Crop Species Production Diversity Enhances Revenue Stability in Low-Income Farm Regions of Mexico

Stabilizing farm revenues is a goal of agricultural policies around the world, especially in vulnerable regions with limited access to crop insurance. One potential pathway to revenue stability follows the agricultural “insurance hypothesis”, which holds that crop diversification has stabilizing effects on productivity that mitigate risks from environmental stressors and market shocks, thereby producing a form of natural insurance against crop loss. While substantial support for the hypothesis exists, most studies testing the hypothesis have occurred at the farm or landscape levels and have controlled for a limited range of socioeconomic and environmental factors. This study tests the insurance hypothesis by examining the effects of crop species production diversity on revenue stability in low-income regions of southern Mexico. Here, rural farms experience chronic vulnerability to climatic shocks and market forces. Using parametric and non-parametric approaches, three groups of models are used to examine the effects of socio-environmental factors and farm structural and functional characteristics on the crop diversity-revenue stability relationship. Additionally factored in the relationship are the effects of cropping portfolios: statistical groupings of different crop species (n = 304) that characterize distinct farming areas (1340 municipalities). Findings support the insurance hypothesis and underscore the importance of crop diversification in the region. However, findings also show that irrigation plays an even stronger role than crop diversification in stabilizing farm revenues. Furthermore, some crop portfolios negatively impact revenue stability, including some portfolios with high crop diversity. In sum, a better understanding of farm contexts—contributing factors and cropping portfolios—is key to designing policies that help stabilize farm revenues through crop diversification.