Blockchain gains for food industry, to help farmers realise larger share in consumer’s spend

March 4, 2019 1:37 AM

Tripoli & Schmidhuber (2018) in the FAO’s policy paper illustrated key features of blockchain technologies.

Blockchain start-ups need to create new business opportunities; they have to find compatible and competent partners for co-creation and funding agencies that can help implement a minimum viable ecosystem for blockchain.

By Kushankar Dey

Application of blockchain in agri food industries is gaining ground as consumer awareness of food safety has been increased. On one hand, credible information increases the search costs for consumers, and on the other, demand for more food information reflects transparency and lack of trust. Related information and compliance issues for agri food industries are emanating from costly and inefficient paper-based transactions, fraud, corruption and error on physical and technology-driven systems, integrity of digital repository, and double-spend of certificates.

So, is blockchain a timely solution for agri food industries in terms of efficiency gains through improved coordination? It is clear that blockchain is becoming a tool for greater transparency on food for the consumer. Will consumers be ready to pay a price for it? If the industry raises the price, then the marginal gains are to be distributed to the downstream actors such as producers and aggregators. These issues are to be resolved at the regulatory and policy level.

A 2018 policy paper by FAO proposed that blockchain technologies can enable an immutable contract between the various supply-chain actors and instil transparency. Further, the contract can reduce the density of supply chain network by removing the ‘not so complementing’ intermediaries. As a result, this can reduce transaction costs, improve margins, and induce efficiency and eventually deliver a larger share of the consumer’s spend to the farmer/producer.

In India, a consortium of food companies has tied up with tech giants to make food supply-chains transparent and traceable. Blockchain is seen to be critical on assaying quality and can help businesses comply with regulatory standards. A number of grape-exporting businesses from western India have evinced interest in blockchain to improve quality checks of containers and comply with sanitary and phytosanitary standards to realise export potential.

Tripoli & Schmidhuber (2018) in the FAO’s policy paper illustrated key features of blockchain technologies.

Blockchain disintermediates processing and storage of data entries and verifies transactions by using peer-to-peer consensus mechanism to facilitate agreement between participants on the status of data in the decentralised network. The mechanism uses validators (participants), incentives and consensus algorithms to validate transactions or data entries in the shared ledger. The method of validating data entries offers greater cost-efficiency, lower fees and faster transaction—payment-cost structure (Cant et al., 2015).
n Blockchain technologies use cryptography (crypto anchors) to ensure immutability and security for data entries. Each data entry is recorded with a timestamp and a cryptographic fingerprint of that record that links each record to one another, and is then stored securely across the distributed network of computers.

The immutability of records and disintermediation of data storage, through a shared ledger, make every transaction or record in a distributed ledger time stamped, traceable, transparent. In theory, all participants of the distributed ledger should have access to the full transaction history registered on the database. The information stored on the ledger is protected by encryption and managed with private and public keys. These distributed ledger technologies can be of permissioned and permissionless.

The Wageningen Economic Research report, in 2017, presented findings of a pilot on the application of blockchain by Dutch agri-food industries. It presented a roadmap on the adoption of blockchain. Food producers can add value to their produce due to increased transparency and attributes of product credence. Through an enhanced traceability of their produce, producers can access institutional credit and enter smart contract with processors and consumers. They can realise a fair price due to less interference of traders or middlemen. Other stakeholders in the blockchain ecosystem are certification agencies, government organisations, retailers/traders, producers of digital equipment, knowledge institutions, agro-ICT companies and blockchain start-ups.

Blockchain start-ups need to create new business opportunities; they have to find compatible and competent partners for co-creation and funding agencies that can help implement a minimum viable ecosystem for blockchain.

But blockchain implementation should address myriad challenges, such as scalability of technological throughput in number of transactions, interoperability between digital and physical, etc. We need to bear in mind changes in hard and soft infrastructure needed to implement blockchain and devise a way for blockchain to equitably distribute gains.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Political Posturing: Punjab’s anti-farm-reform laws are intended to make it seem like the Centre’s wanted to abolish MSP
2Powering change: Open access must for atmanirbharta vision’s fruition
3One for the farm: Decoding Punjab amendments