Globally, the agriculture and food processing sectors face important shifts. Governments, businesses, and NGOs (non-governmental organizations) are striving to bring sustained value to all stakeholders in these sectors. They regularly explore modern technologies for this. Blockchain can potentially add significant value to these sectors. Read on, as we explain the key blockchain use cases in agriculture and food processing sectors.
The global market of agriculture and food processing sectors and their challenges
Agriculture and food processing are two different sectors, however, they have obvious connections. Let’s first look at these markets and their challenges.
The global agriculture market is large. Observers contend that it will grow significantly. E.g., a report from The Business Research Company states that the global agriculture market will grow from $9602.79 billion in 2020 to $10181.92 billion in 2021. That translates to a CAGR of 6%.
The agriculture sector faces several challenges. A report from Syngenta cites the following challenges:
• Climate change, soil erosion, and biodiversity loss;
• Shifts in the preferences of consumers;
• Growing demand for food;
• Productivity challenges due to outdated technologies;
• Food wastage;
• Uncertainties in the global economy;
• Lack of manpower due to the diminishing returns from farming.
Globally, the food processing industry has a large market. This market is growing. A Cision PR Newswire report states that this market will reach $4.1 trillion by 2024. The report estimates a CAGR of 4.3% between 2019 and 2024.
Observers contend that this sector faces numerous challenges. The following are a few of these challenges:
• Gaps in the supply chain infrastructure;
• Inefficiencies in storage and distribution;
• Inadequate linkages between production and processing;
• Frauds due to the lack of visibility in the supply chain;
• Low capacity utilization;
• Lack of innovation.
Why consider blockchain in the agriculture and food processing sectors?
The agriculture sector needs to raise productivity. It needs technology infusions so that the sharing of information can be smooth. Technology solutions should help governments, businesses, and NGOs to make processes more efficient. The food processing sector needs technology solutions to improve supply chain traceability.
The following characteristics of blockchain can help here:
Transparency: The distributed ledger of blockchain offers transparency. This can improve the visibility in the supply chain.
Ease of sharing information: Blockchain allows all stakeholders to access information on its distributed ledger. This simplifies the processes to share information.
Immutability: Blockchain offers immutability of data. Consensus algorithms prevent tampering of data, which makes stakeholders confident about data quality.
Efficiency: Blockchain offers smart contracts. These are transparent contracts coded in software programs. They execute autonomously when the triggering condition satisfies, and their execution is irreversible. Smart contracts can simplify contract administration.
Key blockchain use cases in agriculture and food processing sectors
Blockchain has the following prominent use cases in the agriculture and food processing sectors:
Managing data concerning crop and food production more effectively
This use case involves utilizing blockchain and IoT (Internet of Things). The agriculture sector produces massive volumes of data. Stakeholders use this data for the following purposes:
• Producing more crops with more efficiency;
• Reducing environmental degradation;
• Handling weather fluctuations;
• Providing fair income to farmers;
• Improving consumer satisfaction.
Many stakeholders already use IoT devices to get this data. They can manage this data better by utilizing the transparency and immutability offered by blockchain. Blockchain makes it easier to share this information. It involves the following steps:
1. IoT devices generate data.
2. Organizations use big data systems for data cleansing and enrichment.
3. Analytics software and ML (Machine Learning) algorithms derive insights from data.
4. Organizations use blockchain to secure information.
5. The distributed ledger of blockchain makes data easily available to the relevant stakeholders.
Bringing transparency in the food supply chain
Consumers need the assurance that they are eating food that’s safe to eat. They want to know whether safe and sustainable practices were used to produce the food items they consume.
Retailers need to provide this assurance, therefore, they need to know the origin of the food items. Food producers and farmers need to provide this information.
The complex processes to manage the food supply chain make it hard to gather and preserve this information. Too many intermediaries work at various stages of the food supply chain. Paperwork-intensive processes make it easy for them to tamper with this information. Fraudulent transactions are too common in the food supply chain.
Blockchain-based systems can help all stakeholders track the lifecycle of food items. This involves the following steps:
1. Farmers grow crops and store the relevant data on a blockchain-based system. The immutability offered by blockchain makes this data tamper-proof.
2. Distribution companies or farmers sell crops to food processing companies. They record this transaction on the above-mentioned blockchain system. These data elements tie with the crop-related record stored earlier.
3. Food processing companies execute their processes and update the record in the above-mentioned blockchain system.
4. Food processing companies sell their products to wholesalers and retailers. They update the blockchain-based system.
5. Consumers buy food items from retailers. The blockchain-based system enables them to track the data points concerning the lifecycle of the food item. This could use tools like QR codes on the packages.
This provides visibility to the entire food supply chain. Nestlé is using the blockchain-based IBM Food Trust Platform to assure consumers about their GUIGOZ Bio 2 and 3 infant milk range.
Improving the access to finance for small and marginal farmers
Small and marginal farmers, often called “smallholders”, can’t access the formal world of credits and loans easily. World Bank estimates that less than 10% of smallholders have access to credit.
By the very nature of the agricultural economy, smallholders don’t have spare funds. They can’t invest in the right machinery and technology without access to credit. They face liquidity constraints without access to loans.
Look at the other side now. Large banks and financial services institutions have considerable challenges in lending money to smallholders. These are as follows:
• Smallholders lack a credit history.
• Banks need to operate in areas far from their main centers of operation. This increases their costs.
• Enforcing contracts can be challenging due to the higher cost of operations.
• Smallholders might not have adequate documentation. Auditors find it hard to conduct audits due to this. The distance from the main operating centers of the bank makes their work harder.
Blockchain-based systems can improve this in the following ways:
1. Smallholders can record relevant information about the farming establishment in a blockchain-based system. Information could include the land holding, production capacity, crops produced, assets, liabilities, etc.
2. The blockchain-based system keeps this data free from tampering.
3. Banks can easily access this information on this blockchain-based system. Blockchain utilizes mathematical verification processes for data, therefore, banks can trust the information.
4. Smart contract-based lending systems can improve contract administration.
5. Auditors can use the blockchain-based system to verify the documentation. They can effectively audit the working of the lending system.
AgriLedger, a UK-based blockchain project is providing easier access to financing to farmers.
Blockchain has notable use cases in the agriculture and food processing sectors. The transparency, immutability, efficiency, and information-sharing capabilities offered by blockchain can help many stakeholders in these sectors. We reviewed a few prominent use cases.