Weather derivatives, farmer vulnerability, and the financialization of agricultural risk management in Guatemala

The recent conjuncture of climate change and commodity price volatility have made agricultural production a significantly risky endeavor. The dangers are particularly acute for poor and marginalized farmers in the global South who lack the assets and state protections that insulate their more fortunate counterparts.  In the face of growing uncertainty, a host of influential actors have championed financial derivatives as tools for managing agricultural risk, including environmental risks. This research project focuses upon ‘index-based agricultural insurance’ (IBAI), and considers their potential for advancing rural development. 

IBAI compensation is linked to environmental measures that serve as a proxy for loss. This approach significantly lowers costs for insurers, allowing them to extend coverage to small-scale and remote farmers who are typically deemed too costly to insure in conventional markets. Despite widespread support and a growing availability of IBAI products, few studies have empirically evaluated the impacts of such products on farmer well‐being and only one has considered how pre-existing vulnerabilities shape their relative outcomes. 

This project investigates how attempts to financialize agricultural risk management shape – and how they are shaped by – the socioeconomic characteristics of agrarian actors.  My objectives are to 1) determine the types of risks and opportunities associated with the introduction of IBAI and explore how they are distributed within and across agrarian households; 2) examine whether the adoption of IBAI is associated with changing agricultural practices and traditional risk management strategies; and 3) identify the actuarial logics and technics used for converting agricultural uncertainty into derivative-based insurance and compare these understandings to farmers’ conceptualizations of agricultural risk.