How agriculture can benefit from blockchain

There’s no doubt that blockchain technology has entered the mainstream consciousness, the spectacular rise of Bitcoin and Ethereum and emergence of Initial Coin Offerings (ICOs) as an asset class has captured the imaginations of a wide variety of people both young and old from all walks of life.

That said when asked about its potential application and what it actually does, most people outside the technology sector wouldn’t be able to say more than a potential (and very speculative) investment that has few if any tangible benefits to the average man or woman on the street.

The disruptive potential of blockchain technology, however, cannot be underestimated, industries as varied as: financial services, data management, transportation, healthcare and law, to name but a few could be drastically improved through the use of a distributed ledger. At BlockGrain, we have identified the agricultural sector as being ready for technological reform and disruption from within.

The current supply chain systems and financial infrastructure supporting farmers, that has evolved over the course of the last seven decades has become increasingly clogged and inefficient. Farmers and buyers of their produce are forced to interact with domestic and foreign trading houses, banks, freight carriers, insurers, foreign exchange specialists and port authorities in different countries. In some cases, fax machines are still used to confirm when produce has arrived and then the quantity is manually logged in a physical ledger!

At BlockGrain we are convinced there’s a better alternative to the current status quo, and the blockchain will play a big part in streamlining the supply chain process and ensure farmers and buyers can connect in a more secure and transparent way. In fact, we see blockchain technology as potentially being able to reimagine the way in which the agricultural sector operates from a: commercial, logistical and legal perspective.

“We see blockchain technology as potentially being able to reimagine the way in which the agricultural sector operates from a: commercial, logistical and legal perspective”

That said we should stress that BlockGrain doesn’t intend to disintermediate domestic and foreign traders nor does it see futures trading houses as irrelevant when assessing the price of physical commodities in a live instance, it has the capacity to work with these institutions when required. BlockGrain will enable farmers to track where their produce is end-to-end using a mobile phone, as data is automatically loaded in realtime on to the blockchain when deliveries have taken place, time-stamped at each point along the supply chain.

Farmers also have the added benefit of improved visibility, they know exactly how much product they hold, where it is going, and when it is getting there. The terms of these transactions could also be between farmers, brokers, buyers and logistics providers using pre-arranged smart contracts that enabled funds to be paid out when the agreed terms and conditions had been met. A

ll parties would benefit from increased protection and transparency from the current systems in place, whilst consumers would benefit from guarantees regarding the origin of produce, where it had been stored, how it had been transported between silos etc.

Despite interest rates being at historically low levels, an agricultural business line of credit backed by a non-residential security currently carries an interest rate of 7.81%.

“Despite interest rates being at historically low levels, an agricultural business line of credit backed by a non-residential security currently carries an interest rate of 7.81%”

Benefits go beyond merely increasing transparency and ease of use, from a financial perspective, farmers will be able to access capital far more easily than they can with current supply chain systems. Despite interest rates being at historically low levels, an agricultural business line of credit backed by a non-residential security currently carries an interest rate of 7.81%.

These high rates are attributed to a lack of visibility overstock on hand, the quality of that stock and true market value. BlockGrain solves this very real problem and aims to make lending against stock on hand more accessible and cheaper for farmers by providing significantly enhanced visibility over farm inventory and reducing the risk exposure of financiers.

Banks and insurance companies will now be able to see the ‘real-time’ position of the farmer, in addition to the history of custody and any other financial obligations recorded on the immutable BlockGrain ledger. This information has up until now been unavailable to bankers and significantly reduces the risks involved when lending to farmers. Despite the improved transparency for banks, their role could be significantly reduced with peer-to-peer lending as farmers with cash surpluses will be able to connect and offer each other short-term loans to those needing capital.

All the aforementioned technological benefits go a long way to help empower farmers and improve the terms in which they conduct business. It also goes a long way towards reducing the Value in Bulk commodities is lost due to inefficient supply chains and intermediaries, currently estimated to be 30% in Western economies and 50% in the developing world according to the United Nations, Food and Agricultural Organization.

“As the world’s population looks set to reach ten billion by 2050, agriculture will have to adapt and improve with technology becoming an ever more integral part of how it operates”

As the world’s population looks set to reach ten billion by 2050, agriculture will have to adapt and improve with technology becoming an ever more integral part of how it operates. Whether it be monitoring of crops or managing increasingly complex and international supply chains with many different participants, technology will play an ever-increasing role and BlockGrain aims to ensure the sector can meet the needs and aspirations of its consumers.