Effect of drought and climate on agriculture in New Zealand

Abstract

<p><b>Three manuscripts form the basis of this dissertation exploring the effect of drought and climate on agriculture in New Zealand. The first manuscript examines the effects of droughts on agricultural profitability and farms' business performance indicators across dairy and sheep/beef land-uses in New Zealand. This study applies a fixed effect panel regression model using financial and agricultural data at the firm level from Statistics New Zealand's Longitudinal Business Database (LBD) over 2007-2016. The analysis shows that, on average, a recent drought increases revenue and profit from dairy farming. </b></p><p>The second manuscript explores regional differences in the impacts of drought events in New Zealand between 2007-2016. Dramatically different climatic conditions across New Zealand regions motivated this work. The study finds that Waikato and Taranaki's dairy farms – the main dairy producers- positively affected by drought event. This effect is potentially associated with drought‐induced higher milk prices. The positive impacts of drought are no longer identifiable once the model control for milk prices. Whereas sheep/beef farms' gross income and profit were negatively affected by droughts across most sheep/beef farming regions. The analysis also reports that there is no relationship between the persistent impact of drought events and farms' income and profits, on average, over three years. </p><p>The third manuscript estimates the Ricardian approach to examine how climate differences affect farmland values in New Zealand. This study applies the spatial first differences (SFD) method that compares climate differences to land value differences between adjacent neighbours to eliminate the omitted variables bias. This work estimates the effect of climate on overall rural land-uses and various land-uses between 1993 and 2018. The SFD estimation shows that warmer conditions are associated with higher capital values. There is also a positive relationship between farmland values and dryer soils. These relationships are likely due to causal effects of factors tied to climate such as agricultural productivity, the value of land improvements (tied to climate), and amenity values associated with residential uses. </p>