Blockchain in agri supply chains: progress and pitfalls
Despite the ravages of the bear market, blockchain technology is seeing rising traction in both public and private sectors. The potential it offers is well documented: a transparent, tamper-proof, and secure network with a data structure that can potentially solve several market, identity, and verification problems posed by traditional third-party intermediary systems, and to do so faster, more reliably, and at lower cost.
Blockchain is still in its infancy, however, and investment and implementation success are still largely determined by how well a particular blockchain system/platform is suited to the particular business problem it purports to address. In this article, we’ll look at one area that is particularly ascendant – blockchain’s potential to bring about real social change through reinventing the agriculture and food supply chain.
The promise of blockchain in agriculture and food
From food fraud and spoilage to unequal economic distribution across the value chain, the endemic problems ingrained in the global food and agriculture supply chains are well documented. For example, the contamination of foodstuffs and food fraud affects both consumers and producers alike and the WHO reports that as many as 10% of people globally fall ill from consuming tainted food every year, with an estimated 4.8 million tonnes of food wasted in the UK alone. Additionally, the Grocery Manufacturers Association estimates the economic cost to be $10–15 billion each year, with a single incidence of food fraud costing 2–15% of the annual sales of a business.
As has been the case in other industries, blockchain has been put forward as one essential cog in a patchwork of technologies to move towards a universal standard for agriculture and food supply chain traceability and transparency, and to connect consumers with producers via interactive data provenance.
Figure 1: The 5 core applications of blockchain tech in agri supply chains
Currently, approximately 60% of agriculture applications for blockchain are for-profit companies focused on reducing food fraud and contamination and increasing transparency and efficiency, through replacing the trusted-yet-fallible third parties involved in the collection, tracking, and management of data within agricultural supply chains with more neutral and efficient systems.
Companies such as Agriledger not only provide a complete framework of integrated services for tracking and monitoring transactions along the agricultural supply chain, but also aim to deliver a more even playing field to farmers and co-ops.
“Blockchain can address not only the challenges of provenance, but it can be used to track the obligations that are created by a product and/or commodity while supporting an efficient distribution of revenue to all participants." Genevieve Leveille CEO, AgriLedger
The role of supermarkets as gatekeepers
Another driving factor behind the ultimate success or failure of blockchain in agribusiness rests with the current role of supermarkets as gatekeepers. Major retailers are setting the terms of which blockchain solutions they are adopting and, by extension, the blockchain solutions they require supply chain stakeholders to participate in.
However, the lack of standardisation is a serious concern. If the whole point of this big data digital transformation exercise is to make processes more efficient, are multiple systems going to be required across the average retail portfolio for a producer? This could, at least in theory, create entirely new compliance and regulatory headaches and even be exclusionary to large groups of small producers.
Indeed, the lack of interoperability and standardisation in the systems being proposed, especially where the free market is in control, remains a huge challenge for the adoption of blockchain in all sectors, including agriculture and food. Indeed, in a PwC survey of 600 tech-savvy CEOs, over 32% rated some variation of “lack of interoperability/ability to bring networks together” as their #1 concern in terms of barriers to greater adoption of blockchain in their business.
Figure 2: The biggest barriers to blockchain adoption (respondents' top three challenges)
Open architecture and government-backed standardised solutions may be required to ultimately realise the true benefits of this technology in the sector. Leaving major supermarket chains as the ultimate gatekeepers will naturally skew the risks and benefits in their favour, and may do more harm than good to the supply chain and producer side of the business, leaving consumers somewhere in the middle. This does not need to be the ultimate outcome but is on the cards with the current trajectory.
The reality “under the hood” of many agri-blockchain ventures
While there have been companies and start-ups that are designing and implementing systems of real merit, it is important to point out that due to the speed of growth of the blockchain in agriculture space (estimated to post CAGR of 47.1% between 2021-2027 to reach $886.18 million), there has been a fair amount of corner cutting going on.
In the effort to jump on the bandwagon, a number of ventures are merely utilising blockchain as a front-end, when really their data is being maintained in proprietary databases, with the “public” portion merely being a database hash. This is not the raison d’etre of blockchain and also greatly limits the true benefits possible with blockchain-based distributed technology. Real blockchain systems keep the data within the blockchain itself which is what helps create trust – the immutability and transparency of the data within the chain, which governs subsequent blocks appended to the chain.
This blurring of blockchain application bonafides is unhelpful in realising the adoption of effective solutions, and, in many cases, may merely create an additional layer of obfuscation for compliance, transparency, and traceability – defeating the entire purpose of the exercise, while adding nothing but cost and complexity.
A fairer and more efficient future for agri-supply chains is coming, but challenges remain
Blockchain’s capacity to provide a layer of trust, tracking, and data integrity is increasingly being used in sustainable systems to achieve positive environmental impact – from carbon capture to food supply chain tracking – and the technology holds particular promise for the fragmented agribusiness supply chain.
But, to realise those benefits, a number of challenges need to be overcome. That may take the combined efforts of regulators, industry, and the public. If left solely to any one group – be it banks, NGOs, retailers, producers, or private industry – it is unlikely that any long-term blockchain solutions will deliver on their promise. Whether or not such efforts will come to fruition remains to be seen.
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Disclaimer: The information contained within is for educational and informational purposes ONLY. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision. No no commercial relationships or partnerships exist with any of the technology providers, manufacturers, or suppliers herein.