Blockchain the Transformer

ASB's Kevin Cooney looks at blockchain technology in the agriculture sector. Photo / Supplied

It's vital that New Zealand's agri industry pays close attention to blockchain development and ensures we are well positioned to capture our share of new value this technology could unlock. Kevin Cooney

Mention blockchain and agriculture in the same breath, and the image of a heavy duty chain towing one farm vehicle behind another pops into my mind.

Turns out, that's a handy analogy. Like a physical chain, blockchain connects parties directly with one another to enable fast, secure, and borderless transactions.

Blockchain is often confused with digital currency bitcoin and "dark-web" encrypted networks, which means it's often thought of as esoteric and, perhaps, something to be feared.

That's unfortunate. Blockchain will transform the way buyers and sellers connect, regardless of where they are in the world. It will allow radical transparency of a product's origins and journey to end-customers, even if it becomes part of a finished product. Think fast, secure, transparent, low-cost, peer-to-peer transacting.

Blockchain's ability to record and store data makes it ideally suited for both food provenance applications and the deluge of data expected from future precision-farming applications connected by sensors and digital networks.

Its potential to eliminate inefficiency in traditional agri supply chains will also impact strategic thinking and positioning for agri industry companies. Indeed, blockchain could completely reshape the way New Zealand markets, sells and records the provenance of our produce to the world.

For this reason it's vital that New Zealand's agri industry pays close attention to blockchain development and ensures we are well positioned to capture our share of new value this technology could unlock.

The CEO of blockchain solutions start-up Kickr, David Cassidy, has summed up blockchain's inevitability best: "Those that still ask the question whether blockchain is a passing fad or will form a long-term part of business architectures are genuinely in the dark."

So what is blockchain all about?

At its simplest, blockchain forms a trusted network for buying and selling goods. The technology itself is a digital chain, of which the links are replicated databases that correspond with verified or trusted user companies or businesses.

This distribution of databases across all users is more robust in many respects than the traditional, centrally-controlled, single database that businesses use and rely on today. Its greater transparency in peer-to-peer dealings lends itself more readily to meeting growing demands for rigorous traceability.

Blockchain databases record and update in a synchronised fashion for each transaction that occurs on the blockchain. As no one party can change data without the others seeing and verifying it, it's said to be tamper-proof and therefore highly secure (on current technologies).

When combined with other software, such as a "smart contracts", users of a blockchain have the following benefits:

• Buyers and sellers can transact directly, and instantly, rather than having to go through and rely on intermediaries (such as banks, trading and clearing houses);

• Borderless transactions;

• Automated contract execution that removes credit risk in real (or near as real) time;

• Identity verification for counterparties;

• Superior transparency with secure record trail;

• Low transaction costs.

How might farmers use it?

Early trials transacting agri commodities using blockchain demonstrate its potential to sell agri outputs (such as wheat, wool, meat, livestock, wood or fruit) direct to end-buyers in a way that's fast, secure, with high confidence about origin and food safety.

Across the Tasman, Commonwealth Bank of Australia (CBA) was recently involved in a trial testing blockchain's integration with sensor technology. This saw CBA collaborate with a US bank to help a US-based cotton business sell a cotton shipment to its own marketing arm in Australia.

Instead of waiting for payment from CBA under the usual manual letter of credit arrangement, the cotton business was paid automatically with the necessary verification triggered automatically through sensor-based, physical tracking of the shipment in real time.

Here, blockchain provided greater certainty, reduced errors and accomplished in minutes what usually takes days.

Imagine the potential in the opportunity to also integrate a blockchain solution with data-gathering devices that use 'Internet of Things' technology. Buyers might have access to live on-farm and downstream logistics data giving them all details necessary to determine amounts, quality and status of livestock or produce, for verification, inspection and pricing. This sort of efficiency could lessen the information advantage some intermediaries exploit for their share of margin. Customers and end-users will embrace this technology.

Walmart Stores, one of the world's largest retailers, is harnessing blockchain to catalogue huge amounts of data for managing food recalls.

With traditional methods it can take days, if not weeks, to trace an item from shipment through to retailer following a customer complaint. But with a blockchain database, Walmart believes it can determine all necessary details how and where the food in question was grown and who it was inspected by right down to individual packages.

This enables strategic product withdrawals that companies and consumers can have confidence in, due to the detail and integrity of the data.

The saving to Walmart from tracing and recalling just a few packages as opposed to an entire product line across multiple stores is significant.

While it's still early days, excitement about blockchain is growing as awareness of its practical applications develop.

Allowing trusted groups to trade seamlessly at low cost with radical transparency has huge value potential in a world of future scarcity where consumers are concerned about food safety and provenance, and our large food customers seek lean, transparent solutions for managing food waste and supply chain inefficiency.

New Zealand's strength in agri production and commodity supply chain management give us a tremendous opportunity to lead the world in developing food and agri blockchain solutions that connect, shorten and sharpen global supply chains.

However, as for any innovation, we risk losing strategic ground if we don't invest to understand technology such as blockchain, and its potential to transform the global agri supply chain and associated services. Collaboration between industry and government and across the supply chain is critical.

Australia understands this. The Australian Government has recently released a scientific study of blockchain, which was funded in its 2016 budget. As well as highlighting Australia's claim to be a global leader in the technology, the study found supply chain management, including trade finance reform, is a "highly promising" use-case for blockchain. Pointing the way, it implores companies and regulatory authorities to work together to develop its commercial uses.

New Zealand should take note. We must strengthen our focus on developing a world-class national ecosystem to co-ordinate and engage all elements necessary to building the thriving best-in-breed agri tech industry necessary for this to happen.

Blockchain might just be the vital link that enables New Zealand's farming industry to capture our holy grail of more margin.

- Kevin Cooney is ASB's National Manager and Head of Rural Corporate.