The Drought in Belize in 2004-2005

The Drought in Belize in 2004-2005 Estimation of its Economic Impact Using the Simplified ECLAC Methodology By J. Roberto Jovel Contents • Characteristics of the drought • Impact on selected sectors • Methodology and assumptions for estimation on economic impact 5Aug05 RJovel 2 Characteristics of the Drought Long-Term Rainfall at Belize City 6000 5000 Annual Rainfall, mm 4000 3000 2000 1000 0 5Aug05 RJovel 4 Cummulative Departure from Average, mm 10000 12000 14000 2000 4000 6000 8000 18 0 18 18 18 19 03 07 11 15 19 23 27 31 35 39 43 47 51 55 59 63 67 71 19 19 19 19 19 19 75 79 83 87 91 95 99 95 91 87 Wet Long-Term Trend in Rainfall at Belize City, 1887-2002 5Aug05 19 19 19 19 19 19 19 19 19 19 19 19 Transition RJovel 19 19 19 19 19 Dry 5 19 99 Actual versus mean monthly rainfall at Airport 350 300 Monthly rainfall, mm 250 200 150 100 50 0 JAN 2003 5Aug05 JUL JAN 2004 JUL JAN 2005 6 Mean RJovel 2003 to 2005 Actual vs mean monthly rainfall at Central Farm 350 300 250 Monthly rainfall, mm 200 150 100 50 0 JAN 2004 APR JUL OCT JAN 2005 APR 5Aug05 Mean 2004RJovel to 2005 7 Actual vs mean monthly rainfall at Towerhill 200 180 160 Monthly rainfall, mm 140 120 100 80 60 40 20 0 JAN 2004 APR 5Aug05 JUL OCT RJovel 2004 to 2005 JAN 2005 APR 8 Mean Rainfall Deficit in 2004 30 Area of Most Significant Rainfall Deficit 25 7 5Aug05 RJovel 9 Water level at Crooked Tree Lagoon 3.5 3 2.5 Water Stage, meters 2 1.5 1 0.5 0 JAN 2004 APR JUL OCT JAN 2005 APR -0.5 5Aug05 2004-2005 Min RJovel Low 1981-2004 Max 1981-2004 10 Actual vs mean air temperature 30 29 Monthly temperature, o C 28 27 26 25 24 23 JUN SEP DEC MAR Average 5Aug05 2004-2005 RJovel 11 Impact on Selected Sectors 5Aug05 RJovel 12 Agriculture 5Aug05 RJovel 13 Water requirements for grain crops versus effective rainfall 250 200 Monthly Values, mm 150 100 50 0 MAY JUL SEP NOV Agriculture Year JAN MAR Efective rainfall 5Aug05 Beans Corn Soybean Rice Sorghum 14 RJovel Sorghum production 30000 4000 3500 25000 3000 20000 2500 Production and Acreage 15000 2000 1500 10000 1000 5000 500 0 1998 1999 2000 2001 2002 2003 2004 0 5Aug05 Production RJovel Acreage Yield 15 Yield, Pounds per Acre Corn production 100000 90000 2500 80000 3000 70000 Production and Acreage 60000 50000 40000 1000 30000 1500 20000 500 10000 0 1998 1999 2000 2001 2002 2003 2004 0 5Aug05 Production Acreage RJovel Yield 16 Yield, Pounds per Acre 2000 Sugarcane and Sugar Production 1400 125 1200 120 Sugarcane production, Thousand Tons 1000 115 800 110 600 105 400 100 200 95 0 1998 1999 2000 2001 2002 2003 2004 90 5Aug05 Sugarcane Sugar RJovel 17 Sugar production, Thousand Tons Livestock 5Aug05 RJovel 18 Livestock Damage and Losses Monetary Impact, BZ$ Damage Cattle 800-lb heads (98) 1200-lb heads (40,000) Poultry 5-6 week broilers (65,000) Layers (8,000) Egg production (Apr-Aug) Totals 4,878,000 78,400 4,800,000 461.400 333.450 128,000 -5,339,400 Losses Total ... 4,878,000 78,400 4,800,000 26,641 488,091 33,450 128,000 26,641 26,641 26,641 5,366,091 Source: Livestock and Poultry Associations 5Aug05 RJovel 19 Agro-Industry and Commerce 5Aug05 RJovel 20 Sugar Milling process 5Aug05 RJovel 21 Sugar Milling • The sugar milling process was affected negatively by the decreased production of sugarcane (See Table 3-6 of Consultant´s Report) • The decline in sugar output was partially offset by a higher sugar-to-sugarcane ratio 5Aug05 RJovel 22 Other Agro-Industries • Other, food-processing industries sustained losses due to the negative impact of the drought on primary agriculture production • No information was available concerning the possible import of food stuffs for processing 5Aug05 RJovel 23 Drinking Water Supply 5Aug05 RJovel 24 Increased Water Demand and Sales 190 180 170 Water Sales, Million Gallons 160 150 140 130 120 110 100 MAY AUG NOV FEB 5Aug05 2004-2005 RJovel 2003-2004 25 Increase in Electricity Utilization for Water Production Sub-System Belize City Hattiesville Corozal Orange Walk Belmopan Per Cent Increase in Electricity Use 15.6 19.2 23.0 24.4 22.5 Source: BWS 5Aug05 RJovel 26 Electricity 5Aug05 RJovel 27 Actual vs Forecasted Hydropower Generation 2004-2005 14000 12000 Monthly Generation, MWh 10000 8000 6000 4000 2000 0 20 04 T 20 05 JU L DE C V AU G B AR AP R SE P O C NO FE M JU N Forecast 5Aug05 Actual RJovel 28 JA N M AY Methodology and Assumptions for Estimating Drought Impact Assessment Methodology Use is to be made of the damage and loss assessment methodology developed by ECLAC, as described in its Handbook for Estimating the Socio-Economic and Environmental Effects of Disasters, with some simplifications and modifications 5Aug05 RJovel 30 Concepts and Definitions Damage: the total or partial destruction of physical assets, measured in physical terms and expressed in monetary value at replacement cost; Losses: changes in economic flows arising as a result of the disaster, including production that will not be obtained, increased production costs, lower revenues and increased operational costs in the provision of services, and unexpected expenditures 5Aug05 RJovel 31 Assumptions The first, general asumption to be made is that the drought has ended as of June 2005, even though there is no scientific evidence to support this assertion. Specific assumptions will be made in the case of each sector to be analyzed, as will be seen later on. 5Aug05 RJovel 32 Basis for the Assessment The ECLAC methodology for the assessment of losses bases its results on the comparison of the expected situation in economic performance if there had been no disaster, and the actual situation prevailing during the disaster Sectoral performance forecasts are normally made by the appropriate institutions, before the beginning of the calendar or fiscal year. 5Aug05 RJovel 33 The Agriculture Sector 5Aug05 RJovel 34 Assumptions for the Assessment • Loss estimations for the agriculture sector requires the adoption of the agriculture season as basis for the analysis, rather than the calendar year • This is specially true for the case of sugarcane , whose collection begins in November of each year and ends around April of the following year 5Aug05 RJovel 35 Baseline for Analysis • Due to limitations in resources, the Department of Agriculture does not make any production forecasts before the start of the agriculture season • Therefore, to determine the baseline for comparison of expected or forecasted versus actual sector performance, an ex post facto analysis must be carried out 5Aug05 RJovel 36 Baseline for Analysis.. • Another limitation is the fact that no detailed statistics on different price levels are kept by the Department of Agriculture • Therefore, some specific assumptions will have to be made for the case of each product to be analyzed 5Aug05 RJovel 37 Step-by-Step Procedure To develop the production forecast for each agriculture product: - Adopt the surface area to be planted in 2004-2005 as that of the previous agriculture season; - Assume the best or highest agriculture yield of the last three seasons, as the one that would prevail in the 2004-2005 season - Combine the two figures to estimate the volume of production that would have been obtained in 2004-2005, had no drought occurred 5Aug05 RJovel 38 Step-by-Step Procedure.. Estimate production losses due to the drought: - Obtain production losses due to the drought by comparing the actual production figures and the estimated forecast figures - Adopt farmgate prices for each of the products analyzed that are not affected by scarcity or speculation, from Table 4-1 of the Consultant´s Report - Combine the two figures to obtain the value of the production losses due to the drought 5Aug05 RJovel 39 Livestock Analysis Since the livestock grower associations have made their own estimations and there is no sufficient data to revise these figures, adopt the damage and loss figures provided in Table 3-5 of the Consultant´s Report. 5Aug05 RJovel 40 Agro-Industry and Commerce Sugar Milling Other Food Processing Marketing 5Aug05 RJovel 41 Sugar Milling Estimate production forecast for 20042005: - Adopt the production volume forecast of sugarcane, as developed before - Adopt the best sugarcane-to-sugar ratio that prevailed in the years before the drought occurred (Table 3-6) - Estimate the production volume that would have been obtained if the drought had not occurred 5Aug05 RJovel 42 Sugar Milling.. Estimate agro-industrial volume production loss by comparing: - The forecasted volume of sugar for the nondrought condition, and - The actual volume of sugar obtained at the mills in the 2004-2005 season (Table 3-6) 5Aug05 RJovel 43 Sugar Milling... Estimate value of agro-processing and marketing of sugar - Adopt the international unit price of sugar for the 2004-2005 season as BZ$ 39,400 per long ton (Table 3-6) - Combine the above with the volume loss of sugar previously estimated 5Aug05 RJovel 44 Food-Processing Industry and Commerce Since there is no information available directly from the food-processing industries and commerce to enable an estimation of losses due to the drought, an indirect method for estimation of losses will have to be used The alternative method is valid only in cases where no direct damage has been sustained by the physical assets of the sectors, and when only production losses occur 5Aug05 RJovel 45 Step-by-Step Procedure Estimate the volume of primary production that will not be available as input for foodprocessing and marketing - Adopt the volume of production losses for each food crop, as estimated in the agriculture sector - Deduct the volumes of each product that the farmers retain for their own direct consumption - Determine the net volume not available for processing 5Aug05 RJovel 46 The agriculture to market chain Direct consumption by farmers Agricultural production 15-30% 70-85% Agroprocessing industry Agro-based Commerce 5Aug05 RJovel 47 Step-by-Step Procedure.. Estimate the added value involved in the food processing and commerce sectors by determining the difference in price at the producer, wholesale and retail levels Special care should be exercised as not to use prices that are already influenced by scarcity and speculation 5Aug05 RJovel 48 Step-by-Step Procedure... In Belize no comprehensive and systematic statistics on different price levels of agricultural products are available; only prices paid to the producer and some controlled retail prices Thus, for this analysis use is to be made of farm-gate prices given in Table 4-1, and the relative value of wholesale and retail prices given in Table 4-2 5Aug05 RJovel 49 Step-by-Step Procedure.... Estimate the added value of production losses in agro-industry and commerce: - Use the previously estimated volumes of food stuffs that will not reach the processing industries - Combine them with the price differentials estimated in previous stage - Ascertain the value of losses 5Aug05 RJovel 50 Step-by-Step Procedure..... Since it is quite feasible that commercial enterprises may have imported manufactured food products to sell, no estimates should be made of losses in the commerce sector It is likely however that the imported products may have higher prices due to the transport component, which should be accounted for as a loss 5Aug05 RJovel 51 Drinking Water Supply 5Aug05 RJovel 52 Losses in Water Supply Sector Types of losses in the Water Supply Sector - Increased cost to consumers due to higher consumption of water during drought - Higher operational costs to Utility due to increased electricity cost of pumping 5Aug05 RJovel 53 Increased Water Consumption Estimate increased volume of water used in the period of drought, using data available in Table 4-3 of the Consultant´s Report Adopt unit cost of BZ$ 0.0175 per gallon of water 5Aug05 RJovel 54 Increased Pumping Costs The Water Utility spent BZ$ 1.96 million in electricity in year 2003 Using partial data on increase of electricity consumption for pumping in period February to May 2005, given in Table 3-8 of the Consultant´s Report, estimate the increased total use of electricity for the entire system Since no information is available on the separate use of electricity in water subsystems, assume that each subsystem uses electricity in proportion to the number of consumers Assume also that there is a direct relation between monthly water sales and energy consumption under normal conditions 5Aug05 RJovel 55 - Electricity Sector 5Aug05 RJovel 56 Increased Electricity Generation Costs Determine the amount of hydropower that was not generated at Mollejon due to the drought, in comparison to the forecast made in early 2004 (Use data from Table 4-4 in Consultant´s Report) Assume that the hydropower generation not available due to the drought was fully replaced using thermal power plant generation Estimate the price differential between hydropower (BZ$ 0.134/KWh) and thermal generation whose value changes over time from the base value of BZ$ 0.170/KWh) 5Aug05 RJovel 57 Increased Electricity Generation Costs.. Taking into consideration the changing unit costs of fuel in the international market, adjust monthly thermal power generation costs using data given in Table 4-5 and combining it with base thermal cost of 0.170 BZ$/KWh Then, determine total increase in hydropower generation substitution 5Aug05 RJovel 58 Total Impact of Drought 5Aug05 RJovel 59 Impact and Magnitude of Disaster Aggregate the individual sectorial estimates of damage and losses to obtain the total economic impact of the drought Compare the total impact against the value of gross domestic product (GDP) for Belize in 2004 (equal to BZ$ 2,121 million) 5Aug05 RJovel 60 rjovel@jovel.org 5Aug05 RJovel 61