Agriculture companies are turning to big data to profit from climate change

Monsanto has made its first acquisition of big data technology with the purchase of Climate Corporation.

The Conversation

This is a guest post by Jo Bates of University of Sheffield, republished from The Conversation

The recent news of Monsanto’s US$930m acquisition of data science company Climate Corporation, raises important questions about the economies developing in response to climate change.

A new generation of companies have emerged that harness new methods of data analysis to turn vast datasets (“big data”) into exploitable, marketable information. As the Financial Times reported, Monsanto’s purchase signals the first significant “big data” acquisition.

Climate Corporation offers an online self-service weather insurance for US farmers. In addition to the company’s standard crop insurance, this Total Weather Insurance pays out solely on the basis of observed weather conditions, rather than crop damage. If the observed weather conditions trigger a pay-out, a cheque is automatically generated and arrives within days of the end of the policy coverage period.

In order to calculate the price of policies and pay-outs, Climate Corporation data scientists analyse three million new data points a day from 22 datasets using advanced analysis techniques. The data comes from a range of third-party providers such as the US National Weather Service, which publishes its data free for re-use.

Old dog, new tricks
Total Weather Insurance is a new form of financial product being sold direct to farmers, but what underlies it is not new. Weather derivatives were developed by the likes of Enron, Koch Industries and Aquila in the mid-1990s. Enron found insurance companies were unwilling to insure against non-extreme weather events, so the company created its own, which worked in a similar way to Total Weather Insurance, paying out if certain conditions are met, regardless of any actual loss. By presenting it as a derivative, and therefore a financial product rather than an insurance product, Enron could skirt the regulatory constraints placed on energy companies’ use of insurance products.

Weather derivative contracts can be traded across any type of weather, the most popular by far are based on the divergence of the average daily temperature from 18 degrees. These products are known as Heating and Cooling Degree Days contracts. The mid-2000s saw massive growth in the weather derivatives market, but it crashed alongside everything else in 2008.

However, the Weather Risk Management Association is hopeful for weather derivatives, pointing to continuing growth outside the US markets throughout the downturn, growing interest in non-temperature-related weather derivatives, and increasing interest from outside the energy industry.

Free the data
Until recently, UK traders had to purchase weather data from the Met Office in order to conduct forecast analyses and price weather derivatives contracts. The financial services sector has long complained that the weather risk and derivatives markets in the UK have been restrained by the lack of freely available weather data, and accordingly have lobbied for a data access and re-use policy similar to the USA. In 2011, the new coalition government obliged, announcing that, as part of its Open Government Data initiative, “the largest volume of high quality weather data and information made available by a national meteorological organisation anywhere in the world” would be opened for anyone to re-use without charge.

The entrance of Monsanto into the weather risk market represents the growing interest in these products outside of the energy sector – in this case agriculture. The combination of increasing amounts of freely available and re-usable weather data, the development of more advanced big data analysis techniques, the growing global demand for a variety of weather products, and the development of simple online self-service portals for buyers all suggest that the exploitation of unstable weather systems is still in its early days.

Big players, big risks
Crucially, these developments expand the range of players with a financial interest in continuing climate instability. Whilst the claim is often made that weather derivatives and similar products balance out the financial impact of weather on affected businesses, thus smoothing adaptation to climate change, serious political-economic questions do arise about who actually benefits from these financial products.

The model of paying out based upon observed weather means, in effect, placing bets on future weather conditions – rather than a business insuring itself against a specific loss. Clearly, during a time of instability in global weather, there is a lot of potential profit to be generated from such financial products. The emergence of this developing data-driven weather derivatives and risk market is, therefore, troubling.

It exploits common threats in order to generate private wealth and favours those in a financial position to protect their interests at the expense of those most vulnerable to climate instabilities. Most dangerously, this practice could reduce the incentive for those profiting from these markets to engage in action to mitigate climate change.

Jo Bates does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

This article was originally published at The Conversation. Read the original article.

Droughts and floods may be exploited by some. (Photo: Getty)
Lecturer in Information Studies and Society at University of Sheffield.
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In your 30s? You missed out on £26,000 and you're not even protesting

The 1980s kids seem resigned to their fate - for now. 

Imagine you’re in your thirties, and you’re renting in a shared house, on roughly the same pay you earned five years ago. Now imagine you have a friend, also in their thirties. This friend owns their own home, gets pay rises every year and has a more generous pension to beat. In fact, they are twice as rich as you. 

When you try to talk about how worried you are about your financial situation, the friend shrugs and says: “I was in that situation too.”

Un-friend, right? But this is, in fact, reality. A study from the Institute for Fiscal Studies found that Brits in their early thirties have a median wealth of £27,000. But ten years ago, a thirty something had £53,000. In other words, that unbearable friend is just someone exactly the same as you, who is now in their forties. 

Not only do Brits born in the early 1980s have half the wealth they would have had if they were born in the 1970s, but they are the first generation to be in this position since World War II.  According to the IFS study, each cohort has got progressively richer. But then, just as the 1980s kids were reaching adulthood, a couple of things happened at once.

House prices raced ahead of wages. Employers made pensions less generous. And, at the crucial point that the 1980s kids were finding their feet in the jobs market, the recession struck. The 1980s kids didn’t manage to buy homes in time to take advantage of low mortgage rates. Instead, they are stuck paying increasing amounts of rent. 

If the wealth distribution between someone in their 30s and someone in their 40s is stark, this is only the starting point in intergenerational inequality. The IFS expects pensioners’ incomes to race ahead of workers in the coming decade. 

So why, given this unprecedented reversal in fortunes, are Brits in their early thirties not marching in the streets? Why are they not burning tyres outside the Treasury while shouting: “Give us out £26k back?” 

The obvious fact that no one is going to be protesting their granny’s good fortune aside, it seems one reason for the 1980s kids’ resignation is they are still in denial. One thirty something wrote to The Staggers that the idea of being able to buy a house had become too abstract to worry about. Instead:

“You just try and get through this month and then worry about next month, which is probably self-defeating, but I think it's quite tough to get in the mindset that you're going to put something by so maybe in 10 years you can buy a shoebox a two-hour train ride from where you actually want to be.”

Another reflected that “people keep saying ‘something will turn up’”.

The Staggers turned to our resident thirty something, Yo Zushi, for his thoughts. He agreed with the IFS analysis that the recession mattered:

"We were spoiled by an artificially inflated balloon of cheap credit and growing up was something you did… later. Then the crash came in 2007-2008, and it became something we couldn’t afford to do. 

I would have got round to becoming comfortably off, I tell myself, had I been given another ten years of amoral capitalist boom to do so. Many of those who were born in the early 1970s drifted along, took a nap and woke up in possession of a house, all mod cons and a decent-paying job. But we slightly younger Gen X-ers followed in their slipstream and somehow fell off the edge. Oh well. "

Will the inertia of the1980s kids last? Perhaps – but Zushi sees in the support for Jeremy Corbyn, a swell of feeling at last. “Our lack of access to the life we were promised in our teens has woken many of us up to why things suck. That’s a good thing. 

“And now we have Corbyn to help sort it all out. That’s not meant sarcastically – I really think he’ll do it.”