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

Juliette Caucheteux, Jonas Nauerz and Svetlana Vtyurina

No 2025/052, IMF Working Papers from International Monetary Fund

Abstract: 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. In particular, we then examine the effect of droughts on agricultural yields (soy output) and find that they have a significant negative impact 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.

Keywords: Agriculture; Productivity; NDVI; SPEI; Weather; Drought; Insurance; South America; weather event; soy output; loss from drought; benefits of insurance; NDVI in Brazil; Natural disasters; Agricultural sector; Agricultural production; Insurance companies; Caribbean (search for similar items in EconPapers)
Pages: 32
Date: 2025-03-07
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