Journal cover Journal topic
Natural Hazards and Earth System Sciences An interactive open-access journal of the European Geosciences Union
Nat. Hazards Earth Syst. Sci., 15, 1603-1616, 2015
https://doi.org/10.5194/nhess-15-1603-2015
© Author(s) 2015. This work is distributed under
the Creative Commons Attribution 3.0 License.
Research article
23 Jul 2015
Assessing the economic impacts of drought from the perspective of profit loss rate: a case study of the sugar industry in China
Y. Wang2,1, L. Lin2,1, and H. Chen2,1 1Key Laboratory of Environmental Change and Natural Disaster of MOE, Beijing Normal University, No. 19, XinJieKouWai St., HaiDian District, 100875 Beijing, China
2Academy of Disaster Reduction and Emergency Management, Beijing Normal University, No. 19, XinJieKouWai St., HaiDian District, 100875 Beijing, China
Abstract. Natural disasters have enormous impacts on human society, especially on the development of the economy. To support decision-making in mitigation and adaption to natural disasters, assessment of economic impacts is fundamental and of great significance. Based on a review of the literature on economic impact evaluation, this paper proposes a new assessment model of the economic impacts of droughts by using the sugar industry in China as a case study, which focuses on the generation and transfer of economic impacts along a simple value chain involving only sugarcane growers and a sugar-producing company. A perspective of profit loss rate is applied to scale economic impact. By using "with and without" analysis, profit loss is defined as the difference in profits between disaster-hit and disaster-free scenarios. To calculate profit, analysis of a time series of sugar price is applied. With the support of a linear regression model, an endogenous trend in sugar price is identified and the time series of sugar price "without" disaster is obtained, using an autoregressive error model to separate impact of disasters from the internal trend in sugar price. Unlike the settings in other assessment models, representative sugar prices, which represent value level in disaster-free conditions and disaster-hit conditions, are integrated from a long time series that covers the whole period of drought. As a result, it is found that in a rigid farming contract, sugarcane growers suffer far more than the sugar company when impacted by severe drought, which may promote reflections among various economic bodies on economic equality related to the occurrence of natural disasters. Further, sensitivity analysis of the model built reveals that sugarcane purchase price has a significant influence on profit loss rate, which implies that setting a proper sugarcane purchase price would be an effective way of realizing economic equality in future practice of contract farming.

Citation: Wang, Y., Lin, L., and Chen, H.: Assessing the economic impacts of drought from the perspective of profit loss rate: a case study of the sugar industry in China, Nat. Hazards Earth Syst. Sci., 15, 1603-1616, https://doi.org/10.5194/nhess-15-1603-2015, 2015.
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Short summary
This paper proposes a new model to assess the economic impact of drought from the perspective of profit loss rate. The study focuses on economic impacts along a simple value chain involving only sugarcane growers and a sugar-producing company. In a rigid farming contract, growers suffer far more than the sugar company when impacted by severe drought. The difference in loss is sensitive to the sugarcane purchase price and considering this would provide potential solutions to such a problem.
This paper proposes a new model to assess the economic impact of drought from the perspective of...
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