Decentralized Technology Will Revolutionize Agribusiness
As the world’s population continues to rise, the demand for sustainable and effective agriculture is only going to grow. According to the United Nations’ Food and Agriculture Organization (FAO), the global population will reach 9.1 billion by 2050, a number that will require international food production to increase by 70%. While developed areas such as the United States and Europe might avoid the brunt of this pressure, areas such as Africa, India, China, and even South America will need to address the growing need for farm productivity in order to avoid mass hunger.
As experts around the world continue to develop solutions and innovations to this dilemma, farmers, consumers, and investors alike have much to appreciate from the inclusion of decentralized technologies like blockchain into the industry.
About Blockchain Technology
Over the past couple of years, blockchain technology has become a hot topic in the tech world, with mainstream news outlets covering some of the many notable start-ups that are popping up within this industry. However, in most people’s minds, the words “blockchain” is synonymous with cryptocurrencies, bitcoin, and by extension, speculation. While it’s true that a new breed of speculator has emerged from this asset class’ newfound popularity, blockchain technology isn’t just about digital cash and many industries such as agriculture can benefit tremendously from its adoption.
At its core, blockchain technology is about creating a decentralized ledger that keeps a secure, unhackable record of every transaction that occurs on its network. Normally, mainstream financial institutions such as banks and credit card companies keep a central ledger of every transaction. However, there are a few issues that arise from this system. Mainly, the issue that it is quite vulnerable to hacking attempts as well as the fact that another party controls the records – often demanding a considerable transaction fee in the process.
This was the underlying backdrop to the creation of the world’s first blockchain-powered currency, Bitcoin. But transactions aren’t the only type of information that can be stored on a blockchain – any information will do. This means that any field involving the storage and transmission of information could benefit from this technology. For example, in the healthcare field, a patient’s medical history can be stored for convenient access, while the world of supply chain management can benefit fom decentralized technology by being able to track every single product from manufacturer to retail shelf.
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What agriculture experts are realizing is that this same technology can be extremely beneficial to the industry, helping improve efficiency and transparency, while reducing costs and giving more power to the farmers and producers at large.
Transparency and Traceability in the Supply Chain
Many early applications of decentralized technology in agriculture are related to supply chain management. A blockchain ledger helps update and record the status of crops from when they are planted, harvested, stored, and transported. Producers will be able to store all this information in a secure, easily accessible ledger that gives real-time status regarding agricultural shipments.
This becomes even more important when considering the growing demand for organic, pesticide-free foods. As consumers become increasingly health motivated, being able to verify that their products are truly as organic as the label claims to be is something that only decentralized technology can do. At the moment, there is no easy, accurate, and efficient way to make this a reality, with current solutions – certifications and regulations – adding costs to end products and being difficult to enforce.
One major player in this area is Blockgrain, an Australian based blockchain start-up that hopes to bring this level of transparency to the marketplace. Alex Saunders, an advisor for the company, said in an interview that “there’s a huge lack of trust in the community around what they’re eating… and the whole supply chain that is involved in our food ecosystem,” adding that “we’ve been able to understand there’s a massive need for what we’re doing in the agricultural space.”
At the same time, large companies have seen incentivizes to use this technology as well, especially in the area of food safety. Walmart and IBM have already begun using blockchain technology to help make their supply chains more transparent, and in test trials, they are able to track, verify, and identify the source of a contaminated product and recall all batches from that shipment in only a fraction of the usual time. This means that not only do companies save money by not needing to dispose of an entire shipment just because of a few bad apples, but it also means consumers will enjoy greater confidence that the food they are eating is safe.
Data Management and Reducing Human Error
Farming involves a complex, ever-changing picture of data that influences your crops over the course of a season. Increasingly, many growers are using farm management software to help track their resources at any moment in time. While this resource management data can be very helpful for optimizing a farms output, large farms that might have dozens of data collection devices can find it challenging to upload this information reliably, consistently, and accurately – especially if manual human input is involved.
Blockchain technology can help upload all of this information simultaneously, including a variety of other factors such as machine maintenance records, in field sensor equipment logs, etc. A grower is able to have a real-time picture of his or her entire agricultural operation, updated conveniently in real time, all the while reducing the chances of human error in the data recording process. They are also able to more easily identify faulty or malfunctioning equipment and sensors because of this.
Reducing Transaction Costs
One highly touted benefit of blockchain technology in every area of application is its ability to reduce transaction costs. A decentralized network, as in the case of cryptocurrencies, allows buyers and sellers to interact with each other without the need for middlemen to authenticate the process.
In the case of traditional banks and payment systems, these middlemen can charge large fees, which get passed along as higher costs. Currently, trillions of dollars flow between farmers and buyers, but these transactions are riddled with inefficiencies. For example, the current state of physical commodity exchange is separate from payment – farmers often need to deliver their harvest but then wait weeks or months to be paid. It’s one of the reasons why growers go to larger multinationals and major companies who have less risk of defaulting and losing their much-needed payment in the process.
Trust becomes a big issue, resulting in a fragmented supply chain that often puts farmers in an adverse and vulnerable position in terms of who they can do business with. Blockchain technology can change this, opening a world of trustworthy purchasers for growers to choose from, and in some cases, letting growers bypass one or two layers of middlemen and ship more directly to retailers.
Certain applications, such as AgriDigital, are already in the marketplace working on solving this problem, with the start-up having already handled almost US$600 million in transactions as of August 21, 2018. Emma Weston, founder of AgriDigital, said that “Blockchain has enormous potential for all participants along the agri supply chain.” She would go on to confirm that “Creating digital title and matching it to payment in an atomic transaction is significant for farmers and indeed all sellers – they retain ownership over their asset up until the moment they receive payment from the buyer, which eliminates counterparty risk.”
Empowering Local Farmers
Yet perhaps the most significant benefit decentralized technology brings to the world is its promise to help empower the small-time producer. Cutting out the intermediaries in transactions already benefits small growers more than large, consolidated conglomerates who have ample funding, but there are other benefits as well.
One noticeable area is that farms can use blockchain technology to help finance their operations. While this might not be a big deal for developed areas such as Europe and North America, growers in other areas of the world are finding their agricultural potential hamstrung by a lack of financing. Farmers in the plains of northern Nigeria and Abuja, for example, require tedious manual labor because they lack the funds to purchase modern farm machinery. As much of the African continent struggles with an exploding population base and a looming food shortage, a few days of tractor usage for farmers in this area could improve foodstuff output by as much as 20 to 40 times.
Farmers in a region could band together and start a simple blockchain product and, through an Initial Coin Offering, make a public offering to the international community to help raise funds. With there being over US$6 billion ICO funding in 2018 alone so far, there is a significant market for these kinds of offerings. At the same time, blockchain-based applications can help match potential investors with farmers sorely in need of funding. These applications would allow funds to be transmitted instantaneously and easily without long waiting times or excessive red tape.
Another way blockchain technology can empower local farms is through improving the overall trustworthiness of independent players in the marketplace. As mentioned before, smaller players in the agricultural market often feel compelled to work with larger companies, despite potentially less advantageous deals, simply because they feel they can trust them. Blockchain technology could create a network of vetted, independent growers and supply chain providers as an alternative to regular channels. What this means is that, especially in certain nations, we could see a reduced reliance on multinational corporations in favor of more local solutions.
Decentralized technology is coming to the agricultural industry in a big way, promising to help make it easier to track, manage, and sell one’s foodstuff while also increasing potential funding sources and improving overall efficiency. But above everything else, you might not even notice when it finally enters the industry. Operating behind the scenes, applications and software that use blockchain technology will feel similar to applications that farmers are using right now – although the end results will be noticeably better in the long run.
While some people like to claim that decentralized technologies are just a buzzword, the truth of the matter is that the agricultural industry, like many others, is poised to take this once niche technology into the mainstream in the coming years to everyone’s benefit.
(Read more about Knowing the Terrain in Agribusiness Investment)