by Siddhartha Jha
When we think historically of the most important component that goes into farming, many of us think of water — rainfall to be more specific. In fact, rainfall is so crucial to the farming process that ancient cultures would praise their gods for an abundant rainy season. While a low amount of rainfall can be dangerous, many do not consider the equally damaging threat of a flood.
Recently, flooding has been a major cause for concern in parts of the Midwest and Southeast US. While these floods have been leading to the destruction of infrastructure and more recently, fatalities, one of the leading concerns is the impact these floods have on crops in the region. These floods come at a particularly bad time for farmers as they gear up to begin planting. If the farmer has yet to plant his seeds, he will have to delay the process. If the farmer is unable to plant the crop at all, this is referred to as prevented planting. The issue with delayed planting is that it causes the timeline of the crop flowering phase to happen during some of the hottest parts of the summer affecting potential crop yields. Indeed, each week’s delay causes lowered potential crop output.. The crops that do survive in soils with excess moisture will suffer from short roots leaving them especially susceptible to dry soils later in the season.
Forecasters predict that excess rainfall will become more common problem in the midwest USA affecting planting of crops more frequently. According to Ed Clark, a director at the National Oceanic and Atmospheric Administration (NOAA), “This is shaping up to be a potentially unprecedented flood season, with more than 200 million people at risk for flooding in their communities.” With these risks more prevalent today than ever, farmers are in greater need for financial protection.
One way that farmers have been protecting themselves is through federal crop insurance. This insurance protects against prevented planting, but this insurance can be inadequate in many respects. For the issue of prevented planting due to excess rainfall, farmers only receive 50–60% of their historical revenue leaving them exposed to losses not covered by insurance. On the other hand, farmers can choose to roll the dice and plant late anyway, which leaves them exposed to losses from lower production. While crop insurance is helpful as a baseline, supplemental coverage based on rainfall data for excess rainfall during planting season could assist farmers in further protecting themselves from financial losses.
Unlike traditional crop insurance, coverage based on data, known as parametric insurance would not need any human adjuster to check the damage at the farm level. It can be more cost effective as well as much quicker with compensation payment. The speed of compensation is especially important as well when it comes to planting as funds can be used to purchase a new round of inputs in case the farmer wants to try planting the crop again. Arbol offers a complete platform to connect farmers with insurers and other capital providers to facilitate contracts that pay out based on weather data. Arbol offers fully automated agreements, from the creation to the evaluation of data, via smart contracts. While Arbol as a standalone may be ideal for many farmer’s needs, in other cases supplemental coverage can be necessary to sufficiently protect the farmer’s livelihood.