Good Faith, Farm Data & Unjustified Fears

July 20, 2022

As I have learned more about how the agricultural insurance industry works, I have become obsessed with a very simple idea at the heart of the insurance game, but is completely absent from conversations about farm data in agricultural supply chains.

Uberimma Fides — there is no general requirement that parties to a contract act towards each other with utmost good faith. Insurance contracts, however, are part of a special category of contracts, those classified as uberrimae fidei, where parties do have that obligation towards one another [1]

Uberimma Fides literally means utmost good faith, and it describes the assumption of how parties deal with each other in an insurance contract — with the utmost good faith, sharing all information that is relevant to their dealings — in both directions. This is both legally and practically a critical part of how agricultural insurance (and indeed all insurance) works.

All parties must act with ultimate good faith in sharing information that impacts the pricing and efficient operation of products. It is understood that insurance needs to be at least a zero-sum game. Ideally, it should be a win-win game. But none of this can happen without the good faith of sharing data to ensure policies are priced properly, claims are assessed accurately, and so that underwriters and insurers can manage risk well.

All parties lose if risk is not managed, and a short-term win for a policyholder will be to their own detriment in subsequent periods if underwriters fail or policy prices increase through fraud or mispricing of risk

Where is the good faith in supply chains?

It seems that the role of data in supply chains does not enjoy the same treatment. I don’t think anyone would say that the default assumption around data sharing in ag supply chains is one of good faith dealing; quite the opposite.

The default assumption seems to be one of bad faith. This is likely based on the Fear of Unintended Consequences — the most damaging of the Farm Data Fears. Why do value chains work so differently to insurance markets?

  • Are value chains a zero-sum game? Perhaps they are win-lose games and that drives the fear.
  • Are farmers are waiting for someone to “show them the money” and won’t participate until that happens
  • Perhaps there has to be an opportunity to attract a premium and recognize and reward new levels of transparency

We have it all wrong — it’s not going to go that way.

The global food system is under unprecedented pressure for ecological accountability which is originating from two key areas:

  • Consumer Sentiment / Commercial Opportunity
  • Financial & Regulatory Disclosure Requirements

Greater sharing of farm data is the only way that these pressures will be addressed, and we have to rid ourselves of current assumptions about data sharing that are slowing things down

It’s all about market access

At scale, for most farmers, these pressures won’t translate into premium opportunities but are far more likely to represent market access hurdles. These are tough conversations to have. Farmers are often left to bear the cost of additional regulation and so the prospect of needing to meet additional requirements for no benefit is both familiar and highly undesirable.

Nobody will pay for data alone

Nor will the situation be addressed by payments for farm data. This just isn’t going to happen. We have done farmers a disservice by setting an expectation that their data in and of itself is valuable — it is not.

That is not to say that data can’t contribute to value creation it certainly does. But the value is usually downstream of production, and the data has to flow there to see the value realized. This confusion sits at the heart of the User vs Beneficiary paradox.

Reframing the conversation around good faith and benefits

The change needed is to reframe the conversation about farm data. We must redirect the conversation to be about what an ultimate good faith value chain looks like. The benefits that will flow to farmers will take different forms and be far more aligned to the benefits that flow in the insurance industry.

The ultimate advantage of an efficient and fair insurance industry is an increasingly sophisticated set of risk transfer tools for farmers. The better the risk transfer offerings, the better able farmers are to control their own destiny.

Agri value chains will respond in the same way. Farmers will receive the benefit of better offerings and can also manage risk around the loss of market access.

We need to stop telling farmers that they will get paid for their data and stop telling them to fear data sharing.

Digitally native solutions, that require access to better and more accurate information, will provide many benefits such as better access to credit and risk solutions for farmers. Forward contracts that include embedded risk instruments and asset-aware finance will provide exceptional benefits to farmers but can only operate at scale when we stop the narrative around data sharing and embrace the need to operate with ultimate good faith.

Be the change you want to see — play your part

This can’t be the responsibility of farmers alone, it is the responsibility of all the participants in the value chain to reframe their own language, and do the work needed to move toward good faith dealing.

In some parts of ag like insurance, uberrima fides, the sentiment towards data means that the future can be better for innovation and better for farmers.

In others like supply chains, without a change in sentiment, it will be much harder for farmers to be better off.

[1] 1995 ‘Uberrima Fides — Quo Vadis? Where to from Here?’ — Catherine Larkin — Edith Cowan University