Impact of drought on households’ income and welfare and food production index

Abstract Drought is accompanied with a reduction in agriculture and food products, thus it may represent a threat to food security in addition that can induce a reduction in households'income. Given the relationship between agricultural and nonagricultural sectors, there needs to examine the drought effects comprehensively. To this end, in current study a computable general equilibrium (CGE) model is applied to assess the effects of drought on households' income and welfare as well as on food production index. Applied data were obtained from the social accounting matrix (SAM) of year1380 (2001). Drought, defined as lower access to water, was examined in three scenarios of weak (16%), moderate (36%) and sever options (47%). Welfare changes are measured by Hicksian equivalent variation (EV). The results indicated that the food production index was decreased by 5.8 to 27.8% according to the severity of drought. The corresponding values of welfare index are 6.2-27.1%. It was also found that drought induces a reduction in rural and urban households' income, but reduction of income for rural households and especially for lower income groups is more than those for urban ones. The findings showed that terms of trade changes in favor of the agricultural sector, paving the way for investment in activities that increase scarce water resources productivity.