FOOD (AND MORE) FOR THOUGHT
BY SCOTT NELSON
How Blockchain Can Improve
TRADE FINANCE IN FOOD SUPPLY CHAINS Blockchain technology is known for its ability to track and trace products across the supply chain, but its potential to free up trillions of dollars worth of economic value is less discussed.
T
he use of blockchain techsolutions, the true transformative nology to confirm the prove- potential of blockchain has been nance of goods and to track less discussed: freeing up the trilthem from producer to consumer lions of dollars-worth of economic is becoming a ubiquitous theme value frozen in working capital at across the food supply industry as any given time around the world. large companies and Liquidity problems social enterprises Reducing the are at the root of the eye the technoldependence on supply chain, especialogy for efficiency in the developing large centralized ly and social impact world. Farmers and financial purposes. distributors with intermediaries Billed by propolittle access to banking that only extract value nents as “trust proservices are often paid from supply chains is a tocols,� blockchains 60-90 days after delivcritical step toward an are distributed and ering product, or have ethical, traceable and decentralized as imto accept a 50 percent healthy food supply. mutable databases to 60 percent price that can be accessed cut if they want their by different parties operating in buyers to front them liquidity. This a given supply chain. Whenever a results in a working capital squeeze product changes hands, that correon those who can least afford it. sponding transaction is permanent- They then are forced to take out ly recorded on a shared database high-interest loans in order to pay that cannot be edited or deleted. for the next season’s seed or feed. While this ability to track-andThe value-adding participants trace agricultural and food prodof the food supply chain struggle ucts across a supply chain offers to cover other financials costs that significant improveadd zero value to the business. This ments and efficiency creates a situation where farmers gains over current frequently realize 6 percent or less of the value of the crops they sell. In the rice trade, for instance, as much as 40 percent of the end price comes from financial intermediation. The potential benefits of lowering these costs would be life changing for rice farmers and consumers since many of the largest rice exporting countries also happen to be the largest rice consuming countries. Thus, producers and other value-adding intermediaries are more
concerned about actually getting paid than about ensuring consumers can verify via a blockchain the origins of their food. Blockchain might be able to solve the trust and traceability issues facing food supply chains today, but this will only happen after solving the problem of access to liquidity for capital-constrained actors at the far ends of the chain. Stable cryptocurrencies offer alternative solutions for cost-effective, low-risk trade finance. One service being developed allows supply chain participants to extract liquidity from typically illiquid assets using an asset-backed, stable virtual currency. Thanks to its stable exchange rate against a major fiat currency, this kind of virtual currency functions as a cash equivalent and can be easily traded and exchanged. Using this solution, farmers and other value-adding participants could lend themselves money against the value of their existing assets and then pay themselves back once their invoices are settled. Reducing the dependence on large centralized financial intermediaries that only extract value from supply chains is a critical step toward an ethical, traceable and healthy food supply. Farmers who are paid fairly and on time can reinvest that working capital toward better production methods, like new blockchain-based track-andtrace solutions, resulting in greater quantities and better quality products for end consumers at a better price.
Scott Nelson is the CEO of Sweetbridge, a global alliance that is leveraging blockchain to accelerate trade-financing and offer low-interest loans. Prior to Sweetbridge, Nelson founded and led Trax Technologies as CEO as it evolved from a small logistics consulting and software firm into a global SaaS and services company.
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