Blockchain for Agriculture
By: Tendai Tomu
Tags: Blockchain, Cryptocurrency, Agriculture Technology, Bitcoin, Farming

Blockchain for Agriculture

In the agriculture domain, self-executing smart contracts together with automated payments are poised to be a game-changer. The role of smart contracts especially in agricultural insurance, green bonds, and traceability is going to be very effective.

Commercial Agriculture/Agribusiness interest in blockchain technology is rapidly growing. Increasingly, companies are recognizing how the emerging technology’s enhanced data management capabilities could create supply chain efficiencies and reduce friction in transactions.

The agriculture sector stands to benefit from the technology’s potential to lower transaction costs, optimize logistics, increase traceability, and enhance food safety protocols.

Agriculture joins a variety of industries that are using and developing blockchain applications to improve business transactions. Prominent technology companies such as IBM and Microsoft are already creating partnerships with global logistics companies and retailers to develop blockchain applications that more closely align links in the supply chain.

Amazon, through its web services arm AWS, has just released a set of blockchain templates with network access control to increase blockchain usage without users worrying about the actual manual setup of a blockchain network.

According to The Report Linker, the blockchain in food supply chains and agriculture ecosystem was estimated to be USD 60.8 million in 2018 and is projected to reach USD 429.7 million by 2023.

The Dutch Ministry of Agriculture, Nature and Food Quality financed the first research project, “Blockchain for AgriFood” that has been proposed to explore blockchain implications for AgriFood.

Pilot studies carried out by the CoBank Knowledge Exchange in 2018 indicate that blockchain technology could facilitate the tracing of food from the farm to the grocery store in just a few seconds.

For the agricultural supply chain, blockchain technology promises increased efficiencies through enhanced data management, lower transaction costs, optimized logistics, more robust traceability, and enhanced food safety protocols. Prominent technology companies are creating partnerships with global logistics companies and retailers to develop blockchain applications that can be used for the efficient tracking and delivery of agricultural products.

Blockchain will likely accelerate the agriculture industry’s movement toward greater transparency and traceability from the field to the table and fork. This will bring opportunities and tools for farmers and the rest of the supply chain to combat food fraud and offer verified products to consumers.

Blockchain also helps to keep tabs on abundant commodities and reduce cases of illegal harvesting and shipping frauds. The United Nation reveals that food frauds cost the global economy around $40 billion per year because of illicit trades.

Agricultural insurance built on the blockchain with key weather incidents and related pay-outs drafted on a smart contract all linked to mobile wallets with weather data being provided regularly by sensors in the field and correlated by data from proximity weather stations will facilitate immediate pay-outs to farmers in the case of a drought or flooding in the field.

However, the framework to support such innovations, such as high-quality data, enabling policies and regulations, should be first addressed in order to ensure the maximum efficacy for smart contracts. The process of designing, verifying, implementing and enforcing smart contracts in traditional agricultural value chains is still a work in progress, with only a few pilot implementations to show proof-of-concept.

Opportunities for Blockchain Technology in Agriculture

Blockchain-based transactions are being piloted in many sectors including the financial, manufacturing, energy and government sectors.

They are also being used in relation to agriculture supply chains, land registrations and digital IDs. Initially born out of a need for a more decentralized financial system (together with cryptocurrencies), this technology is finding innovative uses in a wide range of applications.

A blockchain by design is cryptographically secure (although the content is not necessarily encrypted), it is a write once-append only, distributed and decentralized system. It is important to note that the statement that the blockchain is the only mechanism to build trust, reduce costs and accelerate transactions is not entirely true. Blockchain-based implementations still suffer from traditional challenges such as lack of or poor infrastructure, failures of interoperability, and other technical issues.

Although the trend now is to try a blockchain-based implementation on traditional processes, in most cases this adds unnecessary overheads and does not yield any tangible benefits. What the blockchain does promise is to deliver is a transparent, decentralized, secure transaction process and may reduce transaction costs.

This brings us to the main question: Which processes in the agriculture domain suffer from lack of transparency and would benefit from decentralization and are now affected by non-secure transaction processes?

Traceability and Auditability

The major challenge for the agriculture sector is how to track and pay for the delivery of produce. These days the process depends on a third-party to coordinate the delivery. The sellers usually have an agent who ensures that the goods are delivered safely and buyers have an agent to recommend payment and audit the delivery. The involvement of multiple agents adds high costs to the system and makes the entire process time-consuming. With the blockchain, the whole process can be simplified to a single distributed ledger.

Commodity buyers can directly interact with the supplier that speeds up the process and reduces the time to settle a payment. Also, the companies can save on additional agent fees and farmers can receive a larger share of sales directly with a blockchain-based solution.

With the features like traceability and auditability, farmers can directly sell crops or food to the market without the need for intermediaries.

Example: Walmart leafy green suppliers

According to the Agricultural Data Coalition (ADC), a non-profit organization focused on connecting the data dots across food & agriculture, high-value crops that have more pressing needs for traceability are already doing this. Walmart announced last year they would require all leafy green suppliers to implement their blockchain system.

2. Logistics and Payments

Today basically every medium to large farm operation know that logistics is a big challenge in the agricultural supply chain. At this point, we are talking about dealing with high amounts of perishable products in uncertain conditions with lots of money on the line.

There are also cases where supply can be uncertain and that, of course, is a totally different ball game. Of course, everything boils down to losing hundreds of thousands of dollars if things don’t go as planned.

So is there any good news? Well, of course, there is!

Implementing blockchain into logistics can go a long way in simplifying deliveries. Yes, with smart contracts, farmers will be free from the long chains of intermediaries. And of course, they’ll get to rest easy knowing that the product will reach the end consumer in good shape.

Moreover, smart contracts will eliminate unnecessary delay and ensure farmers get paid for their product on time. Even better, the solution can be configured to spread out payments to farmers throughout the year as opposed to paying them seasonally.

3. Crop and Food Production

With the help of smart farming, IoT sensors could fetch important information like the temperature of the soil, water level, fertilizer details and more and send it to the blockchain.

Based on the data saved in blockchain, smart contracts could trigger and execute the specific actions. It will help in enhancing the quality of the farming process as well as produced crops.

4. IoT and Quality Control

Let us face it; the process of monitoring the quality of crops (right from harvest to delivery) has never been easy. It is basically a huge challenge for farmers and growers throughout the world. But of course, the good news is, the power of blockchain technology can be harnessed in this regard. Interestingly, IBM is already working on IoT (Internet of Things) tools that make it possible for growers to monitor soil quality, irrigation, and pests in a precise and highly efficient manner.

It is also good to point out that there are initiatives to leverage sensors to track the quality of stored crops over time. Of course, the ultimate goal of these applications is to automate and digitize just about everything that has to do with record-keeping and quality control.

The good news is, most of these incredible innovations are presently happening in modern-day agriculture. For the most part, these sensors can gather data automatically in real-time. And of course, provide quick and easy access to growers who need the information to perform various farm operations.

5. Data Security

The question that still remains is that of data security. Here, the blockchain uses another age-old feature, namely cryptographic hashing, that permits data subjects to better manage and control who has access to their (personal) data.

Blockchain/DLT may also help accomplish the goal of data portability (including by incentivizing data sharing and automating payments for shared data), thereby supporting the establishment of a data economy envisaged by the General Data Protection Regulation (GDPR) (European Parliament, 2019, p. III).

Undoubtedly, there are still several shortcomings in the technology that make it susceptible to the same risks as in existing centralized systems. Nevertheless, the above features of blockchain, together with the fact that it is also a programmable platform that permits new applications, including smart contracts, to be built on it, make Blockchain/DLT a highly attractive option for several use cases.

Smart contracts execute money transfers without the need for any intermediary, especially when cryptocurrencies are adopted. Undoubtedly, the technology is still in its nascent stages of development and user adoption is relatively low due to the greater convenience (currently) of centralized systems.

Nevertheless, Blockchain can significantly reduce transaction costs and the need for interventions by regulatory authorities. It has been estimated, for example, that “blockchain could facilitate global savings of up to US$6 billion per year in business transactions” (Addison and Lohento, 2018).

Would the role of governmental and law enforcement agencies then be eliminated in a blockchain world? No.

Instead, perhaps more accurate would be to say that their role, power and authority will become more distributed, transparent and/or susceptible to contradiction or verification by independent stakeholders. Further, the value of their certifications and regulations would depend on how much each individual player (e.g. buyer of seeds) chooses to rely on their authority.

Accordingly, attributes like quality and reliability, which are currently considered ‘objectively verifiable’ based on certification requirements of centralized authorities, may become more and more ‘subjective’, varying based on which ‘node’ any stakeholder considers on personal judgement and experience to be reliable, and which attribute (e.g. of the seeds being sold) is being sought by the buyer. The establishment of such a system, is not, however, without its challenges — both technically and practically speaking.

More benefits and opportunities of the blockchain in agriculture:

Traceability throughout the value chain

Financing and insurance for small farmers

Facilitation of financial transactions in emerging economies

Fair pricing through the whole value chain for all actors

Emissions reductions and support for environmentally friendly initiatives

Consumer awareness and increased consumer satisfaction

More informed consumer purchasing decisions

Sustainable business and reduction of waste

Decreased transaction fees and less dependence on intermediate services

Transparent transactions and elimination of fraud

Improved quality of products and fewer diseases originated from food

Data accessibility while maintaining privacy according to regulations

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