Blockchain Technology in Agriculture
Blockchain technology In Agricultural Sector
The term “blockchain technology” typically refers to the transparent, trustless, publicly accessible ledger that allows us to securely transfer the ownership of units of value using public key encryption and proof of work methods.
The technology uses decentralized consensus to maintain the network, which means it is not centrally controlled by a bank, corporation, or government. In fact, the larger the network grows and becomes increasingly decentralized, the more secure it becomes.
The potential for blockchain technology is not limited to bitcoin. As such, it has gained a lot of attention in a variety of industries including: financial services, charities and nonprofits, the arts, e-commerce and agriculture.
At its core, blockchain is an electronic system that allows
for record-keeping of transactions in real time. When participants in a
blockchain system complete a transaction, the time, date, nature and cost of
the exchange is recorded. Once the parties have confirmed the accuracy of the
information, it is then permanently and indelibly recorded, and can be made
accessible to every other participant in the system. Blockchain technology
therefore instantaneously creates a “consolidated
record that constitutes a single and shared version of the truth.”
Improved informational transparency and accuracy increases
trust between parties, reduces costs and boosts efficiency. Thanks to these
benefits, blockchain technology could be the key to modernizing agricultural
commerce.
How Blockchain could change agri-business
1. Food traceability
More than ever, consumers are taking an interest in the
origins and contents of their food. Demand for organic products, sustainably
raised meat and locally farmed produce has grown substantially in the past few
years. But when shoppers throw an item in their basket, can they trust the
label to tell them what they’re
really getting? The evolution in consumer tastes has given rise to an important
food fraud industry. Producers can easily sell mislabeled products, because the
retailer or final buyer has no real way of verifying a product’s origin.
British company Provenance has successfully experimented
with this type of application. Through the use of blockchain technology, the
Provenance app successfully tracked sustainably-fished tuna from fishermen’s boats in Indonesia to
restaurants in Japan. The fish were tagged and entered into a blockchain system
after they were caught. Subsequently, a new entry was made every time the fish
changed hands, allowing the final buyer to know exactly where the fish came
from. And this is just the beginning. Apps like Provenance have the potential
to allow consumers to trace not only the origin of a single piece of meat or
vegetable, but of every ingredient contained in a product.
2. Optimizing the supply chain
In addition to helping consumers make informed purchases,
the improved supply chain transparency could also greatly benefit farmers. The
agricultural sector’s supply
chain is notoriously complex and opaque, as shipments change hands multiple
times before reaching their final destination. It is difficult for farmers to
know where, for what price and how much of their products are ultimately sold.
This lack of information leaves them vulnerable, and at the mercy of traders
who can dictate order prices and quantities.
Blockchain technology can help rectify this imbalance by
recording transactions in real time and providing up-to-date supply and demand
information to participants. Having access to such information could allow
farmers to properly set their own prices and optimize the quantities of
products they put out on the market. Moreover, by keeping an ongoing record of
participants’ transaction
histories, blockchain can make it much easier for parties all over the world to
due diligence each other and confidently conclude transactions without the need
for middlemen and agents.
3. Better pricing and payment options
Blockchain technology can provide lower cost and
faster payment options to agri-commerce participants. In the current system, it
often takes weeks for farmers to get paid for their goods, and traditional
payment options such as wire transfers can be quite costly. Blockchain can
address some of these inefficiencies. Many developers have already designed
blockchain-based apps that provide for cheap, secure and near-instantaneous
peer-to-peer fund transfers. Some are even making use of “smart contracts”
that trigger payments automatically as soon as the fulfillment of a certain
condition (e.g. delivery of goods) is confirmed by the buyer. Recently, an
Australian farmer became the first person to settle an agricultural transaction
using this type of technology and more will surely follow in his footsteps.
4. The legal issues
As promising as blockchain technology is, there are still
many legal hurdles to clear before it can really fulfill its potential. Below
are only a few examples of issues that still need to be addressed.
5. Governance
Currently, there is no established governance system
regulating blockchain transactions. Participants in restricted systems can
establish their own ad hoc private rules on a contractual basis, but there are
no overarching regulations. While this may work on a smaller scale, bigger
commercial players may be reticent to exchange value over blockchain technology
until more uniform, industry-wide governance parameters are established.
6. Contractual certainty
Electronic transactions and smart contracts are extremely
convenient, but without formal agreements that businesses are used to dealing
with, they could give rise to uncertainty about when contracts are formed, what
terms they contain and whether they really exist at all. At this point, it is
difficult to determine how courts will interpret contracts concluded using
blockchain technology.
7. Privacy
Data added to the blockchain is stored permanently. This
could cause issues when such data includes users’ personal and banking
information. Before blockchain gains widespread acceptance, privacy safeguards
will need to be established and tested.
In conclusion, Blockchain has enormous potential to significantly impact
the way agricultural business is done. Blockchain technology can increase trust
between parties, facilitate information sharing throughout the supply chain and
significantly reduce agricultural transaction costs.
As the public and private sectors work toward addressing the
practical and legal challenges facing the technology, blockchain seems poised
to be the disruptive force that propels the agricultural industry into the 21st
century.
Ref: Norton Rose Fulbright, Unlocking the blockchain: A global legal and regulatory guide, Chapter 1: An introduction to blockchain technologies
Ref: Agfundernews