Blockchain: powering effective agriculture commodity trading

By Mary Defilippe | 15 June 2018

2017 saw corporate investment in blockchain technology hit record highs. This year, every day new proofs of concept are demonstrating potentially huge benefits across a number of sectors, including commodity trading, and a recent Research and Markets report predicts that the global blockchain market will grow from $411.5m in 2017 to $7.68bn by 2022.

An agriculture commodity supplier could establish a supply chain community of growers, elevators, consolidators, processors, and retailers – creating a blockchain and validating and authenticating each party. Each participant would agree to the rules of the shared ledger, and to the conditions for defining and enforcing contracts or transactions. As transactions proceed, members register the transfer of goods on the distributed ledger, including information on the parties involved, the price, date, location, quality, current condition of the goods or products, and any other information relevant to managing the value chain.

As transactions occur, the blockchain creates a transparent, immutable and indelible record of each transaction and that information is available to all participants in the blockchain in near real-time. Every change, disruption, delay, and movement is completely transparent to everyone involved.

Transparency and automatic compliance facilitate transactions, reduce conflict and confusion, ensure data integrity, virtually eliminate fraud, hasten dispute resolution, and avoid litigation – driving efficiency and reducing costs, delays and overhead involved in managing the transaction.

Blockchain and agriculture trading

Blockchain enables the entire agriculture value chain. At one end, blockchain streamlines trade execution, collateral management, and deal clearing. At the other end, blockchain improves traceability. Managing documentation of ownership, conducting country-of-origin and rules-of-origin checks, ensuring the provenance of GMO and fair-trade products become much easier.

Traceability has always been an essential component of maintaining environmental, health and safety standards, but the pressure to demonstrate provenance has increased with changing demographics and customer demands. With a blockchain, agricultural products can be securely tracked all the way from farm to retailer while retaining visibility at every step in the process.

Consumers can be 100% certain that the products for which they pay a premium meet the standards they are looking for, so they can avoid allergens, maintain religious observance, or choose only local or organic farming methods. If a member of a functioning blockchain network claims that a product is organic that information cannot be falsified, because the blockchain will log if artificial pesticides were applied.

Beyond traceability, blockchain can increase sales for farmers and retailers, by removing layers from the value chain and enabling farmers and retailers to work directly.  For example, if a retailer runs out of tomatoes it can be flagged in the blockchain. A local farmer who can fulfill the order will note the flag and update the blockchain to indicate when they can deliver new stock – giving the retailer time to prepare for a new delivery of tomatoes. The entire transaction can occur without a single telephone call or order form.

This scenario can make a tremendous difference to smaller farms, enabling them to reach new markets, including local restaurants and marketplaces, and bring the advantages of ‘just-in-time’ delivery to a localized supply chain.

Obstacles remain

Blockchains require a clearly delineated process framework in which all participants agree on operating rules that are based on common standards. This can be a challenge in commodity markets, particularly in industries that cross national borders and cultural norms. Blockchain cannot smooth out the tangle of differing rules, regulations and standards in each market or determine a common business code that is agreeable to all government regulators and private enterprises involved.

However, the potential efficiency, and savings, ensures that investment in blockchain will continue to grow. It remains to be seen if the benefits live up to the hype.  

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