IMF Working Papers

Extreme Weather Events, Agricultural Output, and Insurance: Evidence from South America

By Juliette Caucheteux, Jonas Nauerz, Svetlana Vtyurina

March 7, 2025

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Juliette Caucheteux, Jonas Nauerz, and Svetlana Vtyurina. "Extreme Weather Events, Agricultural Output, and Insurance: Evidence from South America", IMF Working Papers 2025, 052 (2025), accessed March 9, 2025, https://doi.org/10.5089/9798229001991.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Extreme weather has profoundly affected countries across South America (SA), given the importance of the agricultural sector for the economies. However, these effects have not yet been properly measured. In our study, we construct 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. We then examine the effect of droughts on greenness and find that droughts have a significant negative impact on agricultural yields (soy output) and that there is heterogeneity in the response across countries. While insurance could help protect farmers against severe losses, coverage in the region is low, and barriers remain high. Building on existing literature and using a calibrated structural model, we highlight the benefits of insurance for Total Factor Productivity (TFP) and offer some recommendations for its expansion.

Subject: Agricultural production, Agricultural sector, Economic sectors, Environment, Financial institutions, Insurance, Insurance companies, Natural disasters, Production

Keywords: Agricultural production, Agricultural sector, Agriculture, Caribbean, Drought, Insurance, Insurance, Insurance companies, Natural disasters, NDVI, Productivity, South America, South America, SPEI, Weather

Publication Details

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