A Watershed Year: Anatomy of the Iowa Floods of 2008

15. Economic Losses from the Floods

15 Economic Losses from the Floods Daniel Otto Flooding in Iowa was one of the largest natural disasters in the U.S. in 2008. While from a national accounting perspective (Mattoon 2008) the 1993 floods in the upper Midwest were larger in scope and damages, the 2008 flooding appears to have caused more damage and losses for Iowa communities and individuals. The most severe flood damages occurred in communities along the Cedar and Iowa Rivers in eastern Iowa (RIO 2009). This chapter examines the financial impact of Iowa’s 2008 flooding, with some comparisons to economic losses in the 1993 floods. The chapter was written before reliable statistics on the year’s crop production were available and when losses of structures and infrastructure and economic activity were still preliminary; thus figures in this chapteraresubjecttorevision.Evenseveralmonthsaftertheendoftheflooding, information on the magnitude of the economic losses remained sketchy, with the quality of information varying for different categories of property. Although damages from flooding are immediately obvious, developing a comprehensive and reliable estimate of economic losses is very difficult. Nevertheless, interest in estimating the magnitude of economic losses begins almost immediately as public officials prepare requests for disaster assistance 140 flood damages, costs, benefits and begin planning for recovery. The National Research Council of the National Academy of Sciences has produced guidelines for assessing economic losses from natural disasters (NRC 1999). That report proved helpful in assessing economic losses from Iowa’s 2008 floods. Naturaldisasterslikefloodsandtornadosaffecttheeconomydirectlythrough the destruction of private homes, businesses, and public infrastructure. This property destruction damages the economic capacity of a region and disrupts normal economic activity. While spending on rebuilding becomes economic gain for the construction and building supply sector, there is loss of future growth potential because public and private resources are diverted away from other productive uses and into flood recovery. However, because most of the recovery costs come from federal sources, reconstruction spending should have a stimulative effect on state and regional economies. As of January 2009, $1.4 billion of disaster relief funds, mainly from federal sources, had been earmarked for Iowa flood recovery (RIO 2009). In 1993, the majority of flood-related losses were agricultural (Otto and Lipsman 1993). That year, wet weather and flooding occurred into July, too late for crops to be replanted. Because of sizeable U.S. crop inventories that year, revenues for flood-affected farmers suffered because weather-related yield reductions were not offset by a significant increase in crop prices. In contrast, the 2008 flooding in early June allowed many of the crop washouts to be replanted. The favorable weather through much of the remaining growing season brought statewide yields back to average expected state levels, according to September and October crop reports (USDA 2008). To estimate economic effects of the adverse 2008 weather on the agricultural sector, we used projected agricultural statistics to compare likely production of corn and soybeans (Iowa’s dominant crops) after the flooding to expected production under normal conditions. On average, about 2.5 percent of planted corn acreage each year is not harvested, and about 0.5 percent of planted bean acreage is not harvested. In fall 2008, the projected unharvested percentages exceededtheselong-termaverages,reaching5.8percentforcornand1.1percent for beans. The wet weather also lowered expected yields to slightly below the 28-year trend (from 169.5 to 168 corn bushels per acre, and from 49.25 to 47 soybean bushels per acre). These differentials in projected harvested acres and yields produced 2008 loss estimates of $539.7 million for Iowa corn producers, and $296.7 million for Iowa soybean producers (Hart 2008). These estimated losses represent statewide aggregates. However, crop losses were concentrated in the eastern half of the state and in lowlands along flooded economic losses from the floods 141 streams and rivers. In contrast to the floods of 1993, carry-over crop inventories were lower in 2007–2008 so that production reductions resulted in price increases that helped offset some of the total agricultural losses. These price increases were very beneficial for farmers in the western half of the state, who were relatively unaffected by flooding. High crop prices for the season meant that statewide estimates of farmer revenues for 2008 did not suffer as dramatically as they did in 1993. In addition, crop producers often had several safety nets in place, such as yield and revenue insurance and disaster payments paid out on a farm-by-farm basis, which helped...