3.3 Blockchain and Farmer-Centric Solutions

• Blockchain implementation has clear advantages in terms of overall supply-chain management, but it can also have more direct benefits for farmers specifically:
  • Better participation in supply chains
  • Reduced transaction costs
  • Support for farmer co-operatives
  • Support fair labour practices
  • Prompt payment for services and insurance claims

• Typically, farmers - particularly small-scale farmers - can be inhibited from participating in supply chains due to costs (e.g. marketing costs, transaction costs, negotiation costs etc) caused by a lack of information transparency
• Implementation of Blockchain in the agri-food supply chain can be beneficial to farmers by:
  • Enabling collaboration between supply chain partners by enhancing trust
  • Improved market knowledge and understanding of buyers’ requirements
  • Reduced transaction costs (e.g. due to disintermediation) can enable farmers to access new markets
  • Increased transparency and more direct contact with consumers can empower farmers in disadvantaged communities to demand fairer wages

BLOCKCHAIN AND SMART CONTRACTS

• One way in which Blockchain based solutions can benefit farmers is through the use of smart contracts
• Blockchain-based, can be integrated with IoT devices
• Advantages: reduced time-delay, foster trust, immutable
• Reduce need for intermediaries e.g. lawyers, banks who typically enforce the terms of the contract
• Discourage buyers from reneging on payment

Note: stand-alone code-only smart contracts are not legally enforceable; smart contracts are most effective as ancillaries to implement the provisions of a traditional text-based, legally-binding contract

SMART CONTRACTS FOR AGRI-FOOD

• Example: A farmer growing wheat wants to sell next year’s harvest to a producer who wants to turn it into flour.
• The farmer and the producer create a smart contract according to which the farmer will be paid upon receipt of the wheat.
• The following year, the wheat is harvested and delivered to the industrial mill, and the farmer receives his payment automatically via the smart contract upon transfer of asset ownership.

SMART CONTRACTS FOR AGRICULTURAL INSURANCE

• Crop insurance is under-utilized globally, in part because the claims process can be complex and/or, in certain countries, corrupt
• Smart index-based insurance contracts: payout is triggered by a measurable index rather than the loss itself
• Example: an agricultural smart contract might be triggered by weather data, e.g. if it is hotter than 40 degrees for over a week, farmers with this insurance package will automatically receive a payout
• Advantages: timely payout, minimal human interaction, symmetrical information between farmer and insurance provider, avoid costly damage assessment

SMART CONTRACTS: PROS AND CONS

LIMITATIONS OF FARMER-CENTRIC SOLUTIONS

• Although the literature has identified many potential advantages of Blockchain implementation for farmers, lack of digital capacity and initial adoption costs remain persistent problems
• Low levels of digitalisation, especially in developing countries
• Could potentially widen the financial and digital divide between large and small stakeholders, farmers in developed and developing countries
• Importance of farmer training and skill development

• The negative environmental impact of current agricultural practices necessitates a new sustainability driven approach to agrifood production
• New technologies - including Blockchain based solutions - can help to make more effective use of limited resources and reduce food waste