Blockchain Advantage

Commodities and states look for a business edge with digital ledgers.

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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Arkansas Gov. Asa Hutchinson talks about agriculture and technology recently at a law conference focusing on those topics, Image by Chris Clayton

Traceability in the agricultural supply chain remains a complex challenge, but commodity industries, food and clothing retailers are increasingly looking at what blockchain can do for their businesses.

The potential uses of blockchain technology came up repeatedly during a recent Ag Technology and The Law conference, in Little Rock, Arkansas. The event was held by the National Agricultural Law Center and the National Association of Attorneys General.

Arkansas Gov. Asa Hutchinson, speaking at the event, stressed the importance of linking technology and agriculture to boost economic development in Arkansas. Hutchinson connects the rapid growth of agricultural technology to an initiative he implemented, mandating that every school in the state offer computer-coding courses to students.

More than 6,000 students are now taking such courses, he says. The governor counters some arguments from kids who don’t think they need such an education because they want to farm.

“It’s technology that measures how much water should go to the crops for water efficiency. The GPS systems and the drones that are being utilized--technology is the lifeblood of our agricultural production,” Hutchinson says. “So, it’s an easy case to make for our students that there is an application with computer science for whatever field you want to go into.”

Earlier this year, Hutchinson also held a summit on blockchain technology, bringing in major Arkansas companies such as Walmart and Tyson Foods, as well as other businesses in food production and logistics. The Sam M. Walton College of Business, at the University of Arkansas, also now has a center concentrated on blockchain uses.

CREATING A DIGITAL LEDGER. Though blockchain is largely associated with cryptocurrencies, the technology itself equates to creating a digital ledger for a product, whether it is bitcoin or a tomato, that traces the product, its movement, custody and government approval all digitally. Each person tied to the movement of a currency or commodity can see in data form any necessary documents for a sale. And, the data is supposed to be securely encrypted.

“We have an opportunity to be a center of excellence in food security through blockchain,” Hutchinson says. The governor cites how blockchain ledgers can redefine the speed of tracing the source of a food-safety outbreak.

“If you utilize blockchain technology, it might take you eight seconds,” he explains. That gives you an opportunity to have a competitive advantage in the marketplace. What is the most important thing to Europe as you try to export our agricultural products? It is, ‘What is your food security like in this product you are trying to get us to buy?’ ”

Hutchinson adds, “We want to be able to capitalize on blockchain technology to give us that market advantage to give us the capability to provide to the retail industry, as well, and we will see how that goes.”

RAPID CHANGES. There are a lot of expectations that blockchain will create rapid possible changes in agriculture. IBM has developed a “hyperledger” that can be used by different segments in food traceability, such as a barcode on a melon at a store that can detail the chain of custody on that melon all the way back to the original farm.

“Blockchain gurus will tell you there would be no need for lawyers, because the computer code itself sets the rules for the transaction,” says Todd Janzen, an Indiana attorney focused on the ag-data space. “As the melon moves from the farmer to the processor, money moves back through virtual currency back to the farmer.”

Janzen believes there will still be issues related to contract issues with blockchain, noting there have been some instances of fraud in cryptocurrencies. Further, if a farmer can’t meet his production quota, he or she may bring in melons from another farm, which can disrupt the concept of full traceability.

COTTON EXAMPLE. Some commodities are already more adept at developing and using digital ledgers. Memphis-based The Seam was created in 2000 by Cargill, Louis Dreyfus Co. and other major cotton companies as a trading company and clearinghouse for the cotton industry. The Seam traded about 2 million bales of cotton last year. CEO Mark Pryor says the company has been working more in recent years on providing buyers independently verifiable information about cotton sourcing and sustainability.

“All of this is coming together to where the industry is asking for radical traceability and transparency,” Pryor explains, noting that is a challenge as agriculture is recognized as one of the least-digitized sectors of the U.S. economy.

Pryor notes the supply chain from the farm to the consumer “is extremely complex.” Just in cotton, a bale may have 15 different entities that touch a shipment in some way. “And, there are hundreds of communications just over a single shipment that may contain 88 bales in a container,” Pryor says.

Paper processes and communications are being scattered across the globe. Human error enters the mix, and there can be discrepancies in paperwork that are not standardized. “It’s one of the reasons we have slowdowns in commerce,” he says.

SHARED TRUTH. “Blockchain provides us in agriculture a shared source of truth,” Pryor explains. “Trust is an inherent part of the next work because of some of the properties that make it possible.”

The cotton industry is working more on developing digital ledgers to bring more transparency and traceability from field to fabric and fabric back to the field, he says. Brands and retailers such as Wrangler, Brooks Brothers and Levi’s want to be able to show the source of their cotton.

“It also solves a lot of problems with inefficiencies in the industry,” Pryor adds.

All this leads to going back to the farm with initiatives on sustainability and proof of independent verification of practices on the farm. The Seam is working with the National Cotton Council and Field to Market to get information from farmers.

“This isn’t something that’s just interesting to the cotton industry, because farmers in Georgia, they don’t just grow cotton. They grow peanuts, soybeans, corn.”

MAKE IT FARMER-FRIENDLY. The challenge, though, is ensuring that data for all of those crops is captured, but in a way that does not create more complications for farmers in the process. “We have to make it friendly on the farmer,” Pryor says. “We have to lower the burden on the farmer, and this is how we do it.”

The cotton industry globally is more focused on blockchain partly because retailers and clothing companies do not want to discover the processed cotton fabric they bought was made with child labor. Further, some audits have discovered sellers marketing “Egyptian cotton,” which is costlier and considered higher quality, was not Egyptian cotton at all.

Pryor says major trading companies that compete are coming together on these blockchain standards for the greater good of the entire industry. “Cotton is an area where we are making a lot of progress because we sort of have the global who’s who behind us.”

Blockchain is still in its infancy, though data security and encryption has improved. Cotton works better in traceability because every bale is an identity-preserved commodity with bar codes on bales. Digital ledgers become more complicated with other commodities that are commingled, such as grains or oilseeds. Even then, blockchain doesn’t work at every port, Pryor notes.

“Some countries accept electronic sanitary and phytosanitary documents, and some don’t,” he concludes.


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