I am currently finishing a series of articles on traceability, transparency and decentralization technologies (30 experts interviewed)
blockchain

Data Cooperatives, a new business model for the agrifood sector

Innovation can help us find solutions to the problems we face. Without forgetting the complexity of the problems currently facing the agrifood sector, and without pretending to bring too simple solutions to very complex issues, the sector can renew some of its value creation processes: blockchain and data management in the agribusiness.

To understand blockchain technology, we must first look at the context in which it emerged: digital currency. It is in this perspective, and in the context of the 2007 financial crisis, that bitcoin was born.

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Bitcoin is an economic mechanism (the first application of a blockchain, which is a technology) that makes it possible to have digital currencies without the need for a central institution to control them, and without suffering from the problem of double spending.

Blockchain is a new way of storing information, preserving it without modification, accessing it and integrating new information that becomes unforgeable. The information is recorded on the equivalent of a vast distributed register, i.e. shared on the computers (called “nodes”) of all the members of the network. The distributed nature of the registers allows transparency and auditability.
The main advantages are decentralization, security and immutability. The applications of blockchain aim to create trust where it is lacking or to replace centralized trust mechanisms.

This system allows digital money to be created in a decentralized way and distributed properly without the need for a central authority. Once this is understood, the question that arises is. How can we use this system to process information in a decentralized way and distribute it properly without the need for a central authority?

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Blockchain: increasing profit margins and reducing costs in the agrifood sector

The blockchain not only stores and verifies information about transactions with digital currency, but also about the movement of any item that can be digitized: an identity, the shipment of materials, the feed received by livestock, all the processes associated with the life of livestock, the collection, processing and packaging of grain… Today, there are companies that design and provide blockchain technology (totally independent of bitcoin) to companies that want to use it.

In addition, smart contracts can be stored on a blockchain. These contracts enforce agreed-upon clauses, provided the agreed-upon conditions are met. Since these clauses are stored and verified on the blockchain, we know that when they occur, they are correct. Therefore, it is possible to send digital information associated with any process to a blockchain, prove that this information is true and distribute it to third parties, thus verifying that the information shared by two agents is correct.

Smart contracts are simply programs stored on a blockchain that run when predetermined conditions are met. They typically are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss. They can also automate a workflow, triggering the next action when conditions are met.

Blockchain and agricultural insurance

A concrete application can be found in the field of agricultural insurance. In the event of an environmental event, insurance compensation can be a long and tedious process. The time between applying for insurance and receiving compensation can put the farmer in a very difficult financial situation. Farmers and insurers can work together to transfer insurance policies onto a blockchain. By doing this, the environmental information that is collected in the policy (rainfall, temperature, hail, etc.) would be stored on the blockchain.

Thus, when the conditions necessary for the farmer to receive compensation (e.g., a level of rainfall above a certain amount) are met, the blockchain could send the financial compensation directly to the farmer. To do this, the blockchain would need to be connected to the bank accounts of the insurer and the farmer. This would reduce the costs for the insurer, as well as the time it takes for the farmer to receive the compensation, and the price the farmer has to pay for the policy.

In insurance, blockchain also allows farmers from different geographic areas to join together in a mutual insurance company. In this case, farmers from different climates, without needing to know each other or interact directly, can join a mutual insurance company that, governed by a blockchain (specifically, by one of the aforementioned smart contracts), collects policies from all farmers and pays out claims, according to established rules and provided that agreed-upon conditions are met. This allows for a mutual insurance company between farmers of very different climates (thus distributing risk), with a transparent and low-cost governance structure.

Blockchain and traceability

Traceability is another area where blockchain technology can be useful. Whenever an agribusiness player needs to prove or verify the provenance of a food product, a blockchain can help.

Remember that the information stored on the blockchain is verified and therefore reliable. Knowing this, food chain actors can send information about all their processes to the blockchain via measurement sensors (Internet of Things or IoT), and thus securely “trace” all their processes. This can be useful when it comes to streamlining technical or health inspections. It can also be useful in proving (or demonstrating) that what is bought (or sold) is really so.

The Internet of Things (IoT) describes the network of physical objects that are embedded with sensors, software, and other technologies for the purpose of connecting and exchanging data with other devices and systems over the internet.

In this line, and knowing that from now on agricultural contracts will have to include production costs, blockchain technology can bring transparency when verifying and transferring these costs to contracts (or to regulators, negotiators…). If agribusiness contracts are transferred to a state blockchain, all data will be easily observable. With price and cost information on a blockchain, the sector would become more transparent.

This would mean, de facto, a national price index, not determined by the state, but given by the actual transactions that take place in contracts. Remember that everything stored on a blockchain is visible to all participants.

The blockchain: data as a production factor

Data is one of the biggest production factors of our time. Data analysis generates knowledge. And from knowledge comes value.

Agricultural technology and input manufacturing companies, insurance companies, supermarket chains, etc. are all very interested in analyzing data related to the agrifood sector. By analyzing this data, these companies (provided they are large enough) can produce better inputs, develop more appropriate technologies, optimize insurance policies, etc.

For this to work, a large amount of data must be aggregated. The data of a handful of farmers or growers is not big enough for algorithms to derive value from it. Therefore, it is necessary to aggregate the data of many farmers (Big Data, data monetization).

That’s why farmers or growers can band together in one or more data cooperatives in which they collect, aggregate and then sell data about their fields, production plants, livestock, crops, etc. to companies interested in analyzing it. Using a blockchain, it is easy to distribute the profits from the sale of this data proportionally among all the small agents who contributed their data to the cooperative.

While the generation and collection of this data requires investment, it would enable an innovative business model for the agrifood sector. For example, the sector could become a factory of agricultural and livestock data that large companies might be interested in purchasing. This is not yet the case in the agrifood sector, but it is in other sectors such as the medical sector or online consumption.

Conclusion

It’s only a matter of time before the agrifood sector starts generating and storing this data, and monetizing it in innovative ways on a data marketplace. Perhaps by using blockchain technology, and fostering data awareness, the agribusiness sector can take the lead in terms of generating value through data analytics.

This would represent a real renewal of the agricultural production model and, probably, a source of innovation in terms of value generation through data analysis. It would be a real renewal of the productive model of the countryside and, probably, a source of greater progress for all.