Drought costs rising 3-7.5% annually: OECD Report

The cost of droughts has risen sharply. An average drought in 2035 is projected to cost at least 35 per cent more than it would today, according to a new report by the Organisation for Economic Co-operation and Development (OECD).

Globally, economic losses and damages due to droughts are increasing at an annual rate of 3-7.5 per cent, according to the report. Agriculture is the most affected sector. Crop yields can decline by up to 22 per cent in particularly dry years.

The report titled OECD Global Drought Outlook: Trends, Impacts and Policies to Adapt to a Drier World was published on June 17, 2025. It assessed current and future drought risks, their impacts on ecosystems, economies and societies and outlined policy responses for adaptation and resilience.

The analysis revealed that 40 per cent of the planet has experienced more frequent and intense droughts in recent decades due to climate change and human activity.

In 2023, nearly half (48 per cent) of the global land area experienced at least one month of extreme drought, the second-largest extent observed since 1951. Hotspots of increased drought frequency and intensity include the western United States, South America, southern and eastern Europe, southern Australia, northern and southern Africa, and Russia.

Droughts cause productivity losses far beyond agriculture, affecting trade, industry and energy production.

OECD’s analysis of the observed and projected trends in drought occurrence showed the scale of not just the economic, but also the environmental and social consequences.

Since 1980, 37 per cent of global land has experienced significant soil moisture loss.

Similarly, groundwater levels are falling globally, with 62 per cent of monitored aquifers in decline, while many rivers worldwide are experiencing significant decreases in stream flow. These changes in water availability accelerate soil degradation and negatively affect ecosystems such as forests and wetlands, affecting plants’ biomass and distribution. This threatens biodiversity and disrupts essential ecosystem services, including water purification and carbon sequestration, exacerbating future drought risks.

Droughts are responsible for 34 per cent of disaster-related deaths and exacerbate poverty, inequality and displacement, especially in sub-Saharan Africa.

The Drought Outlook identified the underlying drivers and impacts of drought and analysed how selected policies and measures can enhance resilience and support adaptation in a drier world.

The report urged nations to adopt proactive, integrated strategies to build resilience.

Wider adoption of existing solutions is needed to achieve system-wide impact. Innovations in water use, including through water recycling and harvesting, can significantly reduce water abstraction by industry and manufacturing. The cultivation of drought-tolerant crops can be advanced through incentives and alignment of regulatory measures, and more efficient irrigation systems could significantly reduce global water use. Sustainable land use and ecosystem management also play a critical role in strengthening natural resilience to drought and safeguarding essential water-related ecosystem services.