Data Acclimation

A Guide for Financial Institutions to

Future-Proof Their Businesses

US agriculture is under threat. As a changing climate wreaks havoc on once-bountiful cropland, decades of business-as-usual are coming to an end. With worsening droughts alone expected to cost U.S. agriculture $10-14 billion annually, the profits of growers – and returns for their financial backers – face mounting uncertainty.

A new landscape of water and climate risk are phasing out old risk mitigation methods in agricultural finance. That is, traditional loan and investment risk identification and mitigation tools and methodologies lack the specificity and speed needed for ag finance institutions to understand how water and climate risks truly affect their portfolios.

 

Large-scale, blanketing climate analytics do not provide portfolio-specific granularity. Risk data that pinpoints exactly how drought, wildfires, and more impact every unique parcel in a loan or investment portfolio will set ag lenders and investors apart. Each borrower has their own risk profile and portfolios should be built on a thorough understanding of each one, not an overarching region as a whole. There must be granularity.

 

Data acclimation integrates the right risk analytics into existing portfolio data. By mobilizing and unlocking insight-rich data, ag finance institutions can not only reduce this uncertainty but actively work to mitigate the associated risks.

 

The answer is data acclimation:

Data acclimation is the process of geospatially contextualizing company data with third-party physical and material risk data, such as water and climate analytics, for the purpose of better understanding the impact of risks on loans, investments, and customers’ businesses.

 

This modern approach to data management unlocks new depths of risk discovery and empowers ag lenders and investors to reshape their portfolios by monitoring and mitigating climate and water risks.

With the harvests and parcel valuations of growers at greater risk than ever before, ag finance institutions that do not acclimate their data expose themselves to uncertain returns and higher default rates. Those that utilize data acclimation, on the other hand, will be poised to outmatch their competition.

Water risks and climate change force the name of the game to be granularity, speed, and connectivity. These add up to create a consistent and accurate understanding of risk in agricultural loan and investment portfolios.

 

 

What Is Data Acclimation?

By breaking down the aforementioned definition into its component parts, the form and function of data acclimation become clear.

 

1. “Data acclimation is the process of geospatially contextualizing company data”

Data acclimation is a service that enhances proprietary financial records. By situating first-party data geospatially, data acclimation makes mapping borrowers and customers easier than ever before.

 

2. More importantly, the geospatial format empowers business by “contextualizing company data with integrated physical and material risk data, such as on water and climate,”

Data acclimation links geospatial data on key climate and water risk indicators to the newly geospatialized company records. In doing so, it produces a data map of parcel-by-parcel portfolio risk.

Consolidating disparate datasets on water rights, soil quality, wildfires, groundwater, and much more, acclimation merges information that was once extremely difficult to access with portfolio data owned by a financial institution – allowing that institution to do more with the data they already have.

 

3. Ultimately, the process enhances data management “for the purpose of better understanding the impact of risks on loans, investments, and customers’ businesses.”

Water and climate risks can make or break an ag portfolio. 2020 saw $931.6 million in agricultural damages from wildfires across California, Oregon, Washington, and Colorado. Due to lack of water, 1 in 10 acres of cropland in the San Joaquin Valley are projected to discontinue production by 2040. Most concerningly, the two to three years after a period of drought see significant increases in delinquency rates.

Those without a deep understanding of their risk will be blindsided. Those with a deep understanding can build resilience and peace of mind. Data acclimation is the first step along this journey.

Geospatial data management empowers ag lenders and investors to easily identify both the climate and water risks present in a parcel, but also the best strategies to mitigate their impacts. Modern decision support is how sustainability becomes actionable. A holistic understanding of portfolio risk primes businesses to take effective, measurable, and reportable steps towards mitigation.

 

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Data Management Tools Outcompete the Status Quo

Much of the data essential for informed decision-making in the ag sector remains trapped in isolated datasets and incompatible formats. To use a thematically resonant metaphor, information is siloed. Not only are data on water rights, soil quality, and wildfires often kept separate, the spreadsheets, onion papers, and cross-organization analog tools in US ag can cause confusion, miscommunication, and risky decisions.

 

Data Acclimation uses data management tools to de-silo the info ag professionals need.

 

This can be done by integrating third-party water and climate risk data, financial institution-owned portfolio data, and borrower data. Rather than spending time and money to manually compile disparate datasets and process them for comparison, a data acclimation service handles aggregation automatically.

The right data management tools can save time and money by providing up-to-date, holistic context that easily integrates with portfolio records. Once implemented, finance professionals can spend less time fighting their data and more time using it to compete.

What Is Data Visualization and Why Is It Crucial to Mitigate Risk in Ag Finance?

The various dimensions of risk all must be considered together. Therefore, they should be displayed together. Data visualizations transform the utility of a dataset by allowing finance professionals to process multiple interacting factors simultaneously. Using location, shape, size, color, etc, a well-designed visualization can translate a complicated mess of varying data fields into a story read effortlessly by the eyes.

Water and climate risk pose both acute and chronic risks to financial portfolios, particularly in agriculture. Rather than painstakingly checking values from each indicator with different parcels, a software-generated data visualization can give a near-instant overview of a parcel’s risk portfolio.

Granular datasets covering an entire ag portfolio contain so much information it can be difficult to make sense of. Visualization makes it accessible, showing risk factors and their potential financial impacts more clearly and more quickly than numerical or textual methods.

Map Data Visualization for Agricultural Risk Mitigation

Geospatial data becomes most accessible when displayed in a geographic medium. Interactive map data visualizations that take advantage of accurate, granular data have the power to turbocharge risk analysis. Previously opaque data can offer clarity, insight, and drive smarter decision-making in the hands of an analyst empowered by a dynamic mapping tool.

Maps derive power from their dynamic layers. Superimposing climate risk data on financial data produces a map of climate-induced financial risk. By comparing parcels through layers such as water rights, wildfires, groundwater, or soil quality, ag finance professionals can identify potential liabilities and corresponding strategies for mitigation.  

Moreover, maps are easily digestible and mutually intelligible. Location-based context for data that is easily accessible to loan officers, appraisers, risk professionals, and farmers, makes a map worth a thousand email exchanges.

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