Determining the value of blockchain for agriculture

AFI Research Team

Globalisation and value chain system trends are creating enormous opportunities for the Australian agriculture industry to reach growing markets. However, trust in food and other agricultural commodities is being continually challenged (particularly social and environmental credentials), and transactional trust is paramount as Australian agriculture is propelled into increasingly complex supply chains.

Australian agriculture must guarantee product authenticity and build or maintain trust in conducting economic transactions to take full advantage of domestic and global market opportunities.

Blockchain is a decentralised, deregulated digital database that is shared directly and safely by entities, concentrated on the core functions of business operations (contracts, transactions and records). It is a distributed ledger that allows for peer-to-peer transactions and exchange of assets or commodities to take place transparently, without a central authority. Transactions cannot be altered or removed once they are recorded, with cryptography used only to allow participants to manipulate a ledger in a secure way.

Blockchain may solve many of the problems related to trust and traceability across agri-food supply chains; but while there is much enthusiasm for the technology’s potential, concerns also exist that the ‘hype’ may outweigh the promise. The technology is likely to create different opportunities and challenges for different industries, organisations and stakeholders depending on their current position in the market or in the value chain, e.g. vertically vs horizontally integrated businesses; high-value, niche products.

Although the technical capability of blockchain has been demonstrated, scalability is a challenge. A minimum viable ecosystem (MVE) is required to make blockchain a valuable and sustainable asset to agriculture as a whole. To date, applications of blockchain in agriculture have not progressed beyond ‘proof of concept’ and small pilot studies.

The AFI is identifying priority research areas to inform a project on determining the value of blockchain for Australian agriculture. The project aims to identify where the technology can contribute the most value to the industry and the impediments to seizing this value. Some of the technical (scalability), legal / governance and social (trust) barriers to be considered in the utilisation of blockchain for agriculture include:

  • The current blockchain network has a very small and limited block size capacity; the number of transactions a blockchain can process is constrained by the maximum block size in the system. As the blockchain system develops, the maximum block size will increase.
  • To undertake many transactions, capacity will need to be extended; in some applications this may be insufficient, e.g. high frequency market trading.
  • A large gap exists between current blockchain capacity and the scalability of mainstream payment processors. If blockchain is to become a serious challenger as a payment processor, it must be scaled up to handle billions of daily transactions at a very low cost.
  • The need for a legal framework which clearly identifies applicable jurisdictions and where the responsibility will lie in case of failure or in the event of an error.
  • The questionable validity of smart contracts under Australian law.
  • Transactional trust is commonly set through involvement of a central authority, however as blockchain is a decentralised system, there is no role for central authority oversight.
  • Concerns on the reliability of data input, e.g. ‘garbage in, garbage out’.

Current supply chain systems have issues related to the reliability of information which impact many aspects of the chain, for example:consumer trust, supply chain reliability, product quality, logistics, environmental credentials, personal consumer data, food fraud, food safety and biosecurity outbreaks.

Blockchain holds key transferable properties and multifunctionality attributes that can be applied in agriculture to promote a more transparent and trusted supply chain, and potentially serves three key purposes for agriculture:

  • business/operational – facilitating bilateral financial transactions and payments
  • traceability/provenance – minimising fraud, providing timely and accurate traceability of products with implications for food safety, guaranteeing the location of products
  • trade – supporting the transfer of assets, serving as a trading platform, particularly of interest given the more globalised food system.

The modern consumer requests food that is fresh, nutritious and safe. Global market emphasis on quality, safety, functionality and sustainability applies across the board to all agricultural commodities. In respect of this, the future of Australian agriculture lies in information and trust.

Blockchain appears to hold the promise to deliver accurate, complete information about agricultural commodities and products in the value chain and to provide transactional security. However, to assess if the cost of implementing blockchain in agricultural supply chains will be worthwhile, it is important to quantify the value of a trusted supply chain.

This 2019 research project will aim to estimate the value of blockchain to Australian agriculture to provide guidance on where resources need to be directed and on how entities can participate to redress the current inefficiencies and asymmetries in the agricultural supply chain.

Image:  IBM