Mexico City. The agricultural sector in Mexico may have losses equal to up to 0.16 percent of the gross domestic product (GDP), due to the effects of climate change, such as temperature increases and hydrometeorological phenomena, but if this event continue to be repeated, the loss of plants can reach 25 percent, described by the insurer AXA.
Citing the Bank of Mexico’s report: “Climate and Environmental Risks and Opportunities in the Mexican Financial System from Diagnosis to Action”, the insurer stressed that Mexico is highly exposed to rising temperatures in the next 15 years and hydrometeorological events, so it is urgent to combat the impact of climate change on the agri-food industry and it is important to develop new solutions that can quickly respond to a natural disaster and help mitigate the impact of this in the economy.
And the average temperature in the country has increased by approximately 0.85 degrees Celsius in the last 50 years and the trend is that it will continue to rise between 1.5 and 2 degrees Celsius in the north of the country towards 2039, according to data from National Exchange System Climate (SINACC).
This increase in temperature caused that, during the first eight months of the year, more than half of the national territory (55 percent) showed severe drought. The main affected states are Sonora, Chihuahua, Sinaloa, Durango, Nuevo León and the north-central region: Aguascalientes, Guanajuato, Querétaro, San Luis Potosí and Zacatecas.
Parametric assurance
While droughts mainly affect the northern part of the country, in the south farmers are affected by hydrometeorological phenomena and tropical cyclones that have an impact on 60 percent of the national territory, AXA said.
For example, Hurricane Agatha, which was recorded at the end of May 2022 on the coast of Mexico, affected crops in many states of the Pacific Ocean. However, more than 700 small corn producers have reduced the economic impact thanks to the protection of parametric insurance, thanks to a program created by AXA México in alliance with other insurers and public entities, which received they have a fee of 2 thousand 200 pesos. per hectare.
“Parametric insurance is useful for farmers because it provides immediate assistance, since the payment of the insured amount occurs when a certain index is met, such as the category of a typhoon or the achievement of a temperature; without having to prove that there is material damage. By having this model, the compensation is more efficient, transparent and simple,” explained the insurer.
These are insurance contracts whose payments are made based on the intensity of an event and the amount of loss calculated by or through a model and with expected data in the past.
According to the Food and Agriculture Organization of the United Nations (FAO), droughts are responsible for 82 percent of the losses observed in the world’s agricultural sector, and Latin America is one of the regions most affected by this phenomenon, which there is a damage amounting to 13 billion dollars.
