Total Cost of Drought in South Dakota: $1.8 billion

 BROOKINGS, S.D. -- The drought in South Dakota has cost $1.8 billion to date counting losses to all sectors of the economy, South Dakota State University economists say.
 
SDSU economists Gary Taylor, Matthew Diersen and Alan May made that calculation by looking at the direct effect on agriculture, the indirect effect on ag-related businesses and the induced effect on local consumers and businesses.

"The total effect of the drought of 2002 is not reflected only in the value of lost agricultural production in South Dakota," Taylor said. "The losses incurred in other sectors of the economy as a result of decreased earnings in the agricultural sector should also be included to obtain a true picture of the total effect on all industries and consumers in South Dakota."

The direct effect, with a multiplier of 1, is the estimated $829 million loss in agricultural income as of Aug. 12.

The indirect effect, or the effect on businesses related to agriculture, is $829 million multiplied by the indirect multiplier of 0.77. That yields a figure of $638.33 million.

The induced effect, or the effect on local consumers and businesses, is the same $829 million multiplied by 0.41. That yields a figure of $339.89 million.

"These three total to a $1.8 billion impact to the South Dakota economy to date," Taylor said. "As the season progresses this total could change, depending upon conditions in the state.  Recent rains have helped mitigate some of the effects of the drought but in most cases, the damage has already occurred."

Crop yield potential has been reduced and pastures/rangeland will not recover this year.  However, the rain does give some hope that there will be subsoil moisture to produce crops and grass next spring, Taylor added.

To put this loss in perspective, the economists point out that total gross state product for South Dakota was $23.19 billion in 2000, according to state Department of Commerce figures.  The gross state product is the value of all the goods and services produced in the state during a one-year period.

The magnitude of these three effects depends on a number of different factors, including the population of the state, the number of industries in the state, and how much of the economic activity stays in the state and how much "leaks" out due to the buying or selling of goods into or out of the state and the in or out migration of labor.

The state multiplier was derived using IMPLAN Pro, a social accounting and impact analysis software package.  The three parts of the multiplier are as follows:  the direct effect is 1, the indirect effect is 0.77, and the induced effect is 0.41.  This results in a total multiplier for the state of 2.18.

IMPLAN Pro is a software package used to create a predictive model of a local economy that may be used to analyze shocks to the economic system, The program uses data from 528 different industrial sectors to create a model of the economy, including employment, value added activities, and business to business transactions, to create a baseline economy.  The multipliers developed by the program represent the actual linkages between businesses, government, and households in the study area.
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Contact: Gary Taylor, (605) 688-4851; Matthew Diersen, (605) 688-4864; Alan May, (605) 688-4862
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Lance Nixon, Editor
AgBio Communications Unit
South Dakota State University
ACC, Box 2231, Rm 200
Brookings, SD 57007
Telephone: (605) 688-4653
Lance_Nixon@sdstate.edu