Weather-indexed insurance and productivity of small-scale farmers: An impact evaluation of Mexico's CADENA program

Farmers in developing countries face substantial weather risk but often have few financial tools to deal with this risk. To address this issue, the Mexican government instituted a program in 2003 called CADENA that currently provides both agricultural and livestock insurance to small farmers. A large portion of the agricultural land that the program covers is insured via weather index insurance. This policy brief summarizes the preliminary results of an evaluation of CADENA's weather index insurance component. A regression discontinuity design using insurance thresholds allows us to determine the impact of receiving payment in the case of a weather shock among the set of insured municipalities. We find that payment results in an increase in the log hectares of maize sowed relative to the previous year. We also find evidence of positive effects on income and expenditure per capita in rural localities, particularly those where a large percentage of agricultural land is controlled by eligible producers. We hope to refine and expand this analysis with additional data in the future.