Extreme Weather Events, Agricultural Output, and Insurance: Evidence from South America
IMF Working Papers, March 7, 2025
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- Extreme Weather Events, Agricultural Output, and Insurance: Evidence from South America
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Bibliographic details
- Authors: Juliette Caucheteux, Jonas Nauerz, Svetlana Vtyurina
- Published: March 7, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229001991.001
Summary and research question
- Extreme weather has profoundly affected countries across South America (SA), given the importance of the agricultural sector for the economies.
- The study constructs a unique dataset of high-frequency satellite data on temperature, precipitation, and a Normalized Difference Vegetation Index (NDVI) that proxies the agricultural yield in selected countries.
- The paper examines the effect of droughts on agricultural yields (soy output) and investigates heterogeneity in responses across countries.
- The study assesses insurance coverage in the region and uses a calibrated structural model to highlight benefits of insurance for Total Factor Productivity (TFP) and to offer recommendations for expansion.
Data and methods
- Dataset components:
- High-frequency satellite data on temperature.
- High-frequency satellite data on precipitation.
- Normalized Difference Vegetation Index (NDVI) as a proxy for agricultural yield.
- Target crop analyzed: soy output.
- Methodological approach:
- Empirical examination of drought effects on agricultural yields using the constructed satellite-based dataset.
- Calibration of a structural model, building on existing literature, to quantify benefits of insurance for TFP.
Key empirical findings
- Droughts have a significant negative impact on agricultural yields (soy output).
- There is heterogeneity in the response to droughts across countries in South America.
- Insurance coverage in the region is low, and barriers to expansion remain high.
Policy implications and recommendations
- Insurance could help protect farmers against severe losses from extreme weather events.
- Expansion of insurance is recommended to capture benefits for Total Factor Productivity (TFP), as highlighted by the calibrated structural model and existing literature.
- Addressing barriers to insurance coverage in the region is necessary to improve protection and productivity outcomes for agricultural producers.
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- Working Paper