Blockchain decrypted

Published: June 2018  |  By: Merran White
Blockchain has become something of a buzzword, but what exactly does it mean for Australian farmers? 

Everyone is talking about blockchain, but what really matters is you get paid faster. 

In the old days (okay, 18 months ago), this was the traditional way to sell wheat in Australia: you harvested it, put it in a silo, it was picked up by truck and delivered to a bulk grain-holding facility, where it would be held until it was transported by truck to domestic processors or train to port for export. You had to take whatever price was on offer – then wait weeks, or sometimes months, for the money to be deposited into your account. 

All that changed in December 2016 when David Whillock from Whillock Pastoral, near Geurie in Central West NSW, delivered 23 tonnes of wheat to Dubbo-based Fletcher International Exports, run by meat industry tycoon Roger Fletcher. He received fast and secure payment for the grain on delivery – and David told journalists on the day this would help him to maintain cash flow and manage his business more confidently. This method of payment is called blockchain. 

In recent years, cryptocurrencies such as bitcoin have roared into the mainstream. But it is blockchain, the tech platform developed to secure transactions of these virtual currencies, that’s truly revolutionary.

WHAT IS BLOCKCHAIN? 

A blockchain is a single ledger that records transactions between suppliers and customers in a database. An audit trail is created as data is added in linked ‘blocks’ and, as more information is added, a chain of blocks is built. Everybody with permission to join the blockchain can see the same information in real time. Blocks can’t be removed or changed. All the users – rather than just one controller – own the blockchain, and they are all responsible for maintaining it.

In a private blockchain, the users decide who can join the ledger and their level of access. Some information can be encrypted to protect commercial confidentiality. A company could have a blockchain with a supplier, with a client, with its bank and with the tax office. Blockchains allow participants anywhere on earth to do business directly, sidestepping conventional finance institutions.

HOW BLOCKCHAIN HELPS AGRICULTURE

Blockchain-based platforms can streamline supply chains significantly, saving time and money, and minimising risk. In its 2017 reports into the technology’s likely impact, CSIRO’s specialist Data61 unit said blockchain has the potential “not just to integrate information exchange and improve operational efficiencies across a diverse industry, but also to improve supply-chain quality, facilitate provenance of branded goods and reduce cost of regulatory approvals”.


Data61 contended that, as leaders in applying the technology, Australian companies are well positioned to set global standards for blockchain-based business.

TECHNOLOGY TRANSFORMING SUPPLY CHAINS 

One such company is Sydney-based AgriDigital, which aims to use the technology to transform agriculture supply chains globally. “AgriDigital connects grain farmers, buyers, site operators and financiers through a single platform, allowing them to contract, deliver and make payments securely and in real time,” explains co-founder and CEO Emma Weston.

AgriDigital is not the only kid on the block: several blockchain-based and blockchain-enabled solutions have entered the market in the past year, most offering provenance and food-traceability solutions targeted to consumers and retailers, “though there’s been increasing focus on farmers”, Emma says.
 

 
It was AgriDigital that successfully executed the first live settlement globally of a physical commodity on a blockchain – the aforementioned Whillock wheat sale. Eight months later, the company partnered with CBH Group, Australia’s largest grain exporter, to focus on matching title transfer of grain assets to payments, supply-chain provenance and traceability.

Four blockchain benefits 

  1. Saves time and money.
  2. Minimises fraud.
  3. Boosts bottom lines.
  4. Improves traceability.

CRYPTOCURRENCY FOR GRAIN FARMERS 

In November 2017, for its most recent pilot, the company joined forces with multinational agribusiness banking expert Rabobank. “This pilot demonstrated how blockchain can be used for supply-chain finance and was the first project of its kind globally,”
says Emma.

Initially, trials are underway in the cotton industry. AgriDigital is also working on its own cryptocurrency, which will be pegged 1:1 to the Australian dollar. The company has a network of 1,400 active grain supply-chain users and more than 4,500 users in all. 

“Since November 2016, more than 1.6 million metric tonnes of grain has been transacted via the platform,” Emma says. The best news is that payments are immediate once the system has verified both parties.

So far, the new platform supports several grain and pulse crops, cottonseed and canola. “While we’ve been working to test our solutions exclusively in the Australian grain and cotton industries, we believe they apply to a variety of commodity supply chains that face similar challenges,” Emma says.
Already, the company is fielding daily inquiries from five continents. “In 2018, we intend to expand our operations to the North American market, then look to Europe in 2019-2020.”

TOP DOLLAR FOR WORLD-CLASS AUSTRALIAN PRODUCE 

Australian farmers produce world-class goods but typically sell them at commodity prices to an intermediary, says David Eyre, NSW Farmers’ general manager – research and development. He says this new technology means that, instead, farmers can tell a compelling story about their goods to the end user, which brings a price premium.  For further insights about gaining a premium price and securing market access, see our story on the China boom.  

“Blockchain solutions operating in the interests of producers and consumers can shorten supply chains and enable true transparency around such things as the farm source, and the safety and sustainability of production methods. This adds up to a larger share of end value for farmers as we build Australia’s reputation for premium goods,” David says.
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Here’s the thing though, farmers need to ensure data-sharing flows in both directions. “Right now, farmers provide data up the value chain but don’t get much back that can help them maximise margin or understand consumer preferences,” David says.  As relatively small businesses, farmers will need access to co-funded solutions, and need to work with supply-chain partners who are willing to link up with farmer-endorsed systems.

“This is a field requiring government support for innovation, and for new kinds of collaborative partnerships in the supply chain – for example, for alliances between farmers, boutique contract processors, agile freight-forwarders and ecommerce platforms. This commercial innovation needs to go hand in hand with smarter, faster government processes.

“Distributed blockchain compliance solutions, coupled with sensor and data automation technology, are needed to strip time, cost and error from the administration of water allocation, biosecurity, food safety and trade.”
 

IS YOUR DATA SAFE? 

The CSIRO’s Data61 reveals there is a concern that, in years to come, advanced computing will make it possible to “crack the security codes” of blockchains, rendering the data within them vulnerable. Another is that “toxic” data, entered into the system by malicious users, will be near-impossible to remove – even if this is court-ordered.

The risks, say experts, should be assessed by individuals and, where possible, “headed off at the pass” by sensible oversight and regulations. Overall, however, they’ll be outweighed by the benefits to users – notably, greatly increased efficiency, transparency and productivity.

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