SKW Group Inc. (SKW), a leading provider of cotton gin processing materials, partnered with Arbol to mitigate climate-related risks threatening its operations and those of its clients. With cotton yields in Texas fluctuating by up to 30% year-over-year due to droughts and extreme weather, SKW sought a financial safety net to protect against production shortfalls. Traditional insurance options left a gap—while farmers had access to crop insurance, businesses dependent on their production lacked income protection against yield losses. By leveraging Arbol’s parametric Crop Yield Index Derivative, SKW secured a transparent, data-driven solution that ensures financial stability even in low-yield years.
Challenge Identification: SKW faced the critical challenge of mitigating the financial risks associated with unpredictable cotton yields due to climate variability. Traditional insurance products and price risk management tools were insufficient in providing comprehensive coverage for their specific needs.
Solution Design: To address these challenges, Arbol proposed a tailored parametric crop yield index derivative utilizing the Area Yield Program (AYP). AYP is a county-level yield index product designed to protect businesses against revenue losses due to low crop yields. Here's how it works and why it was crucial for SKW :
Independent Data: Payments are made fairly and objectively, utilizing independent data to ensure hassle-free claims.
Implementation: Arbol developed a Crop Yield Index Derivative for SKW with predefined triggers based on county-level crop yield data. The contract covered hyper-targeted locations in Texas, ensuring that payouts were aligned with the actual yield performance for each location and practice (irrigated, non-irrigated, and no irrigation).
This solution enabled SKW to quickly access funds, manage their financial risk, and maintain operational stability despite climate-related disruptions with their clients. The Area Yield Program (AYP) specifically addressed the need for business income insurance for agricultural production, offering protection against yield volatility that traditional price risk management tools could not provide.
Outcome: Arbol's parametric insurance solution enabled SKW to tackle yield variability and climate risks head-on. The policy delivered rapid, data-driven payouts, ensuring SKW could maintain operations and support their clients in the cotton gin industry despite challenging weather conditions. This financial safety net was essential for protecting SKW's supply chain and client relationships.
Financial Impact: The swift payouts from the policy helped SKW avoid financial strain during yield shortfalls, allowing them to focus on strategic growth and operational efficiency instead of emergency financial measures.
Commitment to Risk Management: SKW Group Inc.'s collaboration with Arbol showcases its commitment to effective risk management strategies, reinforcing their role as a dependable partner in the cotton gin industry and highlighting its dedication to maintaining financial stability and sustainable operations.
The success of Arbol's parametric solution with SKW sets a new benchmark for agricultural risk management. It demonstrates the potential for similar strategies to safeguard businesses from climate variability. For companies facing comparable challenges, Arbol offers reliable solutions that ensure operational continuity and growth despite environmental uncertainties.
Discover how Arbol’s Area Yield Program and other parametric solutions can protect your business from climate risks. Contact us today to learn more and secure your operations against yield variability.
