The applications, Use cases, and Challenges explored for Blockchain in Agriculture sector
The Distributed Ledger Technology-based Blockchain- born out of the need to provide an alternative financial solution is now being explored for sectors that not even Satoshi Nakamoto himself would have imagined! That’s correct. The technology which has managed to gain rapid attention in the last few years is now being traversed for Supply chain, Philanthropic sector, Real estate and more!
This week we are looking to explore the applications, benefits and use cases of Blockchain in Agriculture
The Agriculture sector is one of the most fundamental industry in the world today. It alone contributes $992 billion to the United States GDP.
On a global scale, agriculture constitutes a whopping 40% of the total workforce. Meaning, that close to half of the World’s population is engaged in agricultural activities supporting their livelihoods.
Talking about India, it is the primary source of about 58% of the Nation’s population. The trillion-dollar industry accounts for almost 14% of India’s GDP. Furthermore, it also makes up about 11% of the Nation’s export.
The fundamental aspect of the agriculture industry is that it is not an independent node or source. It doesn’t operate on an individual level. The success of the industry is also linked to the finance sector, e-commerce activities, retail sector and supply chain logistics. Agriculture is the primary activity through which the whole cycle of production, distribution, and consumption of goods/ stocks begin.
Hence, when we talk about improving methods and bringing the latest innovation to the field of agriculture, subsequently, we are also looking at improvements on all the other connected livelihoods as well.
Issues with Agriculture Industry
Although it is a huge contributor to the global economic condition, the industry faces wide threats to its overall development, production, and sustainability. The ever-changing climatic conditions, floods, droughts, pests, and diseases- being some of the major challenges. But, the story doesn’t end here!
- There are countless middlemen involved between a farmer and the consumer. The middlemen reap all the benefits, thus leaving farmers with lower profits and consumers with higher costs of the products.
- The farmers don’t have proper access to the financial or banking system. They borrow money from money lenders at a much higher interest rate than the traditional banking system.
- In countries like India, the increase in debt has resulted in farmers resorting to measures like suicide.
- The agriculture sector is the unclear land holdings and land titles. The required documentation and fragmentation of land has done nothing but worsen the situation.
- There is a lack of transparency in the food supply chain. This has resulted in growing malpractices, especially in the food sector.
- No means for tracking soil and crop production on the land, thus leading to wastage of money, resources and lesser revenue for farmers.
- Absence of any breakthrough technological innovation.
- Farmers are still unable to harvest benefits of subsidy schemes and insurance schemes
Technological Developments in Agriculture Sector
The Agriculture sector has begun to see some new technological experiments in order to increase productivity, gain better results and decrease expenses. Big data analytics, GIS mapping, drone applications and Internet of Things (IoT)- are some of the new technologies that have started exploring the field of agriculture.
Blockchain technology has the capacity to bring tremendous value in agriculture as well. Moreover, blockchain technology in combination with data analytics and the Internet of Things (IoT) can be a game-changer for the industry.
Blockchain in Agriculture
Blockchain Use Case-1: Tracing of Food Products
In the agriculture sector, even today, there exists a lack of transparency between the food manufactured and the food consumed. The consumer is completely unaware of where his basic products are coming from, The farmer is never compensated for engaging in good farming practices. The whole supply chain link is extremely prone to malpractices in the food chain sector. With the amount of exploitation in this field, food traceability is quickly gaining attention. The consumers want to know how the food is processed and produced. There is an increasing demand in society for greater information about food.
The concept of blockchain in agriculture can directly impact as far as transparency and trust are of concern. Theoretically, with blockchain, one can easily identify where the grain crop was planted, in which season was it harvested, which pesticides were applied, which protective measures were ensured, etc. Each piece of information is directly stored in the blockchain, which even the end consumer can verify before buying the product.
A step ahead, farmers can also be compensated for engaging in fair practices. The whole food supply chain can also be combined with the shipping supply chain. With this, further information such as how was it shipped, which middlemen were involved and how did it finally reach the retail store can be extracted. Implementing blockchain in agriculture, not only enhances the transparency level in the agricultural industry but can also provide a greater degree of trust among other sectors as well. It also provides additional accountability to each actor, without the need for third-party monitoring every step.
Blockchain Use Case- 2: Optimizing Agricultural Subsidies and Insurance
Agriculture insurance or subsidies are mechanisms for social protection of farmers and those engaged in livestock activities. These subsidies are a relief to farmers in case of a drought, flood or other natural catastrophes. Insurance schemes act as risk-mitigating factors. But, the World faces major lag as far as benefitting these schemes to the end-user i.e. farmer is concerned. This is more relevant in developing countries like India
The adoption rate of such schemes is extremely low as they are mostly viewed as additional cost factors rather than risk-mitigating instruments. The mechanisms used in place are time-consuming. Such schemes lack the basic infrastructure like sensors in order to validate relevant claims. The whole procedure associated with high costs delayed payments, lack of transparency ultimately causes a smallholder farmer to lose interest in such schemes.
Blockchain Technology in association with IoT devices and data analytics can provide a bigger and valuable picture to the overall insurance schemes. Smart contracts built on blockchain platform can convert the complex framework into a much faster and automated structure.
IoT devices such as sensors can monitor the weather conditions or detect crop disease due to pesticides. These sensors directly feed information to a Smart Contract. Predefined conditions are already written on the Smart Contract.
Example- Release X funds to Mr. Adam’s wallet, if the rainfall level exceeds 300 mm.
The sensor continually sends this information to a Smart Contract in real-time. Once the above condition is met, a smart contract directly automates payment into the farmer’s mobile wallet.
Such automated mechanisms powered by blockchain technology can reduce manual labor, monitoring activities, lessen delay. Because each transaction of each information is stored on blocks, the entire process becomes much more transparent.
Blockchain Use Case- 3: Yielding Maximum Crop Productivity
The crop productivity in a particular land is dependent on a variety of factors. These include soil fertility, natural weather conditions, use of fertilizers and pesticides, geological conditions, etc. Taking definite actions at specific conditions can ensure maximum gains. It can even help a farmer optimize to maximum benefits.
Traditional agriculture practices aren’t equipped with such practices. Especially in developing countries, which face losses in crop production each year due to a multitude of such factors.
In order to monitor the above activities, you need modern innovative devices and technology implanted into basic agriculture practices. Satellites, sensors and modern devices which can track the progress or conditions. But, collecting the data won’t automatically yield maximum production of the land.
Blockchain in Agriculture can provide a direct use case for optimizing data utilization. It provides a secured platform to analyze all the data collected by modern technological devices. It gives farmer greater insight into the conditions that are most favorable for higher yield of crops.
Smart contracts can again be taken advantage of.
Let’s say a predefined condition, relating to the use of pesticides is fed into the smart contract program using an Oracle (See this post to understand how information is communicated to a Smart Contract)
If the level of pests reaches ‘A’ level, the quantity of pesticides to be scattered is ‘B’ in 3 days of time
The sensors feed this information to a Smart Contract, which then automatically shoots this message to the farmer (via an SMS or other communicative methods)
Blockchain Use Case-4: Boosting the Growth for Small Farmers
There are millions of smallholder farmers across the globe. Depending upon their regional conditions, they differ in their economic conditions. But, in almost any region, it is the smallholder farmer who enjoys the least marginal profit.
The middlemen make the most profit from selling and buying farm goods. The farmer gets the ‘last bite of the food’.
Farmers don’t have direct access to the food markets. Hence they are unable to leverage the opportunities that they rightfully deserve. Most of these farmers, unintentionally, are left out of the financial ecosystem. They do not have access to the basic banking services and thus cannot take advantage of credit systems.
Depressed by their financial hardships and unstable economic conditions, farmers have resorted to extreme measures like suicide.
One of the most direct applications of blockchain in agriculture is that it brings each entity/ stakeholder to a uniform singular layer. The blockchain protocol connects grain farmers, financers, buyers through a single platform. Consequently, each entity has a direct connection with others. Farmers can have direct access to the buyer and hence a better connection in the agriculture market
One of the NGO’s named Agunity is working on this exact cause of providing better and fairer opportunities to the farmers as well as giving them access to basic services such as finance and insurance
Is that it?
Theoretically, everything sounds just perfect. Now we just need to bring all the farmers and financers to a blockchain protocol software, create digital identities of each physical commodity in order to trace each piece, install sensors on each farmland and connect it with the blockchain layer, associate identity of each farmer onto the blockchain platform for subsidy and insurance, and should I go on?!
When you implement new technology at such a large scale you need to have the converging support infrastructure, resources, times, manpower and finance. In countries, where there are millions of people who still don’t have an identity or lack have basic financial services such as banking, we are looking to implement modern technologies such as blockchain and big data.
But then if each generation thought the very same way, we wouldn’t have made any progress in the real world. We would still be wearing our ape uniforms and eating apples from the tree. Blockchain is still at a very nascent stage. And let’s face it: theoretically, it can bring immense value. But, at this stage in time, we don’t know if the theoretical principles will work the very same way in practical reality. Especially when we are looking at much broader scales of changing trillion dollar worth industries.
Another major hurdle of implementing blockchain technology in real-world is the unclear regulations being imposed on blockchain-related projects. Regulations can stifle even the best projects. The success of the technology directly or indirectly also depends upon the ordinances imposed by the various governments in the world.