In this blog series, we explore the potential use cases for Distributed Ledger Technology (DLT) in the commodities world. One of the biggest challenges facing humanity in the short to medium term is sustainability of agricultural commodity supply chains. What role might DLT play in tackling this issue?
Sustainability can mean a variety of things depending on context so let us limit our definition to three main groupings of objectives and impacts:
- economic practice – improving farmer livelihoods
- environmental protection
- social responsibility – creating positive community impacts.
In Agribusiness, the principal market mechanism for establishing sustainability standards and contributing to sustainability impacts is certification.
We have all seen Fairtrade, UTZ or Rainforest Alliance logos on chocolate bars, packaged tea and coffee or fresh produce, but have you ever considered what that stamp really means?
Producers or cooperative groups, having chosen a certification body, must adapt their farming, business and employment practices to a set of specific standards that include a responsibility for all costs of compliance and being subject to regular audits. On successful completion of the audit process they are able to market their certified commodity.
That investment could represent something of a gamble on the part of the farmer, who may be motivated less by the global sustainability concerns that inform the buying habits of consumers and more by the sustainability of their own livelihood.
Recently, the industry has recognised the limitations of certification in delivering meaningful impacts. This is partly because certification is costly relative to the value realised by market participants. Significant investment is not only required from farmers - merchants and supply chain managers must validate certificates with expiry dates against central repositories, track premium payable and receivable, and manage the segregation of certified inventory. The risk, and perhaps the reality, is that certification becomes an exercise in ticking boxes for commercial gain, rather than a useful tool for achieving sustainability impacts.
Blockchain cannot lead directly to measurable sustainability impacts, however, it could contribute to reducing administrative overheads and risk involved in certification processes, allow for funds to be more meaningfully utilised in sustainability programmes, and increase transparency in certified supply chains right through to the customer.
This increased transparency would mean that certificates claimed by a producer or a product would be confirmed by the network of participants, with the distributed ledger acting as an auditable registry of certification because of its shared and immutable nature. The certification body would be a permissioned member of the network able to see the full chain of transactions immediately and grant certificates accordingly without further reporting needs.
Blockchain’s intrinsic link to smart contracts could help ensure the certification claim is valid prior to authentication by cross checking the data provided directly with the data of the certifying body. “Provenance”, a start-up focused on using blockchain as a means to trace origin, is currently piloting this exact application in collaboration with the ISEAL Alliance and Soil Association Certification.
Among the outstanding challenges to be addressed are ensuring the physical good and its digital footprint mirror each other, establishing an authentication mechanism so that the process is not cumbersome and providing an accessible platform for farmers to participate in a low friction and low cost manner.
There is a risk of reaching for blockchain as the solution to every problem, however, as we have shown in the previous blogs on the Future of Energy Markets, Physical Commodity Fulfilment and Direct Trade, Blockchain does have real potential to solve many current energy and commodity challenges, and where better to start than sustainability?