Floods, droughts, heat waves, cold spells, and other natural disasters are large sources of risk for farmers. For instance, in semiarid areas of India, 89 percent of farming households cited drought as the largest risk to agricultural production. Climate change may make weather patterns more extreme and unpredictable, further exposing already vulnerable smallholder farmers. A drought, heat wave, or other disaster can lead to a poor harvest, leaving uninsured farming households with little income for the season. In order to cope with unpredictable weather, farmers often plant low-risk, low-return crops instead of investing in more profitable crops that are more sensitive to weather. In India, farmers may plant sorghum, a low-risk crop, instead of groundnut, a higher-risk cash crop. Furthermore, farmers wary of bad weather may hesitate to make other investments in their farms, such as increasing fertilizer use. As a result, the threat of extreme weather can trap farmers in a cycle of low productivity. Weather index insurance, which makes payouts based on an easily observable variable such as rainfall, is an innovative financial product designed to make insurance accessible to poor smallholder farmers.

Weather index insurance was first offered in the early 2000s, and it is now marketed to individual farmers in over fifteen countries. The ten randomized evaluations summarized in this bulletin tested take-up of weather index insurance products and, in three cases, effects on agricultural production decisions.