How Data Acclimation Enhances Resilience Planning in Agricultural Finance
Financial institutions have a job to do: manage risk. Managing and reducing risk requires resilience planning, a practice that becomes increasingly easier with better access to the right risk datasets. The fluidity of data usage and utility also plays a key role.
The most effective resilience planning in agricultural finance includes making decisions using data such as:
- Borrower data
- Loan data
- Appraisal and audit reports
- Granular water and climate data
By implementing effective resilience planning, US agriculture can navigate the challenges posed by an increasingly risky sector. For the financial institutions invested in ag, data acclimation will be a valuable tool in doing so.
This article will define resilience planning, explore the hurdles associated with it, and explain how data acclimation can empower ag finance to de-risk their businesses and protect the bottom line.
What Is Resilience Planning in Agriculture?
Resilience planning is the process of identifying and evaluating the risk of damaging stressors or shock events then formulating an action plan for reducing negative impacts.
An important distinction to make is between vulnerability and resilience. As explained by a 2019 report on Food Systems Resilience by the USDA, “The former describes a state of susceptibility, whereas the latter describes a set of tools and abilities.”
For example, parcels can be vulnerable to water stress and resilient to water stress at the same time. In fact, the more vulnerable a parcel, the important resilience planning becomes.
What Are the Challenges to Effective Resilience Planning?
Resilience planning is prudent for anyone in the agricultural sector, but especially for financial institutions whose portfolios include vast swathes of cropland. However, the unique attributes of agriculture and its connection to climate and water risk can make building a robust resilience plan difficult.
One of the biggest hurdles on the track to effective resilience planning is siloed data. No risk factor operates in a vacuum. Risks overlap and interact, and when quarterly and project-based decisions must be made in a timely manner, siloed data is a toxic and time-consuming issue. There are many pertinent factors that create the right foundation for resilience planning such as appraisal and audit reports, parcel-specific borrower data, third-party risk analytics, and more – most of which are traditionally separated from one another.
Another challenge is the volume and variety of risk factors to consider. In the American West, for example, decreased precipitation, increased wildfire risk, tighter regulations, degrading soils, lowering water tables, and irregular growing seasons are just some of the numerous potential risk factors that resilience planning must address. Since agriculture is connected to so many at the same time, keeping track of every relevant factor can be time-consuming.
How these risks overlap is determined by geography. For example, a guide by the Food and Agriculture Organization describes how looking at regional-scale trends is insufficient to evaluate crop risk.
“The reality is more complicated as both the total seasonal rainfall and its distribution during the growing season have a large effect on crop yield.”
Without more granular data on the local conditions of a parcel, resilience planners will lack the necessary context to prepare their specific assets.
Despite the challenges, however, resilience planning in agriculture is achievable and operating on the largest scales. The World Bank is actively prioritizing enhance resilience in their agricultural investments. Not only because resilience is essential to global food security, but also because it makes commercial sense.
By reducing the severity and probability of future losses, finance professionals can build a more robust portfolio with stronger long-term performance. It is for that reason that 52% of World Bank financing in agriculture during 2020 targeted adaptation and mitigation.
How Can Data Acclimation Enhance Resilience Planning?
The biggest challenges of ag resilience planning are each addressed by data acclimation.
By integrating financial records with other necessary datasets through secure APIs into a granular geospatial format, data acclimation gives ag finance professionals the precision they need to identify risk at the parcel level.
Since data acclimation links together a wide variety of datasets, it also can reveal the key interactions between risk factors that can make or break an operation.
Identifying risk is just the first step. With a clear understanding of exactly what kinds of risk affect each asset within a portfolio, ag finance professionals can use their acclimated data to easily identify the mitigation strategies most pertinent to the risk profile of each parcel. Partnering with growers, financial institutions can use their insight to develop highly connected resilience plans that can drive critical shifts within the industry.
“Together, the social, environmental, and economic aspects of resilience are often referred to as a three-legged stool for sustainable systems. When all three of these are not working together, the system is out of balance and will fail over time. By understanding the issues in each of these three areas, farmers are better able to identify where they can improve their farm’s resiliency.”
Data acclimation can likewise combine data on regulatory, social, and environmental indicators. Not only does a wider perspective empower more comprehensive resilience planning, but it also streamlines reporting and can improve relationships with both investors and the public.
The Bottom Line
Resilience planning can prepare an ag finance portfolio for the volatile conditions of the 21st century. Supported by data acclimation to tailor approaches to the context of each particular parcel, ag finance professionals can mitigate risk and protect their returns.
AQUAOSO’s products are purpose-built to help ag finance professionals understand and monitor their water risk, supporting the critical task of resilience planning.
The GIS Connect platform allows users to integrate third-party data sets with their own data in a secure GIS data management platform. View loan, investment, supplier, and appraisal data in a single geospatial view. Integrate data with best-of-breed land and climate data through secure APIs. Manage board and regulatory requirements with automated geospatial data management, information collection workflows, and reporting.
For ag finance professionals, there is an acute need for tools that fit the current modern landscape. Information can be difficult to procure and can even be out-of-date. As the world continues to move faster than ever before, the Harvard Business Review writes: “the...
PRESS RELEASE For Immediate Release The climate fintech company’s innovative GIS Connect tool provides a richer understanding of disparate datasets in a single geospatial view, empowering agricultural organizations to create long-term resilience DENVER — (Nov....
With each passing year, technology introduces new methods of revolutionizing the way society handles data. But with a seemingly immeasurable amount of data being collected, it can be hard for financial professionals to make the best use of the information they already...