This paper examines the effect of the extreme drought, which is caused by El Niño on firms’ performance in food and beverage manufacturing sector in Ethiopia. Combining panel data of Ethiopia Manufacturing Firms, remote sensed data on rainfall from CHIRPS database, and survey, we build a district - level measure of El Niño exposure and use within district variation over time to employe difference-in-difference estimation. We find that El Niño exposure decrease firms’ performance in terms of sales, employment, total factor, and labor productivity. The finding was robust to different model specifications. We identify shortage of domestic-sourced raw materials as a main channel: El Niño drought shock reduces the availability of domestic raw material.
