The potential benefits of agricultural insurance include greater willingness on the part of farmers to carry risk and engage in production strategies with higher returns, as well as increasing the provision of lending to agriculture. However, the design of sustainable insurance products for agriculture is very complicated. This project seeks to test an area-based yield (ARBY) insurance scheme for small and medium sized producers in selected valleys of the Peruvian coast. This ARBY insurance product should give farmers a lower base risk than other types of index-based insurance programs.

The Peruvian government has recently approved $30 million to strengthen rural financial markets, with the provision of index-based insurance as a top priority. This project will work with government officials, financial market providers, and the private insurance sector to help develop a product that can be offered to farmers in the market. By assessing the uptake and impact of this pilot project, researchers will be able to inform future activity of the Ministry of Agriculture in Peru.