Climate models indicate that New Zealand’s farms will be increasingly exposed to adverse climate events in the future. In this study, the authors empirically investigate drought impacts on farm enterprises by linking financial, agricultural and productivity data from Statistics New Zealand’s Longitudinal Business Database (LBD) with historical weather data from NIWA. The sample consists of an unbalanced panel of over 67,000 observations of livestock farm enterprises between 2002 and 2012.
A set of panel regressions were run with time and farm fixed effects to estimate the effect of changes in drought intensity on gross output, profit per hectare, current loans and intermediate expenditure of dairy and sheep-beef farms. To explore factors of resilience to droughts, the authors also examine how the estimates change with different farm characteristics. Most (but not all) of the estimated drought effects are significant, consistent across various specifications and of the expected sign. However, this study had limited success in conclusively identifying farm characteristics that affect drought outcomes in the data.