 292 million lost per year of drought
Based on our VAR results, we estimated the average annual cost for each of the three drought years to be just over $ 292 million in lost revenue. For the three-year period, 2012-2014, the total estimated cost was $ 876 million. Since the annual income is only available on an annual basis, we also used annual averages for water capacity and the only years where the annual average water capacity was less than 45% were from 2012, 2013 and 2014.
Although not included in the 2012-2014 figures, the last quarter of 2011, as well as the first quarter of 2015, were just as damaging. Lake levels reached very low levels in 2011 and 2015, but average annual lake levels exceeded 60% of their capacity during those years. Lake levels have been 74% above the region’s five-year average since 2015.
If we could have modeled on a quarterly basis, adding the fourth quarter of 2011 and the first quarter of 2015 when water levels were below 48%, the total estimate of our analysis would have been even higher, perhaps. be up to $ 146 million more ($ 292/2). Adding an extra semester would have pushed the total cost past the $ 1 billion mark for the three and a half years.
If we could have modeled on a quarterly basis, adding the fourth quarter of 2011 and the first quarter of 2015 when water levels were well below average, the total estimate from our analysis would have been even larger, perhaps. -be up to $ 146 million more. ($ 292/2). Adding an extra semester would have pushed the total cost past the $ 1 billion mark for the three and a half years.
Landscape, cultures have also felt the pain
Besides the low level of the lakes, the most visible signs of the drought were in the rural landscape of the region. The poor harvests in agriculture, as well as the reduction in livestock farming, would have been clearly visible to anyone traveling on any road from farm to market in the area. However, the negative economic effects have reached far beyond the agricultural sector.
Cascading economic effects of drought
For example, the reduction or interruption of the water supply is likely to result in reduced productivity or perhaps even the closure of manufacturing facilities. In addition to possible plant closures, cancellations of planned expansions to existing facilities may also have been a factor.
Drought can also negatively affect transport supply chains, leading to increased transport costs. Higher temperatures that often coexist with drought can take a toll on roads, airport runways and railroads.
Drought May Affect Hydraulic Fracturing and Fuel Refining Industries
Since energy and water are so interdependent, droughts can hamper hydraulic fracturing (or hydraulic fracturing) and fuel refining operations. Without an adequate water supply, these operations may be temporarily closed or, more likely, need to be reduced. Additionally, negative perceptions of drought, fire bans, or wildfires can result in fewer visits, cancellations of hotel stays, or reductions in booked vacations.
The impacts of drought on tourism and recreation are both direct and indirect. It directly affects activities that depend on water, such as boating, fishing and skiing. Indirectly, the effects of drought can include reduced income for tourism and sectors that rely heavily on recreation.
More importantly, the drought threw a dark cloud of uncertainty across the economy that may have held back potential new business ventures or potential expansions of existing businesses.
Drought, with its far-reaching impacts, has posed a significant economic threat to the local community in the past and could possibly do so again. By incorporating the possibilities of drought into preparedness planning, community leaders can help mitigate the adverse effects of drought with long-term plans to ensure an adequate water supply for the region. Relying on unpredictable weather conditions does not appear to be a viable option.