Economic Effects of Drought on Agriculture in North China

In the past three decades, global agriculture losses have continuously grown due to increasingly severe droughts. Compared with direct economic effects, there are great difficulties in evaluating the indirect economic effects of drought, which has severely lagged behind the urgent information needs for decision making. This study tries to solve the perplexity in the evaluation of the effects of drought on the price fluctuation of agricultural products by building a partial equilibrium model that describes the balancing process of supply and demand quantitatively. Using this model, a scenario analysis is applied to evaluate the price fluctuation of agricultural products caused by drought in North China. The results indicate that there is no major impact of drought on the market prices of eight major agricultural products. Even with the occurrence of a severe drought in North China, market prices of agricultural products will rise no more than 3.59 percent, which is less than the normal market price fluctuations of China's agricultural products. This study provides a tool for evaluating indirect economic effects of drought. The results of our case study could support decision making for China's food market regulation.