Emerging Opportunities for the Application of Blockchain in the Agri-food Industry
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Distributed ledger technologies (DLTs) and smart contracts provide a unique opportunity to bring greater efficiency, transparency and traceability to the exchange of value and information in the agriculture sector. This paper aims to facilitate a better understanding of the opportunities, benefits and applications of DLTs in agri-foods. It also identifies technical limits and possible institutional barriers to their adoption. By utilising digital records, cryptography and the disintermediation of transaction processing and data storage, DLTs can improve both agricultural supply chains and rural development interventions in a number of ways.
First, the ability of the technology to trace a product’s provenance, carry detailed attributes for the product in each transaction and ensure its authenticity brings vast improvements in traceability with positive impact on food safety, quality and sustainability. Second, the disintermediation of transactions in agricultural supply chains and the use of smart contracts enable frictionless and real-time payments for agricultural financial services, which can reduce transaction costs, decrease risk for buyers and sellers and increase cash flow and working capital for farmers and sellers which is usually tied up in complex and paper-heavy settlement processes. More efficient supply chains and agricultural financial services lead to greater financial inclusion and stronger business development. Third, DLTs allow users to build digital identities with their recorded digital and physical assets. The vast amount of data generated from transactions in agricultural supply chains provides more accurate market information and data for supply chain actors and the public sector, which can be used to inform production and marketing decisions, prove a farmer’s track record to access credit and strengthen the enabling environment with better informed policies. Physical assets registered on the distributed ledger, such as land titles, can be used as collateral to access financing. DLTs are a secure, fast and immutable method to register land titles, providing greater legal clarity to land tenure systems.
In addition, DLTs also have the potential to improve the implementation and monitoring of international agreements related to agriculture, such as World Trade Organization agreements and provisions relevant for agriculture, as well as the Paris Agreement on Climate Change. DLTs can bring greater transparency and accountability to compliance with such agreements. There are a number of technical, regulatory, institutional, infrastructure and capacity developmentrelated challenges to be addressed before reaching maturity in order to ensure the scalability and accessibility of the technology. Scalability, interoperability and product authenticity through product-process links are important factors for widespread adoption of DLTs in agricultural supply chains. DLTs are not a panacea for the agriculture sector, but the technology provides great potential if the challenges for adoption can be overcome. As DLTs continue to develop, the international community has an important role to play in contributing to the creation of an enabling environment that ensures that the productivity gains generated from DLTs can be shared by all market participants, including smallholder farmers, processors as well as micro-, small- and medium-sized enterprises. Governments together with intergovernmental organisations can lead this effort by contributing to technical dialogue on DLTs; providing policy guidance on the use of DLTs in agriculture through intergovernmental working groups and multi-stakeholder platforms; developing regulations and standards; enhancing public and private partnerships; and providing outreach to improve infrastructure and digital skills in rural areas. The technology has huge potential to address many of the challenges that disadvantaged market players face by allowing them to participate in integrated supply chains, in addition to improving rural development interventions and being an impetus to achieve the Sustainable Development Goals.
Tripoli, M. & Schmidhuber, J. 2018. Emerging Opportunities for the Application of Blockchain in the Agri-food Industry. FAO and ICTSD: Rome and Geneva. Licence: CC BY-NC-SA 3.0 IGO