Supply Chain in Agriculture

In this chapter, we will explore how distributed ledger technology such as Corda can be used to bring a revolution in the agriculture supply chain, cutting down on costs, time, effort, and wastage as well as bringing transparency to the entire ecosystem.

While the IT industry is mostly focused on the banking, finance, insurance, and travel domains, whose services are mostly used by upper- and middle-class consumers, the growth of many developing countries including India is based on middle- and lower-middle-class consumers, for whom we are not producing basic items at affordable prices, which is an eternal challenge.

The Blockchain market in the government sector is expected to grow from USD 162 million in 2018 to USD 3,458.8 million by 2023, at a compound annual growth rate (CAGR) of 84.5% during the forecast period. Within agricultural supply chains, Blockchain can find quite a few rewarding use cases. The first and foremost one is in tracking and tracing the origin of food products. A study says that up to 30–40% of agricultural produce is damaged. The agriculture sector typically has very tight margins due to lack of efficient supply chain and provenance tracking, which leads to wastage and low income, in turn resulting in numerous suicides among farmers.

Consider the following scenario with five different parties:

Farmers (belong to a farmer association)
Buyers (or retailers)
Surveyor
Investors
Insurance company

These parties would be working in a workflow for an agriculture supply chain scenario. Now let’s find out who the parties in this use case are and what part they play in this Agritech business model :

The farmer has farming land and skills but no money.
The investor, who is the intermediate buyer, has a large amount of money to invest but has no farm or farming skill.
The buyer is the actual consumer who has moderate money but has no land or farming skill.
The insurance company provides protection to farmers.

Solution

Here is a very basic workflow in which these parties work:

1.
The farmer initiates a proposal for financing.
2.
The insurance company provides protection.
3.
The investor agrees to buy the product at quantity, delivery time, and delivery location at agreed price A and to sell it at price B (which is more than A): the difference between A and B is the expected investor margin.
4.
The buyer/retailer agrees to buy the product at agreed price A, when it is delivered at the agreed-upon quantity, delivery time, and delivery location.
5.
Together, they appoint a third-party surveyor to assess the end product and provide certification.
Now that the proposal has been created, it’s time to start the real workflow for the end product.
6.
The farmer starts working on the crop, which is the end product.
7.
The status of the crop can be updated by the farmer from time to time to keep all stakeholders informed.
8.
When the product is ready, it’s delivered to the investor as per the agreed location, time, and quantity.
9.
The surveyor checks the quality of the crop to provide certification.
10.
The investor sells the product to the buyer as per the agreed location, time, and quantity.
11.
The same or a different surveyor may again get appointed optionally to certify the final product.

There could be many different alternate flows to the preceding, but let’s stick to the basic happy path for now. We can create five nodes each for a party; however, each node can be used by many different users belonging to the party with different individual IDs. For example, the node farmer is actually a farmer association that can have many different farmers, each with a separate farmer ID.

We can keep a simple state object called ProposalState. Let’s say that the following are the variables we will keep in the ProposalState. This can be added to the ledger after gathering every participant’s approval through a flow.

linearId or proposalId
cropId
farmerId
investorId
buyerId
insurerId
quantity
deliveryToInvestorDateTime
deliveryToInvestorLocation
deliveryToRetailerDateTime
deliveryToRetailerLocation
investorPrice
retailerPrice

The second state object will be DeliverableState:

deliverableId
proposalId
cropStatus
isSurveyed default false
isInsured default false
isPaymentReceivedByFarmer default false
isPaymentReceivedByInvestor default false
isDeliveredToInvestor default false
isDeliveredToRetailer default false
isDeliveryToInvestorExpired default false
isDeliveryToRetailerExpired default false
updatedBy
updatedDateTime

Now, the DeliverableFlow will be as follows:

1.
DeliverableFlow will be initiated by the farmer.
2.
The crop reaches the investor at the preagreed time and place.
3.
The surveyor surveys and isSurveyed is set to true.
4.
The investor sets isDeliveredToInvestor to true. The associate contract will also check the deliveryToInvestorDateTime from the ProposalState for successful transaction.
5.
The investor pays the farmer offline.
6.
The farmer sets isPaymentReceivedByFarmer to true.
7.
The crop reaches the buyer or retailer at the preagreed time and place, and they set isDeliveredToRetailer to true. The associate contract will also check the deliveryToRetailerDateTime from ProposalState for a successful transaction.
8.
The retailer pays the investor, and the investor sets isPaymentReceivedByInvestor to true.

The preceding is the happy path. However, if delivery to the investor or retailer is delayed (i.e., isDeliveryToInvestorExpired or isDeliveryToRetailerExpired is true) or the surveyor rejects the crop due to quality issues, then the insurer can pay for the farmer’s loss. With this approach, all stakeholders can get updates on the status of deliverables on a single page. Also, the absence of intermediaries or unwanted third parties will cut down on cost and time to market and enhance the overall efficiency of the entire ecosystem.

Advantages

Please note that in the preceding example we have addressed multiple different issues of the farmers:

Climate Change
Problem - Every year, unanticipated climate effects such flood, famine, or tornado lead to crop failures
Solution - Efficient microinsurance products can cut down on agricultural risks
Access to Farming Equipment
Problem - Smallholder farmer has little land and even lower revenues to invest in the machinery
Solution – Microfinancing in the preceding model can help lenders/investors and farmers to work on a common platform
Traditional Lending & Finance
Problem - Traditional loans are hard to come by with no credit history or collateral and when savings are minimum.
Solution – Again, microfinancing along with credit scoring can be helpful
Market Access & Supply Chain
Problem - Multiple inefficiencies in the supply chain, due to which the farmers invariably get the short end of the stick, are far too common
Solution – Efficient supply chain can do wonders here

In addition, we have entered only the quantity of crop in this example, not the quality. In the future, using IoT sensors, we can do the quality check as well. Smart agriculture solutions with the help of Blockchain and IoT can boost productivity and address food demand. Increased food safety and traceability, lower transaction costs and logistics issues, and new markets and business models are some of the promises that Blockchain technology make to the agriculture sector. Here are a few advantages that this emerging technology can bring in.

With Blockchain technology, we can put all the information about the entire cycle of agricultural events onto Blockchain to enable a transparent and trusted source of information for the farmers.
Logistically, Blockchain can speed up the movement of food through the supply chain network (critical for perishable goods), and also allow fast, targeted removal of products that are not fit for consumption. Both ways, food waste is reduced.
Farmers can get instant data related to the seed quality, soil moisture, climate and environment, payments, demand and sale price, and so on, all at one platform.
Blockchain will help in establishing a direct link between farmers and consumers/retailers, eliminating middlemen.
The source of contaminated food items can be tracked down for food safety and control.

This will reduce the problems of low income, as Blockchain will give transparency in the supply chain, enabling farmers to get the real price for what they produce.

Live Implementations

FreshSurety , AgriDigital, HarvestMark, FoodLogicQ, and Ripe.io are some of the startups across the world that have successfully implemented Blockchain solutions for their products in AgriTech and have been awarded for their innovation. It’s high time we should learn more and get empowered with these latest technologies to upgrade our age-old agriculture ecosystem.

References

1.
Can Next-Generation Startups Unite Agritech and Fintech for Farmers in Emerging Markets? (NextBillion) ( https://unitus.vc/updates/agritech-and-fintech-for-farmers-in-emerging-markets-nextbillion/ )
2.
Igrowchain ( http://igrowchain.com/ )

10. Supply Chain in Agriculture

Solution

Advantages

Live Implementations

References