Blockchain is the buzzword of the day in every industry, and its no exception in the ag markets. How it may revolutionize the industry, as some predict, is now beginning to be realized.
The January deal by Louis Dreyfus to sell 60,000 tons of soybeans to China using the blockchain and another soybean trade between HSBC and Cargill in May, provided a glimpse into the possibilities for the ag sector. Simply put, these blockchain-based deals broke new ground in adding efficiency to physical trades by rolling the extensive paperwork into a single file on a blockchain. In the Louis Dreyfus deal, realtime elements were built into the transaction, such as temperature of the product during shipping.
This is the beauty and promise of blockchain technology. Virtually every element in a deal can be packaged together yet add innovative new elements. Terms and details can be altered transparently to both parties, which avoids extra paperwork and reviews that can slow a deal down. In the Louis Dreyfus transaction, the deal was completed in one-fifth of the time a normal deal would take. And they are not alone. Financial institutions, ag giants and shipping firms are all interested in adapting the best of blockchain to antiquated commodity trading methods.
The demand for such technology is staggering. One look at EOS, the blockchain firm that raised more than $4 billion in tokens in its initial coin offering, illustrates the point. The company is developing an open source platform for decentralized applications through its Block.one division and has invested heavily in its Dawn 3.0 smart contract platform. An Oppenheimer report in June called blockchain, “the fourth wave” of computing and noted smart contracts that can handle multiple tasks and create efficiencies may “forever change the tech landscape.” It is this kind of talk that gets industries like agriculture and others so excited.
At the moment, these initial transactions are proving the concept. But there is still much that needs to be done to integrate blockchain into the global ag markets, primarily adoption by major players. Blockchain technology can certainly work between a small group of willing parties but industry wide acceptance will require far more participants to adopt a standardized system. The Louis Dreyfus deal involved Shandong Bohi Industry Co, ING, Societe Generale and ABN Amro on the Easy Trading Connect (ETC) platform. Shippers Russell Marine Group and Blue Water Shipping also participated. The deal illustrates how many different entities and industries are included in just one deal. Getting the farmers, grain buyers like Louis Dreyfus, banks and trucking and shipping companies to agree on a blockchain system may be harder to build, especially if some participants benefit and others are disintermediated.
Still, for many big players in the broader ag space, this is just the beginning. Other major companies in the food industry are also looking to blockchain to solve supply chain, quality and food safety issues. In Europe, supermarket giant Carrefour, announced a plan in April to implement a blockchain-based system to track a variety of foods such as chicken, ground beef, eggs, cheese, milk, fish, fruits and vegetables. The blockchain technology is designed to provide a transparent record for consumers on how the food was grown and transported. In doing so, retailers and consumers, will theoretically be assured that the food that is labeled, is actually the food they are buying. Meanwhile Walmart, Nestle, Dole Foods, Unilever and Tyson Foods are collaborating on a blockchain project. Walmart now says, with blockchain, it can trace the origin of items like mangos in just over 2 seconds. Prior to this, it would take the retailer more than six days to identify the original farm.
Ultimately, we are starting to see the transformation of the agriculture markets from farm to retail to consumer through blockchain. The question will be just how long adoption will take, and what will the benefits be?