One of the major challenges of drought preparedness is understanding the actual and potential economic losses resulting from drought events. After the 1987-89 drought, Riebsame et al. (1991) estimated that the nationwide economic losses from that drought totaled approximately $40 billion dollars. In 1995, FEMA estimated that the average annual loss caused by drought is $6-8 billion. Although parts of the United States have been experiencing severe droughts since 1996, there is very little knowledge about the economic impact of these drought events.

During the 2002 drought, the National Drought Mitigation Center (NDMC) began to collect economic loss information from a variety of sources, including states. The information collected was incomplete and inconsistent, with the individual states focusing on impacts in selected sectors, but the NDMC was able to compile a table showing some of the losses, estimated at $11-12 billion. Unfortunately, the table is noteworthy for its incompleteness; very few sectors are represented, and by only a few states. It does not reflect the devastation that the drought has caused in many states and the role that these losses have played in states’ economies, which have been very sluggish in 2002 and 2003.

The 2002 experience illustrates that the United States needs to develop a comprehensive and consistent approach toward determining drought losses across all necessary sectors. Doing so would highlight the seriousness of the economic extent of drought losses, and encourage more states to increase their efforts in drought mitigation. Recent national policy initiatives— particularly the National Drought Preparedness Act, introduced into Congress in July 2003—may provide the incentive and resources to develop this approach.