Decentralising the agricultural value chain is China’s much-needed step
In stats once released by the FAO, over 60 per cent of the world’s population remains dependent on agriculture for survival. The importance of the global agriculture sector cannot be emphasised enough.
The industry’s value chain running from the producers (farmers) to consumers, make up for one of the largest industries globally for employment and transaction. With over 500 million agricultural producers, a global population that’s closing in on nine billion and global transactions totalling over US$300 trillion, there’s a lot the market has to offer and potentials that could boost the market.
Considering the world’s population is one that will constantly experience growth and with the level of dependence on agriculture, it is quite important to explore several ways that could enhance the sector whilst providing support to farmers.
The state of the industry
Highlighting the importance of the producers (individual, group or business that grows, processes or packs organic or conventional products) in the agriculture value chain is something that cannot be overlooked.
As hinted by the United States Department of Agriculture (USDA), for each US$1 spent by consumers in the agricultural value chain, farmers only receive less than nine cents.
This is largely because the sector is filled with a myriad of middlemen — intermediaries who mostly have the dominating power in the industry.
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A huge portion of the profits go to these intermediaries with far less reaching the actual producers. A typical chain of distribution between the farmers and consumers consists of wholesalers, brokers, distributors, retailers, importers, exporters, sales representatives, and brands, many of whom take excessive profits on top of their operating costs.
These intermediaries wield a controlling power in the industry, creating a barrier around finance, marketing and communication, hence creating a huge gap between the actual producers and consumers.
Consumers are made to pay high prices for agricultural products with no transparent knowledge as to where the products are actually coming from. Producers, on the other hand, earn way less returns than should be obtainable.
In addition, the intermediaries provide no means of transparency to the farmers as to the distribution of products and the actual returns earned. Producers in other words only get what’s available to them.
According to Keith Agoada, agriculture industry entrepreneur and co-founder of Producers Token, “the disparity between what consumers pay for the produce and what actually trickles down to farmers is staggering.”
Also, the majority of local farmers, experience payment delays or discounted payment from the intermediaries which sometimes result in disputes that end up affecting the farmers’ returns negatively. Farmers then try to explore alternatives locally to ensure stable profit and enhance the development and expansion of their farms.
Producers are thus, demanding better prices, faster payments, greater consistency, access to capital and more transparency up the supply chain. Consumers, on the other hand, demand greater access to fair-priced organic products with transparency to the source of production.
“The archaic business model employed throughout the agriculture industry is not only unsustainable, but also rife with antiquated bureaucracy, limiting producers’ earning potential and creating a monopoly — favourable only to the largest growers,” says Keith.
A decentralised solution: A case study of Producer’s Market
Clearly, the agriculture value chain needs some sort of facilitation to enhance and make things much better than they are currently. A solid framework needs to be adopted that will give farmers equal unrestricted chances, access to a larger market and a complete disintermediation to remove all existing barriers.
Blockchain technology appears to be the perfect fit that stands up to the challenge for the agriculture industry. Since the advent of blockchain and its distributed ledger framework that provides for transparency and disintermediation, several companies have leveraged the technology for various purposes in different sectors.
Keith also believes the same can be done for the agriculture sector by harnessing the potentials of blockchain in disrupting the agriculture value chain hence, Producers Market.
In the Chinese agricultural sector, there are over 300 million farmers, and Producers Market is thus implementing an ecosystem of digital technology solutions to achieve greater profitability and security for existing and future generations of Chinese farmers.
By leveraging blockchain technology, the company creates a new system of validation of farming practices, the origin of outputs, and legitimacy of the certifications accompanying the outputs. This is accomplished with a decentralised validation mechanism.
In other words, the creation of ‘blocks’ in a chain of logistics that is uploaded to the cloud using a smartphone device at each step of the value chain from harvest to the packing facility, processing facility, to the distributor (domestically and internationally) and finally to the retailer/food service provider.
This information is then made available to the consumer by accessing a QR code on the packaging or restaurant menu. The distributed ledger open accounting system can provide a validation of transactions as to the farming inputs purchased and used on the agriculture operations.
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The new transparent value chain model leverages incentives and rewards to align the demands and concerns of end-consumers with the production operations of the farmer. The Producers Market marketplace app allows for on-boarded and vetted farming groups to profile their operations, connect more directly to the buyers that service consumer markets, and share with consumers via social media.
This efficient method of supply chain connectivity enables farmers to achieve a higher price for their outputs by going further up the vertical value chain, with the value of output being determined by the buyer and end-consumer and the determination of quality based upon validated data sets.
The current system is exploitative to many farmers who have to rely on ‘spot pricing’. The current spot buying system leads to an incredible waste of outputs. Also, there is uncertainty for producers who put months and years of hard work into creating a product, as to whether there will be a buyer for the output and the price worth of the outputs.
The digital technology solutions of Producers Market are designed and engineered to bring about a system of ‘contracts’ in which farmer outputs will have buyer commitments and formalised digital contracts in place prior to harvest.
Farmers’ confidence in the digital contract model for direct buying partnerships with domestic and international buyers encourage farmers to focus more resources and energy on expanding production and improving practices to meet consumer demands which also helps solve future food shortage concerns facing China and the world at large.
It is ready to usher in a new era of farmer empowerment in China that will connect the food safety and quality desires of consumers to transition the agriculture sector into a value chain built on transparency, confidence, trust, and proper stewardship.
Producers in the industry deserve the best of returns on products they distribute. Consumers, on the other hand, deserve the fairest of prices with an adequate transparent framework to confidently tell the origins of organic products.
Blockchain technology appears to be the tech to bridge this gap with every party involved gaining mutual benefits. It’s a new dawn for the agriculture sector as blockchain gives farmers a new wave of hope of better returns and fairness in the game.
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