The Economic Impacts of Extreme Rainfall Events on Farming Households: Evidence from Thailand

We investigate how rainfall shocks, in terms of floods and droughts, affect income, consumption, and coping responses of farming households in Thailand. We draw on a province pseudo-panel, combining household-level information from repeated cross-sectional farm household surveys over the period of 2006–2010 and provincial-based measures of annual rainfall shocks. These rainfall shock variables are constructed from high frequency rainfall time series, identifying the incidence of excessive and deficit rainfall events. We find that crop income falls sharply as a results of rainfall shocks, while there is evidence of income smoothing through asset transactions and off-farm employment in response to excessive rainfall but not deficit rainfall. This suggests that deficit rainfall events are more difficult to insure against as droughts not only reduce crop income but also limit households' opportunities to smooth income. On average, households seem to be able to smooth their consumption when affected by floods or droughts, although we do see a reduction in spending on luxury and miscellaneous items in case of droughts in order to maintain necessary consumption. Dissaving and asset sales are prevalent strategies for consumption smoothing. Finally, our findings emphasise wealth-differentiated effects of rainfall shocks as landless households seem more vulnerable to rainfall shocks than landholding households due to their limited ability to smooth income and consumption.