Using the Oxford Blockchain Strategy Framework, Nikolet Zwart has analysed a use case of adding value through the local processing of food by multinational agribusinesses to illustrate the usefulness of any kind of blockchain analysis.
Agribusiness wishes to transform value chains: make them shorter, more transparent, inclusive, traceable and preferably digitised. Though not the solution in itself, blockchain technology can provide the key to this transformation. Indeed, business models and value chains need to be entirely rethought, whereby the so-called ‘distributed ledger’ of the blockchain can be used to ensure transparency and inclusion.
This can be illustrated by analysing a use case, using the Oxford Blockchain Strategy Framework, developed by Oxford University. This framework helps to assess the usefulness of any blockchain application.
Rethinking food value chains
Many of the food products of multinational food companies are produced in the South, shipped back to the North to undergo treatment (e.g. coating, drying and cutting), after which these products are too expensive to be sold in the South.
To break this cycle, local Southern suppliers of farm inputs to farmers and subsequently the farmers themselves may be enabled to do the processing locally to add value for the exporting food companies. This will reduce the prices of the products, resulting in higher profits for the food companies and domestic markets that are created bottom up. The supplier can buy or lease a processing device, such as a drying tool, coating tool or cutting tool, on credit.
When the supplier sells the processed products, the credit can be redeemed. Using the additional proceeds the suppliers can buy fresh produce from other farmers in the neighbourhood for domestic sales, create a stock, and thus gradually expand their business and strengthen the farmers’ community. In the event a certain food product requires registration or certification by a national authority, this can be done via the distributed ledger of the blockchain as well.
Why blockchain technology?
Our use case consists of five or six predictable, repeatable processes that lend themselves well to automation, namely:
- a supplier buying or leasing? the processing tools;
- the transfer of credit from the fund to the supplier;
- the supplier buying the fresh produce of the farmer;
- the processing of the fresh produce by the supplier; and, if needed
- its registration or certification and the sale of the processed food to an exporting company.
The processes will run for a long time, in different emerging countries where at present few processed products, if any, are sold. But gradually suppliers and farmers will be able to lift themselves out of poverty.
All value chain players in a specific sector will take part in this approach. This will ensure that already volatile markets are not disrupted by new technologies. Instead these new technologies will help to create stable, bottom-up markets.
In all five processes conflicts or disparate data would be remedied by one party or a limited number of parties. The fresh produce, the processing tools, and the processed products represent a high value, as do the loans, and even the potential registration or certification by a national authority (which represents value to the food processor, to the national government and to the planet).
Since the suppliers perform their activities on contracts with multinational food companies on the one hand and smallholder farmers on the other hand, and these contracts are interrelated, immutable records are a requirement. The same applies for any necessary license payments for the technologies, in-app payments, the registration or certification, and the micro-loans.
If you take all of these elements into consideration, then the blockchain is an appropriate tool for the envisaged use case. The next step is to figure out the best way to actually apply blockchain technology.
The three layers of the blockchain
Blockchain technology consists of several layers: the protocol layer, the network layer and the application layer. With regard to each of these layers decisions have to be made and different parties and expertise need to be involved.
Decisions need to be made in the protocol layer about whether to use a public or a private blockchain. The design expectations need to be clear: how fast, flexible and user friendly should the blockchain technology be? Do we need to use or create a developer community or do we have our own developers that can do the job?
In our case there is a need for a private implementation of the blockchain. The several transactions require privacy and security. We will need a permissioned version, which means that anyone using the blockchain will need permission to read information, transact and write new blocks on the chain. This permission will be controlled by the consortium formed to serve the blockchain.
Since it will be a complicated blockchain with many interconnected transactions it should have great flexibility in speed, programmability and functionality. In the end we hope to reach millions of suppliers and farmers in the South to make it easy to become part of the blockchain. A consortium can be formed for developer resources and other technical capacities, involving technology universities and the private sector.
Decisions need to be made in the network layer about the computers and other devices on which the blockchain will run, or the ‘node’. How will these devices be integrated with the technology that is already being used? How much data needs to be stored?
The nodes will be run by the suppliers, the fund and the multinational food companies (and potentially also the national authority).
Read access will be given to everyone on the different blockchains. Write access will be given to everyone on the blockchains as well, however only for their own transactions (smart contracts). With regard to registering through a national authority, only this authority will be authorised to write and everyone (even outside the blockchain) will be able to read.
Any farmer, even illiterate ones, any supplier and any (local or global) corporation should be able to access the blockchain in their daily activities just as easily and quickly as possible. The device used should be robust, weather resistant, cheap and preferably handheld. The technology integration should enable suppliers to perform the calculations via their in-house systems, while performing their commercial activities.
The data storage requirements regarding network capability, archiving and regulation will be high, since all transactions will be stored on the blockchain for a long time for the sake of traceability, transparency and knowledge building. The national authority will need to have an extensive data storage capacity as well.
Decisions need to be made in the application layer with the users of the application in mind. How does this new technology fit in present behavioural patterns and existing workflows?
The application is going to be used by many stakeholders, who differ a lot in background, culture, education and profession. This means that the application should be flexible, easily accessible, simple to use, and attractive for non-technical persons. It should include educational resources, such as train-the-trainer courses on different topics, and early warning systems.
We will make use of existing organisational structures as much as possible since we involve the suppliers as key actors to develop farmers’ communities and enhance food security. The present workflow of all actors will be digitised via smart contracts on mobile devices. The behavioural changes necessary to implement this use case will be included in an extension package (train the trainers on the same devices that will be used for the blockchain entrance and smart contracts).
The analysis in this article has led to the formation of actual consortia aimed at setting up blockchain technology in emerging countries, including in the multinational seed business, and between Southern women groups. Public-private partnerships enhancing food and water security via blockchain are also being considered, for which we are seeking public funding. Please contact Nikolet Zwart if you are interested in joining. After all, in the field of blockchain decentralisation and inclusion are key.