Blockchain for Agriculture
How blockchain can revolutionize food supply from the farm to the plate.
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The world we live in today continues to face enormous challenges in providing enough food for its ever-growing population. To be specific, these challenges are mainly the effects of:
· Climate change
· Floods
· Drought
· Desertification
· Loss of biodiversity
· Pests
· And disease
Innovations in our agricultural processes are needed to overcome some of these challenges and make agriculture attractive to and profitable for the smallholder farmers involved in feeding the world.
The Sustainable Development Goals (SDGs) provide a vision for global development and ICTs can facilitate the much-needed acceleration of development to achieve many of these goals. The growth of ICT in the last decade has provided many opportunities to overcome some of the challenges faced in agriculture.
Recent developments such as the increase in the use of mobile-broadband access devices, the Internet of Things (IoT), drones, smart networks, capacity for big data analytics, and artificial intelligence have provided agriculture stakeholders with some key tools and technologies to improve production and marketing processes, for example, in agriculture and allied fields.
If you have the opportunity to visit a farm by chance you will discover that farmers have complicated ecosystems with seasonal financing structures, needing careful timing and a lot of moving parts.
After the food leaves the farm for the market, it becomes a part of the vast supply chain involving a lot of intermediaries. Imagine the journey that our food takes after it leaves the farm — passing through many hands and processes as it gets to the dinner table.
Who assures the quality? How credible is the quality assurance process?
Besides what you can see and smell how else can you verify the quality of what is before you at the dinner table?
How can you check the quality of food before you eat it?
All these questions above require answers.
Blockchain for Agriculture is one of the most compelling use cases of blockchain that makes the process of growing and supplying food simpler.
Blockchain is fast proving to be the technology that can re-engineer many existing processes ― from settling transactions, tracing the food origin and tracking customer demand to creating new exciting marketplaces.
Staying on top of the newest developments in agricultural processes is as complex as it is essential for improving the entire sector. Given the rapid development of this technology, it has become a necessity to stay informed of the most recent developments in the field to stay ahead of your competition.
It is no longer news that blockchain technology is taking over many industries. Yes, we have seen it disrupt the financial sector, hospitality, healthcare, real estate, logistics, online advertising and more. Blockchain can also deliver real value to growers.
For the most part, blockchain can provide a single, unalterable source of truth about the condition of your farm, inventory, and contracts. As a farmer, you may no longer have to use countless apps, spreadsheets or pen and paper to record important data.
Blockchain technology can reduce inefficiencies while saving time and energy in the agriculture value chain. With blockchain’s ability to improve automation, digitization, and food tracking, there’s no doubt that technology is a must for modern agriculture.
Blockchain technology is one of the most discussed technologies in the world today. By now you must have heard of Bitcoin, Cryptocurrencies, DeFi or Altcoins, all intimately linked and connected to blockchain technology.
What is Blockchain Technology
In the simplest terms, a blockchain is a time-stamped series of immutable records of data that is managed by a cluster of computers not owned by any single entity.
Each of these blocks of data (i.e. block) is secured and bound to each other using cryptographic principles (i.e. chain). Many commentaries online start by explaining that a blockchain is similar to a Google document spreadsheet where multiple authors can contribute because of the mechanism of locking.
However, blockchain is a bit more complex than this example and has unique characteristics that make it an attractive technology for tagging, storing and tracking anything of value.
Distributed Ledger Technology (DLT), the technology that is behind the flagship cryptocurrency coin bitcoin and many other various alternative cryptocurrencies (altcoins) in circulation today, has continued to revolutionize the marketplace every day with novel applications being unveiled every day.
Putting it simply, a distributed ledger technology system is a decentralized system for recording transactions with mechanisms for processing, validating and authorizing transactions that are then recorded on an immutable ledger.
Blockchain is one implementation of Distributed Ledger Technology. It is also referred to as an “Internet of value”, meaning a secure way to store and transact value — anything from currency, stocks, contracts and even votes — from one entity to another. It is also the underlying technology powering cryptocurrencies such as Bitcoin and Ethereum.
A blockchain consists of blocks, each block containing the data (anything of value), its own hash value (a unique cryptographic value containing characters and numbers generated through a complex computational algorithm) and a pointer to the hash of the previous block.
What is the Purpose of the Blockchain?
What is a blockchain once again? It is a way for everyone in a cryptocurrency network to store the current state of the network. Cryptocurrencies are designed to be a way for people to exchange and store money without needing to rely on a central banking system.
However, without a central bank, there is a need for some way to keep track of the amount of money in everyone’s account and the occurring transactions. Without such a way it would be impossible to buy anything with cryptocurrencies since sellers wouldn’t trust that buyers have the money and also they wouldn’t have a way of sending the money to a seller.
The blockchain in cryptocurrency is designed to be a decentralized ledger recording every transaction that has ever occurred in the history of the cryptocurrency. This replaces a bank’s centralized ledger that keeps track of the amount of money that you have in your account and updates this information when you transfer money to and from your account by making deposits and withdrawals/purchases.
For a transaction to be recognized as valid by a seller, it has to be published to the blockchain. Therefore, it is important that transactions be added quickly to the blockchain in order to avoid large delays in purchases.
With blockchain technology, one does not have to wait 1–3 days for their payment to go through and reflect as is the case with the traditional banking system. The blockchain is designed to have its ledger updated quickly and regularly to include the latest transactions.
As a security measure, cryptocurrency is designed in such a way that the blockchain is stored in a decentralized manner and secured so that no one can modify transactions after they have been added to the blockchain.
Since the security measures used in blockchain work equally well for a single transaction or a thousand, cryptocurrencies group transactions into blocks created at regular intervals and containing many transactions. This provides a reasonable trade-off between the cryptocurrency’s needs for speed, efficiency, and security.
Using the Blockchain for Problem-Solving
Blockchain-based transactions are being piloted in many sectors including the financial, manufacturing, energy and government sectors. They are also being used in relation to agriculture supply chains, land registrations and digital IDs.
Initially born out of a need for a more decentralized financial system (together with cryptocurrencies), this technology is finding innovative uses in a wide range of applications. A blockchain by design is cryptographically secure (the content is not necessarily encrypted), it is a write once-append only, distributed and decentralized system.
However, blockchain-based implementations still suffer from traditional challenges such as a lack of or poor infrastructure, failures of interoperability, and other technical issues. Although the trend now is to try a blockchain-based implementation of traditional processes, in most cases this adds unnecessary overheads and does not yield any tangible benefits.
What blockchain technology does promise is to deliver a transparent, decentralized, secure transaction process and may reduce transaction costs.
This brings us to the main question: What processes in the present Agricultural domain are suffering from a lack of transparency and would benefit from decentralization?
To identify if a challenge that you are facing could benefit from a blockchain-based solution, the first step is to identify the use case, then develop the key governing principles (including regulatory requirements, stakeholders, legal framework, interoperability with the existing system, scale and other key requirements) and then determine what technology or architecture would help address the challenges of that particular case.
In most cases, a much simpler digital solution may be the answer.
Blockchain — Government Use Cases
Governments from around the world are warming up the potential of blockchain government application cases. As such, it’s no longer surprising to see more and more projects collaborating with governments.
In this book, we will be looking into four different projects — Algorand, ICON, Power Ledger, and RSK and see what exciting implementations they are presently working on.
Case Study: Algorand
Founded by the Turing Award winner, Silvio Micali, Algorand is a one-of-its-kind open-source, permissionless, and pure proof-of-stake blockchain that doesn’t fork and is ideal for the creation of next-gen financial products.
SFB Technologies is partnering with Algorand blockchain to develop the Central Bank Digital Currency (CBDC) of the Marshall Islands dubbed Marshallese Sovereign (SOV). SFB Technologies chose the Algorand protocol for its speed, scalability, and security.
Co-founder and CTO of SFB Technologies, Jim Wagner, noted: “Algorand was selected after extensive market research among the leading protocol options. The company has already powered several mainstream use cases and thanks to its unique features the platform has the functionality required to issue, manage and distribute the SOV on a global level.”
A CBDC is a digital form of fiat money that can be generated by a country’s central bank and can be used as legal tender. As the world embraces technology and a cashless approach, several central banks around the world are exploring whether or not they could issue a CBDC to complement cash.
There are many benefits of CBDC usage, including:
- Two parties will be able to directly transact with each other, without needing to go through an intermediary like a bank.
- Every citizen can be provided with a basic public address to hold their coins. This can go a long way in banking the unbanked.
- Since CBDC is blockchain-based, the transactions are transparent and every single coin can be traced back to its very source.
Several countries like China, France, Thailand, etc. are working on their versions of CBDCs. Looking specifically into SOV, the government of the Marshall Islands will oversee it and its supply will grow at a fixed rate of 4% each year to keep inflation in check. The SOV will allow the Marshall Islands to efficiently operate in the global economy by circulating alongside the US dollar.
Blockchain Private Sector Use Cases
Financial Sector:
Disberse (www.disberse.com) provides an alternative financial infrastructure for the aid industry built on blockchain technology. It provides end-to-end real-time tracking, providing complete and immutable data for reporting, auditing and compliance trails.
Digital identity: Many companies have been trying to address the challenges of providing a system for decentralized identity management. IBM Blockchain Trusted Identity is working on creating a decentralized approach to identity management using blockchain built on top of open standards.
Education Sector:
a) Learning Machine (www.learnigmachine.com) creates a lifelong learning record with verifiable, tamper-proof documentation and certifications.
This also facilitates instant decentralized verification. UNICEF has developed the Amply application platform to be able to replace the existing paper-based system to register children for a government-funded preschool subsidy in South Africa.
This blockchain application platform provides real-time service monitoring including verifiable digital identify registries for service agents and children and claims to reduce program administration costs.
In gender equality and women’s empowerment: UNWomen, together with partners, such as Innovation Norway, is exploring how blockchain could help refugee women on the move by storing and securing identity papers, medical records and documentation of ownership of assets.
Logistics Sector:
a) Companies such as Modum (www.modum.io) work by combining IoT sensors with blockchain technologies thereby providing data integrity for transactions involving physical products.
Blockchain for Agriculture
In the agriculture domain, self-executing smart contracts together with automated payments are poised to be a game-changer. The role of smart contracts especially in agricultural insurance, green bonds, and traceability is going to be very effective.
Commercial Agriculture/Agribusiness interest in blockchain technology is rapidly growing. Increasingly, companies are recognizing how the emerging technology’s enhanced data management capabilities could create supply chain efficiencies and reduce friction in transactions.
The agriculture sector stands to benefit from the technology’s potential to lower transaction costs, optimize logistics, increase traceability, and enhance food safety protocols.
Agriculture joins a variety of industries that are using and developing blockchain applications to improve business transactions. Prominent technology companies such as IBM and Microsoft are already creating partnerships with global logistics companies and retailers to develop blockchain applications that more closely align links in the supply chain.
Amazon, through its web services, arm AWS, has just released a set of blockchain templates with network access control to increase blockchain usage without users worrying about the actual manual setup of a blockchain network.
According to The Report Linker, the blockchain in food supply chains and agriculture ecosystem was estimated to be USD 60.8 million in 2018 and is projected to reach USD 429.7 million by 2023.
The Dutch Ministry of Agriculture, Nature and Food Quality financed the first research project, “Blockchain for AgriFood” that has been proposed to explore blockchain implications for AgriFood.
Pilot studies carried out by the CoBank Knowledge Exchange in 2018 indicate that blockchain technology could facilitate the tracing of food from the farm to the grocery store in just a few seconds.
For the agricultural supply chain, blockchain technology promises increased efficiencies through enhanced data management, lower transaction costs, optimized logistics, more robust traceability, and enhanced food safety protocols. Prominent technology companies are creating partnerships with global logistics companies and retailers to develop blockchain applications that can be used for the efficient tracking and delivery of agricultural products.
Blockchain will likely accelerate the agriculture industry’s movement toward greater transparency and traceability from the field to the table and fork. This will bring opportunities and tools for farmers and the rest of the supply chain to combat food fraud and offer verified products to consumers.
Blockchain also helps to keep tabs on abundant commodities and reduce cases of illegal harvesting and shipping fraud. The United Nations reveals that food frauds cost the global economy around $40 billion per year because of illicit trade.
Agricultural insurance built on the blockchain with key weather incidents and related pay-outs drafted on a smart contract all linked to mobile wallets with weather data being provided regularly by sensors in the field and correlated by data from proximity weather stations will facilitate immediate pay-outs to farmers in the case of a drought or flooding in the field.
However, the framework to support such innovations, such as high-quality data, and enabling policies and regulations, should be first addressed in order to ensure the maximum efficacy for smart contracts. The process of designing, verifying, implementing and enforcing smart contracts in traditional agricultural value chains is still a work in progress, with only a few pilot implementations to show proof of concept.
Opportunities for Blockchain Technology in Agriculture
Blockchain-based transactions are being piloted in many sectors including the financial, manufacturing, energy and government sectors.
They are also being used in relation to agriculture supply chains, land registrations and digital IDs. Initially born out of a need for a more decentralized financial system (together with cryptocurrencies), this technology is finding innovative uses in a wide range of applications.
A blockchain by design is cryptographically secure (although the content is not necessarily encrypted), it is a write once-append only, distributed and decentralized system. It is important to note that the statement that the blockchain is the only mechanism to build trust, reduce costs and accelerate transactions is not entirely true. Blockchain-based implementations still suffer from traditional challenges such as lack of or poor infrastructure, failures of interoperability, and other technical issues.
Although the trend now is to try a blockchain-based implementation on traditional processes, in most cases this adds unnecessary overheads and does not yield any tangible benefits. What the blockchain does promise is to deliver a transparent, decentralized, secure transaction process and may reduce transaction costs.
This brings us to the main question: Which processes in the agriculture domain suffer from a lack of transparency and would benefit from decentralization and are now affected by non-secure transaction processes?
Traceability and Auditability
The major challenge for the agriculture sector is how to track and pay for the delivery of produce. These days the process depends on a third party to coordinate the delivery. The sellers usually have an agent who ensures that the goods are delivered safely and buyers have an agent to recommend payment and audit the delivery. The involvement of multiple agents adds high costs to the system and makes the entire process time-consuming. With the blockchain, the whole process can be simplified to a single distributed ledger.
Commodity buyers can directly interact with the supplier which speeds up the process and reduces the time to settle a payment. Also, the companies can save on additional agent fees and farmers can receive a larger share of sales directly with a blockchain-based solution.
With features like traceability and auditability, farmers can directly sell crops or food to the market without the need for intermediaries.
Example: Walmart's leafy green suppliers
According to the Agricultural Data Coalition (ADC), a non-profit organization focused on connecting the data dots across food & agriculture, high-value crops that have more pressing needs for traceability are already doing this. Walmart announced last year they would require all leafy green suppliers to implement their blockchain system.
2. Logistics and Payments
Today basically every medium to large farm operation knows that logistics is a big challenge in the agricultural supply chain. At this point, we are talking about dealing with high amounts of perishable products in uncertain conditions with lots of money on the line.
There are also cases where supply can be uncertain and that, of course, is a totally different ball game. Of course, everything boils down to losing hundreds of thousands of dollars if things don’t go as planned.
So is there any good news? Well, of course, there is!
Implementing blockchain into logistics can go a long way in simplifying deliveries. Yes, with smart contracts, farmers will be free from the long chains of intermediaries. And of course, they’ll get to rest easy knowing that the product will reach the end consumer in good shape.
Moreover, smart contracts will eliminate unnecessary delays and ensure farmers get paid for their products on time. Even better, the solution can be configured to spread out payments to farmers throughout the year as opposed to paying them seasonally.
3. Crop and Food Production
With the help of smart farming, IoT sensors could fetch important information like the temperature of the soil, water level, fertilizer details and more and send it to the blockchain.
Based on the data saved in the blockchain, smart contracts could trigger and execute specific actions. It will help in enhancing the quality of the farming process as well as producing crops.
4. IoT and Quality Control
Let us face it; the process of monitoring the quality of crops (right from harvest to delivery) has never been easy. It is basically a huge challenge for farmers and growers throughout the world. But of course, the good news is, the power of blockchain technology can be harnessed in this regard. Interestingly, IBM is already working on IoT (Internet of Things) tools that make it possible for growers to monitor soil quality, irrigation, and pests in a precise and highly efficient manner.
It is also good to point out that there are initiatives to leverage sensors to track the quality of stored crops over time. Of course, the ultimate goal of these applications is to automate and digitize just about everything that has to do with record-keeping and quality control.
The good news is, that most of these incredible innovations are presently happening in modern-day agriculture. For the most part, these sensors can gather data automatically in real time. And of course, provides quick and easy access to growers who need the information to perform various farm operations.
5. Data Security
The question that still remains is that of data security. Here, the blockchain uses another age-old feature, namely cryptographic hashing, that permits data subjects to better manage and control who has access to their (personal) data.
Blockchain/DLT may also help accomplish the goal of data portability (including by incentivizing data sharing and automating payments for shared data), thereby supporting the establishment of a data economy envisaged by the General Data Protection Regulation (GDPR) (European Parliament, 2019, p. III).
Undoubtedly, there are still several shortcomings in the technology that make it susceptible to the same risks as in existing centralized systems. Nevertheless, the above features of blockchain, together with the fact that it is also a programmable platform that permits new applications, including smart contracts, to be built on it, make Blockchain/DLT a highly attractive option for several use cases.
Smart contracts execute money transfers without the need for any intermediary, especially when cryptocurrencies are adopted. Undoubtedly, the technology is still in its nascent stages of development and user adoption is relatively low due to the greater convenience (currently) of centralized systems.
Nevertheless, Blockchain can significantly reduce transaction costs and the need for interventions by regulatory authorities. It has been estimated, for example, that “blockchain could facilitate global savings of up to US$6 billion per year in business transactions” (Addison and Lohento, 2018).
Would the role of governmental and law enforcement agencies then be eliminated in a blockchain world? No.
Instead, perhaps more accurate would be to say that their role, power and authority will become more distributed, transparent and/or susceptible to contradiction or verification by independent stakeholders. Further, the value of their certifications and regulations would depend on how much each individual player (e.g. buyer of seeds) chooses to rely on their authority.
Accordingly, attributes like quality and reliability, which are currently considered ‘objectively verifiable’ based on certification requirements of centralized authorities, may become more and more ‘subjective’, varying based on which ‘node’ any stakeholder considers on personal judgement and experience to be reliable, and which attribute (e.g. of the seeds being sold) is being sought by the buyer. The establishment of such a system, is not, however, without its challenges — both technically and practically speaking.
More benefits and opportunities of the blockchain in agriculture:
- Traceability throughout the value chain
- Financing and insurance for small farmers
- Facilitation of financial transactions in emerging economies
- Fair pricing through the whole value chain for all actors
- Emissions reductions and support for environmentally friendly initiatives
- Consumer awareness and increased consumer satisfaction
- More informed consumer purchasing decisions
- Sustainable business and reduction of waste
- Decreased transaction fees and less dependence on intermediate services
- Transparent transactions and elimination of fraud
- Improved quality of products and fewer diseases originating from food
- Data accessibility while maintaining privacy according to regulations
Understanding the Limitations and Risks Associated with Blockchain for Agriculture
Being a technology that hasn’t yet reached maturity, the blockchain brings in certain implementation risks that are important to comprehend and wherever possible to mitigate before deployment. A good understanding of the risks would assist in deciding whether Decentralised Ledger Technology or a centralized database would be more appropriate, and further choosing the appropriate DLT for a given scenario as the risks vary with the type of deployment, i.e. permissioned (private) or permissionless (public).
- Energy requirement can be high — A methodology to build consensus for entering a new data block amongst participating nodes is a core feature of blockchain. There exist several possible ways of reaching consensus, each with its advantages and disadvantages. The one that is employed by Bitcoin and Ethereum, the most famous of blockchain implementations, is proof-of-work (PoW). It works on the principle of “hard to create, easy to verify”, which means a lot of energy needs to be spent by the node to earn incentive tokens. For a large chain like Bitcoin, estimates suggest data size exceeding 100 gigabytes and electricity requirements more than the entire country of Ireland. Although this is true for the PoW methodology, other alternatives such as proof-of-stake (PoS), Byzantine fault tolerance algorithm, and delegated proof-of-stake model require less energy.
- Policy and regulatory risks — The policy and regulatory framework around blockchain is in its infancy and therefore entails high risks. The fluctuations in the price of Bitcoin and the reports of hacking of cryptocurrency have resulted in increased regulation by a number of countries and have attracted regulatory interest. These regulations vary from a complete ban on holding cryptocurrency (e.g. Bangladesh), a ban or regulation on cryptocurrency trading (China, Saudi Arabia) to a ban on holding initial coin offerings (ICOs). A number of blockchain projects, especially those dealing with currency or cross-border transactions, require KYC/AML compliance and it is important to understand the national framework before delving into these projects.
- Speed of transaction — The speed of transaction is an important element as some of the public blockchains do not have high transaction speeds. On the Bitcoin blockchain, a new block emerges on average every ten minutes but is not guaranteed; and this block time is different for every blockchain. For scalability, it is important to understand the requirements of applications in terms of speed (transactions per second (tps)) before choosing a solution. Theoretically, the Visa network can handle about 50,000 tps, which is a lot more than is offered by most mature blockchains today.
Examples of how blockchain is being applied to agriculture
FARMS PROJECT
Financial and Agricultural Risk Management for Smallholders
FARMS offers an easy entry to formal financial risk management while increasing farmers' financial literacy. Research has shown that it takes farmers without agricultural insurance four years longer to recover from a bad season compared to farmers with insurance. At the same time, insurance uptake remains low as mentioned previously.
The FARMS concept is enabled by a blockchain-based virtual currency platform integrated with remote sensing (satellite) data and mobile money solutions, which ensures transparent secure transactions and “earmarking” of funds, automated payment and information dashboards.
Farmers set aside money by buying virtual currency “drought coins” or “drought vouchers” (a voucher being a concept that many are familiar with) that are kept in their personal COIN22 mobile wallet account. When farmers want to withdraw funds, they redeem their drought coins/vouchers. The value of the coins mimics the local fiat currency, for example, 5 000 Kenyan shillings represent 5 000 coins.
All transactions are communicated to the farmer, and participants can check their balance at any given moment, through a universal SMS. The actual money flows into a trusted bank account (risk pool), and through full systems integration, all transactions are real-time.
AgriDigital: blockchain for agri-supply chains
AgriDigital has a cloud-based commodity management solution in marketing for the global grains industry. It connects grain farmers, buyers, site operators and financiers through a single platform, allowing them to contract, deliver and make payments securely and in real time.
Building blocks: using blockchain for cash-based transfers
The World Food Programme (WFP) is testing blockchain technology as part of its “Building Blocks” pilot, to make cash transfers more efficient, secure and transparent. This could save millions of dollars. In particular, WFP is using blockchain to deliver food assistance more effectively to some 100,000 Syrian refugees in Jordan. The aim is to reach all 500,000 refugees living in camps and in host communities in Jordan in 2018.
AgUnity: Blockchain for the greater good
AgUnity has developed a solution that is providing a pathway to financial inclusion for the world’s poorest farmers. The AgUnity App is a simple mobile service that helps small farmers plan, trade and track everyday transactions. This is a way for farmers to cooperate, store value, save money and easily buy products and services. The application ensures that everyone gets paid by creating a secure record when smallholder farmers hand over their crops to a cooperative or hire another farmer’s equipment.
TE FOODS
TE-FOOD is the world’s largest publicly accessible, farm-to-table food traceability solution. It serves 6000+ business customers and handles 400,000 business transactions each day. TE-FOOD provides solutions to activities such as object identification and product serialization, to data capture through interfaces or/and a B2B mobile app, data storage on blockchain, and data processing to follow custom protocols and tools to present the food history to the consumers.
Farm-to-table traceability enables supply chain companies to submit their event data to TE-FOOD and register them on the blockchain while connecting the IDs to keep the data integrity. The blockchain ledger contains the proof of the information entered by the different supply chain participants. The transparent, unmodifiable, and incorruptible approach of blockchain technology ensures consumers that the data can’t be falsified by a food company.
