Information sharing has become the cornerstone of our daily activity. It has many modes like in the case of sharing information between two different companies, departments within an organization or among a group of individuals. When this information sharing becomes a requirement as part of a business process, it becomes all the more necessary to nurture it effectively. This greatly assists in improving the efficiency of the process and conducting audits when the need arises. Blockchain is one of those emerging technologies which is finding newer applications every day and many of these applications are addressing the problem of authentic information sharing.
Perhaps, the most ubiquitous application of information sharing in a business scenario takes place as part of the supply chain process. Afterall, every product that you purchase was once upon a time, part of a multi-party supply chain, which requires close coordination and information sharing. And even before it was produced, its raw materials were part of yet another supply chain that allowed them to be brought to one place, to be assembled and built into the finished product.
Blockchain for Agricultural Supply Chain: A Hypothetical Case Study
There is no denying that agricultural supply chain is the essential supply chain that impacts our everyday lives. How can we make it better, specifically using Blockchain, so that all of us can benefit from it?
All of us, in this case, refers to all the people involved in the entire supply chain right from the farmers, all the way to the end consumers.
In this and the subsequent blog post, we will attempt to achieve this through a hypothetical scenario of an agricultural supply chain.
Let’s define the scenario first. We will consider the typical case of an Agri supply chain as we know it in layman terms.
The Simplistic Agri Supply Chain Scenario
A farmer sells his produce to a distributor who in turn, stocks it across his various warehouses and supplies it to the retailers. The distribution network takes care of linking the farmer and retailer via a supply chain. This supply chain network has the geographical reach, as well as the scale up capability to take care of fluctuating supply and demand.
This arrangement exists because both the farmer and retailer do not have the reach and means to source from each other directly.
The distribution network itself comprises of many players who have the logistics capability to handle the supply chain at local and global levels. But let’s keep it simple and assume that there is only one distributor in the middle who sources from the farmers and is a supplier to the retail store.
We will present a possible solution to optimize this supply chain using one of the Blockchain platforms. But before that, we need to ask the question.
What do we want to optimize?
The State of Agricultural Supply Chain
A typical agricultural supply chain is replete with mal practices and monopoly, especially in non- developed economies. It is a well-known fact that farmers do not get a fair price most of the time and distributors play spoilsport by skewing the demand and supply to influence artificial price variations.
In such a state of affair, the most benign way to correct the system is to bring in transparency. If transparency is assured, then any rise in demand due to real external factors can be capitalized by all the parties instead of only a few who might try to game the system in their favor.
This will provide an accurate reflection of the efficiency of the system to gauge whether the system is working for all the participating entities or only favoring a few.
On the face of it, this seems like a sweeping reform, and it is hard to achieve it practically. But think for a moment and assume that we have a consortium of few participating entities which form the different functions of the Agri supply chain network.
If governed properly, such a consortium led, transparent approach could benefit all the parties in many ways.
All the parties collaborate to extend the reach of the supply chain for attracting lucrative markets.
All the parties work in an optimized manner to ensure that the end product at the hands of the retail customer is of the highest quality.
All the parties work in close coordination so that they can meet the surge in demands and share the resulting gains in profit while ensuring maximum reach and quality.
Building a Consortium led Agricultural Supply Chain
So how do we give wings to this utopian vision?
Imagine that a company, who is a big player in the agricultural produce market, takes an initiative to form a consortium. It also invites other similar sized companies to become stake holders in the joint venture and then opens it for smaller players.
Such a consortium will allow businesses and individuals to be a part of a system. A system that ensures transparent business process, an equal opportunity to offer services, a fair pricing for all the parties involved in the business and above all, an optimized process which ensures the highest quality of the product in the hands of the consumer.
Sounds too good to be true right! And too hard to govern as well. I know this is an ideal case, but let's just ignore the governance issues for the moment and think about how transparency can help prosper this consortium.
Benefits of Transparency in Agri Supply Chain
- The system provides a transparent way for the participants to gain from market dynamics: This can happen when the price traded against the goods are kept transparent, and everybody gets a share of the profit in case of a surge in demand. This way the profit feeds back into the system and benefits the entities all the way back to the producer.
- The system provides a way to trace and audit every transaction such that any irregularities can be addressed. This can be initiated if some incident is reported, such as quality, fulfillment or price issues. Since the system will be completely transparent, all such issues can be traced back to the defaulting party.
It is assumed that such a consortium will be governed by rules that will ensure that the above two requirements are always honored in good faith, and necessary checks and balances are in place to weed out the defaulters.
Blockchain as an Enabler
A blockchain enabled system can transform the underlying operational nuances of this consortium in many ways to ensure the basic tenet of information sharing and transparency are met.
Firstly, Blockchain inherently enforces a level of security that prohibits anyone from altering the historical transactions.
It further augments the system by enabling it to track the asset quantity against every transaction. This way, every farm produce brought into the system by the farmer and sold out of the system through a retail store is tracked and accounted for.
Nuances of a Blockchain Transaction
- Everything exchanged in a transaction is an asset. For example, a farmer harvests 10 kilograms of rice, and that is like building his asset. Later on, he sells it to the distributor, whereby he exchanges his asset in the form of rice with money, which was the distributor's asset. So both rice and money are assets.
- Assets can have associated parameters. These additional parameters can be associated with it to trace its journey so that it is possible to measure the efficiency of the system to ensure the highest quality at a fair price. For example, the parameter "time since harvest" provides some indication of how old is the rice, as a measure of quality for certain varieties of rice.
- One or multiple such transactions can be combined and recorded as an immutable block in the Blockchain system. This becomes a record that traces the asset and forms a chain with other records till the time that asset leaves the system.
Note: The above statements may not be applicable for all blockchain platforms as some platforms are application specific and may not offer these features.
There are so many Blockchain platforms that have sprung up in the last few years and every one claims to be better than the other. Some have also adopted more innovative approaches compared to the original Bitcoin system.
In the second and concluding part of this blog post, we will show you how these transactions look like from the purview of an Agri supply chain system powered by Blockchain.