Will Blockchains Revolutionize Agriculture?

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Over the past year, I’ve heard a lot of people talking about blockchains in agriculture.  It’s also not hard to find excitement about blockchains in agriculture across the internet (for example, see here).  Closer to home, and described here, Blockchain.io is a company currently offering blockchain services to ranchers in Wyoming (as seen in this video).  I must admit that the workings of a blockchain took me a while to understand, and it’s still kind of hazy.  That being said, there are a few notable things that can be said about the potential future use of blockchains in agriculture.

To give some background, CoBank recently provided a brief overview of the use of blockchains in agriculture.  CoBank notes that there are three main ways in which agricultural supply chains would benefit under blockchains and include: (1) improved food traceability, (2) better tracking of commodities, and (3) improved global grain trading.  Given the needs of the global agricultural system where consumers continue to demand more information about food with more data availability, blockchains are certainly intriguing.  Below are a few thoughts on this topic.

First, finding efficient ways to deliver more information to consumers about their food is an ongoing struggle between the cost of data collections versus the value of that information.  Information is typically not free and it is sometimes not valuable, but it can be.  For example, the mandatory country-of-origin labeling law was enacted so that consumers could know where they beef was born, raised, and slaughtered.  However, Taylor and Tonsor (2013) show that the additional cost of compliance for MCOOL are not offset by a significant shift in demand from that information.  This doesn’t imply that consumers do not want that information or that some ranches do not have an interest in participation in a voluntary version of country-of-origin labeling.  As supply chains find lower cost ways of providing information to consumers, they may find themselves with advantages over other commodities or brands.

Second, the idea behind blockchain provides an opportunity for industry to get ahead of regulation to allow for data collection that can be useful and valuable to the industry.  An example of such a move is that of animal ID and traceability in the United States, which may provide enough value to the industry to offset the cost of implementation.  For example, Pendell et al. (2010) demonstrated that implementing an animal ID and traceability system in the U.S. meat and livestock industry would be beneficial to the beef industry when considering the cost of not being able to quickly and accurately identify a food outbreak and the opportunities available in global markets, such as Japan.  Rather than waiting for regulation, it does seem that there are many areas where proactive supply chains may be able to set the terms of regulation before the government provides a mandate that may not be easy to implement.

Third, the main difference between blockchains and existing 3rd party data aggregators seems to focus on who manages the data.  In blockchains, the idea is that all data are maintained publicly by multiple sources, while 3rd party companies are central data collectors under current systems.  It’s not clear to me the value of the public sourcing of records over the record keeping of a single firm, particularly if that firm is taking appropriate precautions against manipulation or loss of data.  For example, for beef to be exported to Japan or China, an RFID tag must be used to identify the animal and records are maintained by companies like IMI Global.  Whether public data sourcing is preferred to 3rd party data sourcing seems to depend on trust and reputation.  While companies like IMI Global have incentives to provide reliable and transparent data storage, it’s not clear to me how users rate reliability and trustrworthyness on this new blockchain technology.

In summary, it is clear that the utilization of supply chain data to manage logistics and provide consumers with more information is happening and will continue.  Whether that storage goes through blockchains is still a mystery to me, but it is certainly intriguing.

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Eric Belasco

Eric Belasco is an Associate Professor in the Department of Agricultural Economics and Economics at Montana State University. He received both his M.S. and Ph.D. in Economics from North Carolina State University in 2005 and 2007, respectively. He conducts research in the areas of agricultural marketing, risk management, farm policy, and financial engineering. Examples of this research include evaluations into grid pricing risk, the use of forward contracts in mitigating profit risk, modeling revenue risk in cattle production, and characterizing the link between weather and production indicators.

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