Blockchain for value chain finance
SINGAPORE - Traceability is quickly emerging as a significant trend in smallholder agribusiness. Traceability allows buyers to keep an accurate record of shipments in their supply chain, often from farm gate to retailer.
This trend is driven primarily by food safety and brand protection; consumers are more conscious than ever about where foods originate, Cocoa and palm oil are two crops where traceability has developed a strong foot hold.
Here at Grow Asia we are confident that traceability is no fad. It’s a long-term trend which we see taking off in a range of commodities. Consumer expectations are set to rise while the cost of the technology is going down. Technology vendors are increasingly stepping up to provide solutions for commodity buyers, including:
Mobile Wallet Providers promise buyers that if they use a wallet to pay farmers, they can keep an accurate record of who their suppliers are.
Traceability Software providers have developed field level applications traders can use to enter each purchase along with the farmer’s identity.
Blockchain Solutions are emerging that allow not only a record of which farmer grew the product, but provide an incorruptible record of who owns each batch across in the value chain.
Whichever of these technologies a buyer uses, traceability presents one common challenge: persuading traders to give up the identity of their suppliers to the buyer. Where suppliers are located, and what products they have and when, is a business secret in many industries, whether you’re trading wheat, pork or iron ore.
The collectors who buy from smallholder farmers are no different. If they hand over their list of suppliers to their buyer, they risk the buyer appointing a lower cost competitor to collect the goods. To address this problem, buyers who use traceability today typically pay traders a premium in order to record the data and give up their supplier base. This works, but it makes traceability expensive.
We are see several innovative start-ups across Asia developing creative solutions to trading with smallholders. One creative start-up, AgUnity, has come up with a possible solution to this problem, using a blockchain approach. Their software, AgriLedger, leverages a mobile wallet to pay the farmer.
When a transaction is recorded in the AgriLedger software by the trader, the buyer remits the funds straight to the farmer’s wallet. The trader collects their margin when they deliver the goods to the buyer. The solution turns traceability from a threat to traders into an opportunity. Using the buyer’s funds to pay farmers rather than their own offers two key benefits to traders:Access to more cash so they can grow their business and buy from more farmers;A low-interest rate on their working capital, secured against their inventory.
AgriLedger is one of many start-ups with wonderful, creative solutions to trading with small holders. By making traceability cheaper for buyers and more attractive to traders, AgUnity is playing a significant role in driving the adoption of this new approach.