How Blockchain will revolutionize Agri value chains
Lately I’m being often asked what exactly Blockchain is and why there’s so much hype around it. For me, more pertinent questions are “Does Blockchain have a use for Agriculture and how it is going to impact the Agri Business?” I’ve been curiously, yet superficially following the developments till recently. But prompted by these queries, I decided to dig deep: starting with forcing myself to read the path-breaking yet crisp and elegant paper by ‘Satoshi Nakamoto’.
Most of us have been introduced to Blockchain as the back-end technology behind Bitcoin. It has a reason apart from the Bitcoin frenzy that caught the global attention: In the original paper the elusive ‘Nakamoto’ introduced Blockchain as incidental to the P2P (Peer-to-Peer) cash system he/she/they named Bitcoin (best known among a handful of Cryptocurrencies).
Such accelerated have become hype cycles these days that Cryptocurrencies have seen one full round of boom and bust without they being fully understood even by the tech elite, let alone being adopted by masses. Bitcoin and other ‘Cryptos’ have seen their price more than halve from the stratospheric peak of last year’s end and doubts have begun to emerge as to how such volatile instruments would fare as a medium of exchange when it comes to broad-based usage. There are regulatory uncertainties abound with policymakers still trying to figure out what these things are and how to regulate them (Indian government recently declared that it does not consider Cryptocurrency a legal tender). Regardless of what happens to Bitcoin, the underlying technology is here to stay. It will make inroads in many aspects of our lives. Industries like healthcare, energy, retail, governance, supply chains and agriculture are bound to be disrupted by Blockchain applications.
For the uninitiated, Blockchain is essentially a shared ledger in which transactions are recorded securely and (almost) irreversibly in a vast open network. Transactions are approved by solving complex mathematical problems (What I call ‘black box’ of the Block-chain) and once approved, a transaction becomes a permanent part of the subsequent blocks in the chain. This mechanism ensures that it’s exceedingly difficult for an operator to undo a particular transaction (block), as it needs undoing all the blocks that have been added after it. Since all the recording and updating of the blocks in a chain is done by numerous nodes (actually CPUs) in the network, for an attacker to undermine the integrity of the system, he has to corner more computing power than all the honest nodes put together. Even then, the return of effort is so diminishing that it’s impractical for an attacker to try to undo a transaction rather than creating value by co-operating with honest nodes (for example: stealing back one’s payments vs. mining new coins). To better understand how Blockchains work read this.
I would go on to discuss about possible usage of Blockchain technology in the sphere where I operate: Agriculture/ Agribusiness. Following are a few applications of Blockchain technology that can revolutionize Agriculture/food value chains:
A) Digital Farming
A 2014 IBM report says “Today, the sector of the economy with the lowest IT intensity is farming, where IT accounts for just 1% of all capital spending. Here the potential impact of the IoT is enormous. Farming is capital and technology intensive, but it is not yet information-intensive.” This is set to change as Blockchain combined with IoT will open up new horizons for digital farming. In fact, Blockchain will be a key tool for IoT because of how it integrates data storage and retrieval in a reliable environment.
Farmers will use wireless sensors and handhelds to collect real-time data on crops right from the seed stage. It will help them plan their farms more effectively and maximize yields. Sensors will be planted into fields to monitor soil health, moisture, pH and temperature. Resulting data patterns will be broadcast to expert systems providing machine/human based advisory to help farmers take corrective measures on the go. Also, harvesting time and yield will be predicted more accurately. By sharing data from early in the crop cycle, a farmer can give her trading partners the visibility of forthcoming supply, helping her plan the sales. Her customers will benefit by the reduction in search cost and better business planning through assured procurement.
One application will be in the area of smart contracts between farmers and buyers which don’t require a third party to oversee. Blockchain will handle these transactions including making intermediate payments to the farmers based on a verified delivery.
B) Traceability of Food Supply Chains
Food safety and sustainable production are concerns increasingly occupying consumers’ mind-space and they are beginning to demand information related to source and movement of the food they’re buying. Operators in long and criss-crossing food chains will use Blockchain for ensuring traceability and quality of the food. Blockchain based tracking will become competitive edge for brands in the competitive FMCG space. Consumers who pay a premium on organic/socially responsible farming will be surer that the money they’re paying is going to the cause they support-and this increased trust will benefit farmers adopting the desirable practices.
Blockchain will allow the consumer to scan the barcode of a product and instantly track the entire supply chain from farmer to the shelf. Irrevocable time-stamping will ensure that the consumer knows exactly when did a pack of canned peas leave the factory gates and where it was stored (even at what temperature) in transit. Taking it to extreme, the customer will be able to learn about the soil health where the peas grew, the sustainability practices of the farm, the farm’s water quality and weather pattern, energy expended to grow and transport it. Such capability will be particularly useful for expensive and exotic foods and beverage industries such as high-end wines. From a safety perspective, agricultural contamination will be very quickly identified.
C) Traceability of Inputs
Farmers are often unaware if the inputs they are buying are authentic. Local retailers sometimes sell fake products, which lead to crop loss to the farmers, apart from being potentially harmful to the environment. At times even the retailers are unaware if the product supplied to them is authentic. Input companies lose business and reputation due to proliferation of duplicates. Blockchain application will solve this problem by ensuring traceability of each pack of seed, pesticide or fertilizer sold, tracking it’s movement through the C&F, distributor, whole-seller and retailer till the farmer. Retailers and farmers will simply scan the Blockchain barcode on the pack via their smartphone and get to know about the authenticity of the products they are buying. The Big data generated from last mile sales will help the industry better plan their production and sales.
D) Bargaining Power of Farmers
Agri value chains in most developing nations are prone to information asymmetry which results in farmers realizing lower than a fair share of the profits. With Blockchain based platforms the transaction across the chain (including farmers, brokers, distributors, processors, retailers and consumers) will be transparently visible, and farmers would have the necessary information and resultant confidence to demand their due share.
Also, they would get to know the emerging consumption patterns and demand side changes so as to pro-actively plan their crop mix.
E) Commodity Trading
International agri commodity trading involves a great deal of documentation. Processes are complex, with rules on when and how to hand over ownership of the cargo, when and how to pay, elaborate receipts going to numerous agents. Often, transactions are conducted literally on paper, with contracts faxed back and forth to the counter-parties and auditors to make sure everything is legitimate and authentic. Something as simple as a typo error sets back the whole process. The Blockchain will significantly clean things up: human typos and errors will be caught instantly, the system will make sure that everyone has the exact same set of paperwork, and so on.
Recently, the first agricultural commodity trade using Blockchain technology was concluded wherein 60,000 tons of American soybeans were sold to the Chinese government. The shipment from America to China involved five different parties: Louis Dreyfus Co (LD), Shandong Bohi Industry Co, ING, Societe Generale and ABN Amro. A Blockchain platform Easy Trading Connect (ETC) incorporated a number of contracts and certificates needed for the trade. Using the ETC platform, Bohi bought the soybeans from LD- while various banks provided the credit certificates needed for the sale. The shipping companies took care of the paperwork needed for the shipment and the USDA was involved in providing certificates for the sanitation requirements. The parties reported that by they managed to cut the total time for all these logistics by 80 percent.
There are many ways the Blockchain can help in commodity trade. For example: You can track shipments the entire way, making sure that, say, temperature remains constant, with both the seller and buyer informed instantly and simultaneously of any issues.
F) Subsidy Targeting
Worldwide, farm sector is one of the biggest beneficiaries of government subsidies. However, if the subsidies are reaching their target farmers remains a big question. With Blockchain the distribution of subsidies will become more transparent resulting in targeted disbursement of subsidies.
These’re some of the big ones but many other peripheral applications will significantly improve the ease of doing business in Agriculture. For example, Undisputed land title trails available on Blockchain helping farmers to buy or sell their land.
Blockchain is a new technology and its potential applications are still being developed. As a platform the quality and utility of the information will depend on the extraneous input for example: how accurately a soil sensor measures moisture, or how honestly does a broker records the sale price. To that extent Blockchain by itself is not going to change the world, lest the optimistic tone of this article misleads you.
Eventually, some of the above mentioned usage may not garner much traction while some new applications will come into reckoning. It’s only when the early dust settles we’ll have more clarity on which one are truly game changing applications. One thing is for sure that you can expect to hear more and more of the word Blockchain wherever you go. Also, after Bitcoin it’s now the turn of Blockchain based start-ups attracting billions of venture money and Big business setting up Blockchain units.