The concept of blockchain technology is gaining traction in the agribusiness industry. Both producers and consumers are waking up to the fact that the blockchain application can bring immense benefits to all stakeholders. From the consumer side, blockchain assures that information reaches without any adulteration, thereby bringing the merit of no compromise ensuring high transparency. This, in turn, helps to enhance consumer’s confidence and bring more revenue for genuine and credible producers. Producers, wholesalers, and retailers will receive their share of benefits as the demand increase and overall customers’ sentiments improve. Therefore, it comes as a little surprise that all the stakeholders in the agribusiness are betting big on the application of blockchain to spur the next level of growth in the industry.
Interplay between Cost and Benefits
Dynamics of cost vs. benefits is something that the industry has to come to terms with. It goes without saying that blockchain can bring home supply chain efficiencies but then there is a cost associated with it. Now the debatable question is whether consumers are willing to pay extra for enhanced transparency, better efficiency, and authentic information? The application of blockchain will increase the cost, and accordingly, consumers have to pay a little extra, but how much extra is something that is a contentious issue. Experts agree that in deciding the cost and the price, the regulators and policymakers also have to play a crucial role rather than letting producers, supply-chain partners, and sellers taking full control of the process. The involvement of neutral third-party is very much essential to rule out any kind of foul play on the part of producers and suppliers.
Documented Evidence on Blockchain Efficiencies
The effectiveness of blockchain in ensuring transparency and implementing immutable contracts between supply chain partners is well-documented in the policy paper of FAO in 2018. The paper noted that blockchain could reduce the number of intermediary partners in the supply chain; thereby, decreasing the overall density of the distribution. This will help to cut down the cost, reduce inefficiencies, and improve the margin for producers and distributors. India has already taken the lead in the application of blockchain to improve efficiencies and to make the overall supply chain more nimble. A consortium of the food companies in the country has already tied up with technology giants to integrate blockchain in the system. These companies are of the viewpoint that blockchain will go a long way in ensuring systemic efficiencies while enhancing customers’ trust in their products and offerings. The technology is also seen as one effective tool to comply with the regulatory standards. We have already witnessed the application of blockchain in the grapes-export business in the country. A number of companies exporting grapes from Western India are using the technology to keep a close check on quality and sanitary standards. This is proving beneficial as improved quality and raised hygiene standards are revving up the demand for the exports.
The blockchain works by disintermediation the central data storage and using a peer-to-peer system for verifying the transactions. The data is stored in a decentralized network and transactions are validated via a number of algorithms including the ones pertaining to participants, consensus, and incentives. These methods of validating the different data entries are at the heart of blockchain technology and offer great cost-efficiency, swift transactions, and competitive cost structure. The safety aspects of the transaction are taken care of by the cryptography wherein each data entry into the system is accompanied by timestamp and a cryptographic fingerprint which is securely stored in the distributor system of network computers. Ideally, all the participants in the network should get access to the information and transaction records registered on the particular database. The information on the ledger is encrypted and can be managed either with public or private keys. Depending on the technology, distributed ledger can be of two types – permissionless and permissioned.
A report by Washington Economic Research in 2017 revealed the blockchain adoption roadmap for the potential companies looking to embrace the technology. The report added that producers could significantly add value to their produce by enhancing the transparency and increasing the traceability through blockchain. This will also allow the producers to access better credit facilities and enter into smart agreements with the supply chain partners, processors, distributors, and customers. They can also realize better margins on the products thanks to the removal of a layer of intermediaries which would otherwise be a part of the conventional system. Some of the other stakeholders identified by the report in the agribusiness include regulatory and certifying agencies, government authorities, digital-equipment makers, ICT technology, and blockchain technology start-ups.
In order to exploit the opportunities available in the agri-industry, blockchain companies have to find the compatible solutions, come up with competent offerings, and strive to create an ecosystem that will help to maximize the value in the long-run. Blockchain companies also have to address a number of technical challenges including the issues related to scalability and interoperability. For scaling operations, one has to keep in mind that both soft and hard infrastructure is needed to successfully implement the blockchain technology and that could be a tough nut to crack especially when this has to be offered within the viable framework of regulations and prices.