AgCast: Blockchain and the Agriculture Marketplace

It’s disruptive, it’s global, it’s already been proven in the ag marketplace and some say it has an impact potential as large as the internet. Blockchain is the new digital currency system that’s already in use in some sectors of the economy around the world has already made an appearance in agriculture. Some say within the next year, it may be on its way to becoming a major part of the global ag marketplace.

 

Though it faces headwinds in its adoption – and rightfully so – blockchain could revolutionize the financial world and at the same time, have implications for agriculture for decades.

 

Blockchain Explained

A blockchain is part of a system that could revolutionize the way money exchanges hands in the future, and it has some significant implications for agriculture. It’s the infrastructure for cryptocurrency, the deregulated, decentralized digital money that some in the tech community see as an ultimate replacement for today’s traditional currency.

 

Blockchain is the network of computers, algorithms and management software overseen by “miners” that allows cryptocurrency to change hands in transactions that are then recorded in “permanent and unalterable” ledgers. Like Bitcoin itself, it’s totally deregulated and isn’t subject to the oversight of a central bank. And, like Bitcoin too, that deregulation makes it difficult for traditional companies and market players to involve it into what’s by law a thoroughly regulated sector of the economy.

 

Blockchain represents an entirely new way of connecting the two ends of a financial transaction. It’s more direct between buyer and seller, comprising a “peer-to-peer” transaction that is made both efficient and secure by the network computers through which transactions are placed.

 

According to a white paper exploring blockchains from CBH Group and AgriDigital: “Payment on a blockchain is significantly more efficient as it occurs in real time and has the benefit of being programmable. A transaction habitually taking days to execute in current grain supply chains happened in less than one second under the Pilot conditions.”

 

But, as a decentralized, deregulated system, it’s not likely to become a mainstream part of market transactions just yet – both in and outside of agriculture – out of regulatory necessity. And, because it’s not regulated, there’s a lot more room for volatility. Therein lie the major general pros and cons of blockchain as a mechanism for buying and selling in major marketplaces. Here’s a much more in-depth explanation of how it works.

 

Other Ways Blockchain Can Influence Agriculture

Beyond its utility as the platform for the transaction of cryptocurrency, blockchain has other potential applications specific to agriculture. Clayton Mooney is the co-founder of Blockchain Gospel (among other central Iowa startups), an online resource for blockchain education and information. He says this initial application of the technology is really just the beginning of its application to not just the banking sector. It’s way bigger than that.

 

“Blockchain is a disruptive technology that offers those in-the-know an opportunity to lead in implementing business solutions and harvesting investment opportunities that come along only once in a generation,” Mooney said.

 

In fact, CCgroup, a UK-based technology PR and marketing agency, lists four major areas where blockchain’s utility will reach in the near future:

  1. Transparent transactions
  2. Smart controls
  3. Data monitoring
  4. Minimizing human error

 

“Companies in the agriculture industry have started to use Blockchain technology to create systems that will record the journey taken by produce through the supply chain by utilizing the power of a shared secure ledger,” said a report from the CCgroup. “Older agricultural models are also seeing a resurgence, using the Blockchain to improve upon established practices.”

 

Mooney added: “There’s the potential for blockchain to completely change the way agricultural information is stored, and that’s just one of the many industries that will be impacted. In seeing the potential for new technologies, we’re at a very interesting moment in time for blockchain and its innovations. The impact potential is as large as the internet was and is.”

 

Past Precedent for Blockchain

Recent history shows us there’s already precedent for the type of change blockchain represents to the financial sector, and we need not look any further than the ag marketplace. With the advent of electronic trading, the open outcry session on the CBOT grain trading floor became just one component of an almost around-the-clock system of trading grain futures. Then, along came algorithmic trading, a way for brokers and traders to execute trades based on the numbers alone without involving the human element.

 

They’re changes that have elicited myriad responses from the industry – including farmers – ranging from excitement to disgust. Old adages like “It must be raining in Chicago” as the justification for a dip in corn prices, for example, just don’t carry the weight they did when the guys with loud voices in the CBOT pits had more to do with grain pricing.

 

So, where does blockchain fit into this evolution of digitizing the markets and other components of agriculture? One of the positives many associate with today’s electronic grain trading – and other technology that allows farmers to be more attentive to the markets around the clock – lies in the connections it permits sellers to make with buyers. Those with grain to sell have access to tools now that put them much closer to the trade than before, when phone calls to brokers were the primary driver of sales.

 

According to the white paper from AgriDigital and CBH Group: “Integrations into the blockchain clearly provide greater efficacy improving the processes of data transfer with clear back office efficiencies and costs reductions. Holding information across a distributed network where there is a single point of data entry, increases trust in the system and reduces time-consuming paperwork, reconciliations and re-entry of data.”

 

If blockchain is to become the medium through which grain trades are executed in the future, it could allow even stronger connections between buyers and sellers. A corn farmer will one day be able to use a blockchain to connect directly to a larger buyer – think a grain merchandiser like Cargill or ADM – year-round, enabling him or her to not just produce the volume the buyer needs, but any specific crop varieties or traits. That ultimately nets the farmer a higher margin of profit by not just offering up not just the number of bushels the buyer needs, but also the right specific end-use traits.

 

What’s more, the CBH Group and AgriDigital report shows there’s a big benefit to blockchain in the overall food system, from production to marketing: Traceability.

 

“Participants the whole way along supply chains are looking for data rich, digital solutions to help preserve or attract premiums, protect against counterfeit goods, provide food security, meet supply chain compliance obligations and verify where food comes from,” according to the report. “Being able to prove out business processes and full supply chain traceability is becoming an integral part of a proactive brand strategy in the digital economy. Blockchain offers a way to provide data links across supply chains and could help to ensure market access in a more transparent future world.”

 

Blockchain at the Farm Level

Now look specifically at the other end of the production cycle: That same corn farmer can use existing precision agriculture data to know exactly the right crop varieties and inputs to apply to maximize yield potential. Housing and managing that information in a blockchain will one day enable that farmer to secure the inputs he or she needs to do to raise that bumper crop more efficiently and seamlessly by simplifying the transaction process.

 

What do these new efficiencies mean on a macro level? If farmers can widen profit margins through more efficient, attentive marketing and crop input management, income levels will rise, and that could be the tide that “raises all boats.” Farmland values could rebound, causing even more consolidation of a smaller number of larger farms. With that consolidation could come specialization of operations, meaning a smaller, yet more specialized and distinct types of operations.

 

That shift has implications for agrimarketers, both when it comes to their new roles in the overall food supply chain and in serving farmer customers. How will products and services be distinguished in the marketplace to better target a smaller, more specialized group of potential customers? How will the work of marketers change as the attention to food supply chain transparency sharpens?

 

Farmers’ use of blockchain will require marketers to similarly grow their attentiveness to customers and the agricultural supply chain that drives their businesses. How can they leverage similar technology to do a better job of that? Answering that question will help successful agrimarketers continue to increase marketshare by not only being more attentive to customer needs, but providing specifically what’s required to meet those needs.

 

Learn more about blockchain from Mooney’s Blockchain Gospel, or follow them on Facebook or Twitter.

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