Agriculture Transformation by Blockchain
As Booker T. Washington said, “Those who are happiest are those who do the most for others.” The agricultural industry not only provides one’s favorite food during dinner; but also, feeds the world. Blockchain carries with it the promise new decentralized data, worldwide standardization for transparency of food, and new protocols use cases that could reward emerging economies for new business models to emerge.
Historically, the agriculture industry has been a slow adopter of technology with large corporations having the means of scale. This doesn’t mean there is great complexity. Blockchain’s potential applications are huge and could have impacts all along the supply chain of the agricultural industry from producer to consumer. We have identified 6 major players with the supply chain process: Provider, Producer, Processing, Distribution, Retailer & Consumer. Nowadays, the food supply chain is not transparent as it relies on cumbersome paperwork and involves many intermediaries. It is estimated that this whole distribution system accounts for 66% of the final cost.
In terms of today’s existing system, there are losses totaling 940B+ annually due to limited access to markets through the chain (8 Blockchain Startups Disrupting The Agricultural Industry, 2021). As things become more centralized with ‘Big Data’, so does the risk increase for more limited points of widespread security hacks. It is estimated that an increase of +15% in efficiency would be possible with reduced bureaucracy in worldwide in terms of GDP (8 Blockchain Startups Disrupting The Agricultural Industry, 2021). Beyond household names like Cargill, John Deere, DuPont, the value chain of this industry is a rich soil of potential for Internet of Things (IoT) + Blockchain to act as the great leveler for new economies of scale worldwide.
Blockchain will bring value and regain value at each stage of the chain in terms of productivity, traceability, authenticity, condition monitoring, and trustworthy information for the end user. At the producer level, the combination of IoT and blockchain will generate more insightful data as well as automation around many steps in the agricultural industry. Blockchain technology plus IoT will lead to major technological progress towards ‘Agriculture 4.0’. The digitalization of agriculture with the usage of connected tractors, robots, drones and measurement tools will enhance both productivity and environment protection through optimized harvesting, crop treatment, decreased of fuel consumption, and a better monitoring of soil quality.
Producers can leverage this data to reduce crop insurance costs, the transaction fees, and increase crop’s yield by applying the most relevant treatment at the right times. Computer-assisted analytics has the potential to be a game changer within the agricultural industry. Using non-fungible tokens for every batch of crops to certify the traceability will be the next fully secured generation of highly transparent food supply chains.
Additionally, the value of immutability of blockchain technology will allow visibility for each step of the process to all participants and will generate a permanent record of trust. As an example, a critical stage of food distribution is a major concern of any disease control body regarding food safety. In the US, the Center for Disease Control and Prevention estimated that 48M of Americans had been contaminated by food in 2018 causing 3,000 deaths. Blockchain technology with IoT solutions has the capacity to enable a real-time monitoring of shipping, storage conditions to ensure the cold chain integrity and fast root cause identification. In term, one will be able to ensure that the players in the industry follow ethical practices during all the steps in the process. Furthermore, we can avoid major product recalls in case of a mishap because we will be able to track where and when the problem occurred.
Agriculture insurance and financing products will enter the market and allow for SMB farming to collaborate and compete in an enterprise environment by nature of blockchain’s composition for market differentiation. Firstly, there will be an increase in farming activity as more farmers will have access to crop insurance through smart contracts and they will be able to gain a larger share per dollar of sales.
Second, organizations dedicated to agricultural finance will become an industry supporting the ecosystem. One will see the crop insurance and agricultural finance industry evolve because with blockchain, microfinancing will become easier through ‘Decentralized Application’ (DAPPS). This will be a huge difference compared to the banks that charge a premium to farmers who can’t always afford it. The emergence of decentralized finance can revolutionize agricultural finance.
Thirdly small just got big, as non enterprise farmers will find ways to compete on an even footing with the rest of the market in regards to better financing options, wider access to markets and more control over the price of their goods as well as being able to command a premium if marketed properly. Currently, small farmers face a huge disadvantage because they don’t have the scale to compete with the larger farmers. They have trouble financing their activity and often have to work as a collective. Due to access to better finance, farmers will be able to grow different crops and plan their activities in an optimal manner leading to better income for the year.
Fourthly, details on marketing advantage of transparency of blockchain to traditional enterprise agricultural firms. The small farmers will have the opportunity to differentiate themselves and be more competitive with the larger farmers therefore levelling the playing field to a great extent. This will increase their access to market because they will have more channels to sell their products. Farmers will have more control over how they price their stock. Lastly, blockchain enables traceability which will encourage fair trade practices. Consumers will be able to track the food journey and know what they are buying. This increase transparency through the value chain of the industry.
Considering the complexity and novelty matrix below, it helps one to identify the different stages on the application of the blockchain within the agriculture value chain. As we see with 1-4, it is expected that blockchain’s impact will become increasingly complex to disruptive “transformation”:
The “Transformation” quadrant is the most challenging as its impacts will affect all industry frameworks:
- Need for standards (establish the standards and store them somewhere by using for example a ‘Decentralized Autonomous Organization’ (DAO)
- Ability of farmers to modernize (Agriculture 4.0 – Impact on business models and ecosystems), for example, the communication networks to deploy and cover rural areas efficiently; also the specificities of the environment (limited access to power, dust, rain, vibration, etc.).
- Modernizing infrastructures with the digitalization of agriculture & connecting machines and farms. These modernizing is based on the development and introduction of new tools and machines which required huge amount of investment. For example, the average age of tractors in Germany is 27.5 years, due to high purchasing cost.
In conclusion one finds multiple entrepreneurial ideas in waiting for the agriculture industry with blockchain + IoT. An agricultural focused protocol/smart contract platform could be used by any IoT application, allowing for faster adoption and implementation across differentiated services. In a nutshell, the main impacts within agriculture include:
- Increase of productivity and environment protection
- Optimization of resources
- Bypass wholesalers and distributors
- From farm to table (producer to consumer)
- Create opportunity in distribution and logistics (transportation)
- Enhance food safety and transparency
- Marketing Differentiation = Right to Value within the Market
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- Jacob Westrum,
- Christophe Duclos,
- Aseem Gupta,
- Patrick Mbamba A Ibong,
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