The Effects of Disaster Relief Insurance on Drought Impacts: A Case Study of Southwest Oklahoma

Many regions in the United States will experience a hotter, drier climate in the coming decades. This prediction is especially troubling for rural communities whose economies depend primarily on agricultural production systems susceptible to drought. The impact of drought on the agricultural sector has knock-on effects on other industries comprising a community’s economy. The result is that the total combined losses caused by drought (direct + indirect losses) can exceed direct losses alone. This study quantified the direct and indirect economic losses experienced by five counties in southwestern Oklahoma that experienced exceptional drought at some point from 2000 to 2021. The study also examines how Federal Crop Insurance Program (FCIP) indemnities for corn, cotton, and wheat mitigate the impacts of drought across all economic sectors. Drought caused an average loss of $163 million in output, 1,084 jobs, and $67 million in value-added per drought year in the communities analyzed. However, FCIP crop indemnities reduced drought-caused losses by 54% to 63%. A bumper wheat crop and record-high cattle prices caused by a reduction in supply during drought years also curbed drought-induced losses. These findings suggest that the economies of agricultural communities with more diverse production activities and higher enrollment rates in crop insurance were most resilient to drought.