Tokenizing agricultural trades will transform global food chains | Opinion

As Henry Duckworth, a law graduate turned blockchain pioneer and CEO of AgriDex International, I can confidently say that the future of agriculture lies in the digital realm. After years spent navigating the traditional commodities market and witnessing firsthand its inefficiencies, I found solace in the revolutionary power of blockchain technology.

In the 21st century, agriculture, which forms the foundation of human societies, encounters unprecedented hurdles. The impacts of climate change on conventional farming methods are severe, while the global population is projected to surge to 9.7 billion by 2050, boosting food demand by an astounding 51%. To meet these challenges, innovative ideas and solutions for the agricultural sector are crucial.

The use of digital tokens in agricultural trading is proving to be a potential answer to numerous contemporary issues within this sector. Numerous tokenization initiatives concentrate on breaking down large, non-liquid assets, or real-world assets (RWAs), into smaller, easily tradable units, thereby allowing for quicker transfers of ownership between buyers and sellers.

To clarify, while there’s often confusion between them, tokenization and fractionalization are not identical concepts. Tokenization involves transforming something valuable into a digital token that can be used on a blockchain – for example, tokenizing the Mona Lisa as an NFT represents the entire artwork as one digital token. On the other hand, fractionalization is a process where we could break down and tokenize the same art piece further, enabling multiple individuals to own separate parts of it through different NFTs.

Here are two distinct methods that tackle unique problems. The first method, which involves grouping the artwork into a single Non-Fungible Token (NFT), primarily focuses on managing the asset’s ownership and simplifies its transferability. This means you won’t have to go through the process of auctioning it off at an expensive auction house or paying high legal fees for ownership transfer—instead, you just need to pass along the NFT to transfer the legal ownership.

Breaking down the ownership of the Mona Lisa into shares tackles the problem of its high price being a barrier for individual investors. By enabling numerous individuals to acquire shares of this priceless artwork, they become connected to its future achievements. This arrangement also offers them the convenience of buying and selling their shares with ease.

In agriculture, there’s no need to break down the fundamental assets into smaller parts because they are inherently divisible; instead, our goal is to tokenize the actual contractual agreements. The advantages of tokenization for farmers are obvious – swift execution of contracts, reduction of excessive paperwork, and a standardized legal framework for the trade process. A significant portion of the expense and complexity in traditional agricultural systems comes from cross-jurisdictional transactions, which will be streamlined with blockchain-based transactions.

In the near future, various trading platforms are expected to adopt blockchain technology for tokenizing agricultural transactions. This change is primarily due to the intricate nature of legal agreements, which can be streamlined using smart contracts. These intelligent contracts will consolidate and automate underlying procedures, thereby reducing friction and resolving issues swiftly. As a result, farmers can devote their time and energy to their core competencies.

The challenges facing agriculture

In the agricultural industry, numerous difficulties arise that often lead to inadequacy and inequality for those involved in the supply chain.

In a study, it was found that a £3.50 four-pack of supermarket beefburgers has the beef farmer bearing significant costs of about 90p while earning a mere profit of 0.03%. This is in stark contrast to the processor who earns approximately ten times more (1p), and the retailer who reaps a profit 70 times greater (7p). A similar pattern emerges across the industry: for a pack of mild cheddar, farmers receive only 0.02p, for bread, 0.01p, and for apples, they earn just 1% of the retail price.

One major reason for profit disparity is the fragmented nature of the supply chains requiring multiple intermediaries. Blockchain applications are streamlining these processes by automating transactions and reducing friction for and with intermediaries, thus lowering costs and increasing transparency. Furthermore, inefficiencies and a lack of transparency in the supply chain can lead to disproportionate profit distribution, with farmers often at the beginning of the supply chain bearing a disproportionate amount of risk for the reward they receive. This disparity highlights the need for improved market platforms and better support systems for farmers to ensure fairer profit distribution. 

Solution through innovation

Transforming agricultural trade into digitized segments (tokenization) is essential for enhancing transparency and streamlining operations within the supply chain. Consequently, this transformation could lead to farmers receiving a more equitable portion of the earnings and consumers ultimately benefiting from reduced costs.

As an analyst, I firmly believe that the agricultural sector ought to embrace a blockchain-driven real-world asset marketplace, given its potential to revolutionize the $2.7 trillion agricultural trade landscape. The antiquated system reliant on paperwork and manual processes has long been due for a digital upgrade, and blockchain technology presents the perfect solution, offering a verifiable layer of trust that has been sorely missing.

As an analyst, I’ve just learned that Oldenburg Vineyards, a leading name in South African wine production, has recently participated in one of the pioneering agricultural trades on Solana. In a statement, Adrian Vanderspuy, the owner and CEO of this esteemed vineyard, confirmed this development.

As a crypto investor, I recently executed the first trade ever on a public blockchain, sending funds swiftly from South Africa to London. In mere seconds, the funds appeared in my account, contrasting the traditional days-long wait. The transaction fee was just £5 – a fraction of what it would have been conventionally. Excited about our ongoing collaboration, we’re eager to bring more of our stocks on-chain, leveraging this technology to minimize transaction and remittance costs, and significantly reduce payment processing times.

Stories like the above are just the beginning of the agricultural trade revolution.

The road ahead

In tackling the issues of feeding more people, decreasing food waste, and promoting sustainability, tokenizing RWA trades could be an effective response. By utilizing blockchain technology’s unique benefits like transparency without central authority and reduced transaction costs, we can overcome inefficiencies within conventional supply chains. This innovative method may usher in a time of enhanced efficiency and accountability across agriculture, contributing to a more sustainable future for global food production.

As a crypto investor involved in tokenized agricultural trade, I appreciate the heightened transparency this system offers. With blockchain technology at its core, each transaction is permanently logged on an unchangeable record, offering unprecedented visibility throughout the entire supply chain. This transparency instills trust and ensures accountability, making it easier for all parties involved to monitor the trade process effectively.

Utilizing blockchain technology can significantly improve fairness in pricing for both farmers and end-users, while also minimizing fraud. Its key features such as traceability, permanence, and origin make it ideal for ensuring transparency throughout supply chains. To guarantee a fair income for their hard work and maintain their commitment to feeding the expanding global population, farmers strongly benefit from these blockchain attributes.

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2024-08-13 15:36