When people think of blockchain technology, often the first thing that comes to mind is cryptocurrency. But the potential of blockchain technology is only just beginning to be understood. Having access to a securely encrypted digital ledger could revolutionize all types of industries, from retail sales to real estate. In agriculture, the blockchain could have widespread implications, ranging from risk management to traceability to sales.
Siddhartha Jha, CEO of Arbol, sees the potential of blockchain technology for agriculture. Powered by the Ethereum blockchain, his platform offers customizable weather insurance products to agricultural entities around the world. The use of blockchain technology enables Arbol to generate unique, secure insurance contracts at a low cost, making them more accessible to actors across the agriculture supply chain.
Farmfolio correspondent Ray Buckton spoke with Jha about Arbol, blockchain technology for agriculture, and risk management in the agriculture space.
How can blockchain technology improve risk management for agriculture?
“We live in a world where weather volatility is rising, and losses from adverse weather continue to grow year after year. And you have a growing number of businesses and farms that are exposed to bad weather but have few options to manage that risk financially. Random, severe weather strikes can set a business or farm backward for several years and sometimes even push them to bankruptcy.
We’ve found that for many businesses, revenue, sales, and output (in the case of farmers, we are speaking of crops) are crucially affected by weather conditions. We wanted to offer a solution that allows these entities to access the weather risk market. Currently, what happens in the weather risk market is this: Generally, huge entities, such as power utilities, can readily access that market, but for the rest of the business landscape, and most farmers, there is no real way to get prices or hedge exposure.
As a simple example, suppose you’re growing corn, and you know that too much or too little rain during July will be harmful to your crop. We facilitate smart contracts that can read the local weather data automatically. This way, you get paid if the rainfall is below a certain threshold for July. A completely different example from a different industry could be a restaurant in a tourist area. As a restaurant owner, too much rain during the summer could be a big problem for you, and you could hedge that exposure on our platform.
We’re bringing a transparent platform that connects these weather-exposed entities with reinsurers and other capital providers who are willing to underwrite that risk. In the middle, you have smart contracts and the underlying distributed ledger technology that allows us to be much lower on transaction costs. The payments are swift due to the complete automation of the process.”
How can blockchain technology companies better adapt to the market?
“We’re revolutionary in the sense that we are the only marketplace of this type that is successfully interfacing with the industry. Many blockchain startups put out an exciting product, but have difficulty interfacing with their target industry. We also have traction; we went live three months ago, and are now well over a million dollars in premium and $6 million in risk through the platform. Hundreds of crop insurance agents are users on our platform, and we have business relationships with several significant reinsurers.
What we do differently is to take this approach in stages. The Arbol platform runs the smart contracts that determine the payouts, but we also continue to interface with the farmers, businesses, and reinsurers in the traditional style. We will slowly introduce more blockchain-heavy concepts as time goes. We excel at how our underlying blockchain smart contract framework supports a simplified user interface, allowing users to click a few buttons and get the contract they need without understanding the nuances of blockchain.
Usability and the human element are two things that we often see missing in the blockchain industry. We focus on those two concepts because that’s the only way blockchain will make more inroads. Our blockchain solution serves a lot of essential needs. Still, we have found that people are more comfortable using the front-end interface without having to worry about how the blockchain operates on the back-end.”
What are the challenges to increasing the availability of blockchain technology?
“One of the challenges we are tackling is how, in the insurance industry, trust levels are deficient between separate entities, especially once you leave places like the US and enter emerging markets. It’s often been the case that many farmers and other businesses have had poor experiences with the insurance industry in regards to receiving payments as per their contracts. Part of the reason for us to be on a public, highly-regarded blockchain is to build that trust.”
“We design our contracts to be scalable, so they can tap into global databases that allow us to operate anywhere in the world. We started in the US, where the company is based, so we have done the bulk of our business here. We recently completed a deal in Costa Rica, which received positive press. We are also running a program in Southeast Asia and starting a second one shortly. We have a growing footprint across different regions of the world, which all flows seamlessly through a single platform.”
As the global economy becomes ever more digital, there will be more opportunities to increase efficiency, improve traceability, and mitigate risk through technology. Connecting the digital world to the ancient practice of agriculture will not only be profitable, but will be necessary to ensure the continued growth and stability of agriculture supply chains.