Blockchain for Agriculture

September 10, 2019

 

Regardless of the level of development, people are constantly transferring value throughout the global economy. Value transfer has become a fundamental human activity that enables trade of goods and services as well as accumulation of productive capital that sustains well-being. In order to lower uncertainty during value exchange, institutions exist to ensure trust and mitigate risk between producers and consumers. In other words, centralised electronic ledgers are utilized to track assets and store data. Since the intermediaries often rely on manual inputs and may be vulnerable to fraud, an imposition of higher cost on both producers and consumers occurs, which in turn, drastically increases the burdens of doing business. High transaction costs are a major deterrent to economic development. Further, cash transactions lack traceability, which ultimately hinders the ability of micro-, small- and medium-sized enterprises (MSMEs), particularly in developing countries, to access credit and hampers growth of new markets.

 

There are numerous transparency and efficiency issues in agricultural supply chains, which place producers and consumers at a disadvantage. Transactions in agricultural supply chains are inherently risky and complex, thus relying on a number of intermediaries; while more conscious consumers have poor transparency about food production. Agricultural production depends on difficult-to-control factors (weather, pests and diseases) and the chains lack traceability, while the settlement of transactions is slow and often labor-intensive. Transactions are overrun with intermediaries and dogged by inefficiencies, while the actors who consistently access the global supply channels are commonly large-scale producers and agro-processors with a strong reputation. Agricultural supply chains require inclusivity for disadvantaged market players in order to boost their economic development and contribute to the demand for greater food supplies of a growing population. Ultimately, strengthening the linkages between farms, markets and consumers can generate greater income growth and even jobs. 

 

The main issue arises: similar to other sectors of the economy, transactions in agricultural supply chains have never fully undergone digital transformation. The agricultural sector is a source of employment. For many low- and lower-middle- income countries, it is a significant source of income and a major driver of economic growth. Food systems and agricultural practices are diverse, and range from modern, large-scale distribution system channels to traditional food chains. Food systems are becoming more capital-intensive, vertically integrated and concentrated in fewer hands. For low- and middle-income countries, the changing agri-food value chains increase barriers for small-scale producers and agro-processors to participate in local, national and global markets due to the lack of access to financing, issues of market accessibility, transport, and of complying with the range of standards on quality, traceability and certification.


 

Distributed ledger technologies (DLTs) introduce a novel method to accounting where value transfers minimize uncertainty and disintermediates the exchange of value with a decentralised and shared ledger, functioning as a digital institution of trust. The application of DLTs will provide a digital database that records, tracks, monitors and transacts physical and digital assets. The storage of transparent immutable records (accessible to any user with the software) will enable supply chain actors to identify and examine the product’s movement along every step in the supply chain- from the agricultural and livestock inputs and practices (fertilizers,veterinary services, etc.) to transportation, storage conditions and details as the product moves to the retailer down to the hands of the consumers. Hence, the said technology has three key features specifically: disintermediation of the data entries’ processing and storage; utilization of cryptography that ensures immutability and security for data entries and lastly; the immutability of records and disintermediation of data storage through a shared ledger which makes every transaction or record in a distributed ledger traceable and transparent.

 

DLTs provide a platform for traceability in agriculture supply chains to track provenance and ensure authenticity of agricultural products. Regulatory control will be easier as the product can be traced along every registered movement in the supply chain, which allows for legal accountability of fraudulent behaviour with regard to product’s authenticity. The potential for DLTs to increase efficiency, transparency and trust throughout agricultural supply chains and empower all market players is beyond reality. The technology has the potential to simplify and integrate agricultural supply chains, enhance food safety, reduce risk in trade finance and promote inclusive trade, increase access to agricultural financial services, generate smarter market information and provide greater legal certainty to land-tenure systems. 

 

For instance, to ensure immutable product–process links, mobile applications and QR codes may trace a product’s origin and movements along each step of the supply chain. The consumer would scan the QR code on the packaging of the chicken to reveal the product information, in the same way where they could use their mobile phone’s censor to verify the authenticity of a tomato’s provenance. The chain would start with the producers, who would keep records of all information on inputs (such as feed and medicines), animal health, location, breed, age, sex, cost of production and any other technical information needed for domestic or export markets. Each time the chicken is moved among supply chain actors, the transaction is recorded and verified by the DLT. Other relevant information includes time (slaughter date, time in transit, expiration dates) as well as export-related certifications (such as health and country of origin certifications). These details and their traceability would bring large efficiency gains to supply chain management, food safety and product sustainability.

 

By enabling transparency, every detail of the production and processing of agricultural goods will be recorded, which will then ensure compliance with food and sustainability standards. Data on the quality (freshness, safety,geographic indications), safety (health, risk management) and sustainability (organic, fair-trade) will be made available.  DLTs will aid businesses and governments’ central competent authorities to track and monitor non-compliance with international standards and improve their ability to control plant and animal diseases in order to maintain a disease- free status. In the case of an animal or plant disease outbreak, contaminated agri-food products or food fraud, DLTs will also enable businesses and regulators to trace and pinpoint contaminated or fraudulent products quickly. 

 

By removing friction and intermediaries through a simplified, peer-to-peer transaction network and smart contracts, efficiency gains arise in agricultural supply chains, agricultural finance and the agriculture sector as a whole. Through enhanced transparency and higher-quality transaction details, DLTs deliver improvements to food quality and consumer awareness. The vast amount of data from transactions strengthen market information and market transparency.

 

Through the digital and physical assets registered on DLTs, agricultural supply chain actors have the ability to build a reputation and track record in the marketplace needed to increase access to financial services and new market opportunities, which is particularly beneficial for disadvantaged market players, like smallholders and  MSMEs.

 

History has shown that technological advancements that generate productivity gains prevail, despite the existing norm. DLTs will continue to acquire adoption, shaping the future of agriculture, as long as productivity gains are real.
 

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