Agricultural supply chains are complex networks that span the globe, yet in Australia agriculture is one of the least digitised industries. Emma Weston looks at the challenges, and explains how blockchain technology might be part of the solution following trials by AgriDigital.
Australia has long enjoyed a clean and green reputation for the food we grow. Our farm produce and processed foods now travel further than ever before, so we need to reassure our customers, and quickly identify and fix problems.
Digitisation and the exploration of blockchain technology have gained incredible traction in other industries over the past few years. It could do the same in agriculture.
Three key agri-supply chain challenges
1. Farmers don’t get paid for what they deliver when they deliver it
Historically, growers worldwide have carried the burden of counter-party risk, and the lack of payment security, when making a delivery to a buyer or storage site. Grower and grower-representative groups want greater security over the title to produce for the grower, and want to explore ways to eliminate counter-party risk entirely by matching the transfer of title to payment.
2. Buyers can’t get the financing they need to pay the seller on delivery
The lack of accurate real-time data prevents financial institutions from managing the risk of lending to the agricultural sector. Buyers don’t have accurate data on the farmers’ position and the potential inventory they could deliver. Financial institutions don’t have access to live industry-wide data for comparison.
The lack of real-time data and event-driven finance also means that many buyers and storage operations must be paid on terms, rather than immediately.
The settlement latency compounds the counter-party risk the sellers face, and compounds the affect of limited liquidity on business growth.
3. Consumers don’t know where their food comes from
Consumers are demanding the information they need to make informed purchasing decisions. Providing that information is becoming an integral part of a proactive brand strategy.
They want direct knowledge of how and where their food is grown — whether it’s produced organically, for example — and they want confidence that the information they’re being given is true.
Consumers are now aware of issues such as provenance, counterfeit products, and food security.
Blockchain as a solution
Blockchain technology, including smart contracts, can provide an immutable record of key transaction data, and link that data with each transaction as goods pass through the supply chain.
A blockchain, as Wikipedia describes it, is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Its original use was to secure transactions in digital currencies, that is to say, as a ledger, but it can be used for any application that involved a sequence of records that much be kept free from tampering.
The key features of a blockchain ledger:
- All participants have access to the ledger, allowing direct peer-to-peer transactions, rather than relying on an intermediary to facilitate them.
- Information is generally distributed across the network of participants, rather than being stored in a central database. It has no centralised control point or governing entity. A blockchain is often therefore called a “distributed ledger”.
- Data is cryptographically protected against tampering.
- Adding transactions to the ledger requires consensus among the participants who hold a copy of the blockchain.
All this is done automatically by the software platform used by the participants.
Smart contracts use a blockchain to store the agreements and transactions amongst the participants. In supply chains applications, workflows can execute automatically, tracing payments and the title to goods as they pass along the chains .
Blockchain applications in agriculture
In an August 2017 pilot by AgriDigital, digital title for a delivery of oats was generated on a private blockchain network and held in the grower’s “digital wallet”. Seven days later, settlement occurred in an atomic transaction — meaning that payment was made from the buyer to the grower, and simultaneously title transferred from the grower to the buyer. For the period up until payment, the grower had clear ownership of the digital title token that represented the physical grain delivery, and therefore security over their asset.
The grower delivery was received at the buyer’s site using the AgriDigital platform, where information about the quantity and quality of the commodity was captured. That resulted in the generation of a digital title token on the blockchain. The token was then held and flagged for payment in seven business days. Payments were recorded in “AgriCoin”, a digital currency used on the platform, equivalent in value to an Australian Dollar (AUD).
Smart contracts were used to auto-execute payment on the blockchain, which was also processed using traditional banking method, to ensure the grower received payment in regular currency. At that point the AgriCoin token was destroyed. Conceptually, that was a currency transfer from AgriCoin to AUD.
Paper-based systems or spreadsheets provide little to no recourse for growers when payment is disputed or fails. The immutable and accessible record on the blockchain, however, means that both growers and all sellers can match title transfer to payment.
This pilot also proved traceability from farm gate to a retailer’s distribution point of several loads of organic oats. Data points such as where and how the oats were grown, the transportation from farm to mill, and their processing, packaging and readiness for distribution, were captured. Each representing an event or claim that was critical to maintaining the oats’ status as organic.
One challenge is that a blockchain is an immutable record, so it’s critical to ensure both the data and the actor making an assertion are correctly identified at the time of record on the blockchain. Manual, human data input continues to act as a threat to data integrity.
Looking to the Future
Transparent supply chains, and creating a blockchain-based protocol for the global trade in agri-commodities is, I believe, central to this vision.
It’s an exciting time to be a part of the agriculture industry and agtech in Australia. Watch this space