1 February, 2019

Blockchain: The Answer to Everything?

Cocoa sacks
by Catherine Thompson

If you’ve been reading the newspaper recently, you might be forgiven for thinking that blockchain is the answer to everything. From companies adding blockchain to their titles to boost their stock price, to sweeping statements about how blockchain will fix everything, it’s fair to say this technology is enjoying its moment in the spotlight.

What is blockchain?

At the risk of over-simplifying, blockchain is a set of clever technologies that enable a list of transactions (also known as a ledger) to be stored in lots of different places, by different people, all at once. The principle for this is centuries old but as an example, just think of receipt books with carbon sheets. When you complete a transaction, you complete a record, and a carbon sheet enables both parties to have a duplicate copy of the transaction. If either of you attempt to change anything, you can see that they no longer match up and so can identify discrepancies quickly.

Blockchain technologies enable this at a much larger scale through a chain of transactions. This is illustrated through the more academic name; ‘distributed ledger technologies’ - which help link back to the traditional ledger books still used by many Fairtrade farmer organisations across the world to keep track of transactions.

The power of blockchain for farmers

The real power of blockchain technologies come into play when you incorporate decentralisation into the mix – meaning removing the need for a central ‘controller’. This is because, by using blockchain, rather than trusting one organisation to store information, you can trust the network – all the different people in different places storing the information.

When the technology is more mature, this could be incredibly exciting for farmers – democratising the information in supply chains. Farmers often have to share lots of information about themselves but don’t receive any information in return. If systems were built in the right way, it could support farmers to understand the journeys their crops take – potentially helping them to better manage their customer relationships and risks – and ultimately become more resilient.

Genevieve Yapipko's cocoa is weighed and her pay is calculated

Another exciting application is looking at the potential to reduce the cost of credit to farmers. Many Fairtrade cooperatives get loans to cover the cost of producing crops, which they then pay back once they sell their produce. This is common in international trade and is called Agriculture or Trade Finance. Often, the interest rate cooperatives pay is high, relating to the risk of the cooperative not paying back the loan. Potentially, the perceived risk of the cooperative not paying back the loan could be reduced through setting up automated payments when the product is shipped using a blockchain platform – meaning the cooperative ultimately pay less for credit so can pay more money to all their members, the farmers.

These journeys, known as a supply chain, are fraught with challenges along the way. For example, if you’re a farmer living on a border of two countries where the governments set the price for your crop, there is often an incentive to carry your product a short distance across the border to get a better price. The price you receive could be the difference between being able to feed your family or not. Many challenges like this in supply chains are incredibly hard to solve and involve lots of different organisations and people who have conflicting financial, political and social incentives. 

KBQB Coffee

The journey of products is often long and complicated. This processing facility in Indonesia is where KBQB bring some of the coffee grown by their 5,671 farmer members clustered in over 100 villages across two sub-districts.

Blockchain warning

We often hear that blockchain is being used to solve supply chain challenges; but in many cases unfortunately it isn’t clear which challenge is being addressed – and in some cases there is no evidence that the challenge being addressed is a priority for farmers.  

These technologies and applications of them are very much in their infancy – and come with a lot of costs and risks. The question being asked is too often “How can we use blockchain?” rather than “What challenge should we solve?” and “Why is blockchain the best technology to solve this challenge?”.

We’ve been getting excited about the huge range of projects seeking to support farmers with this new technology but right now we have yet to find any that deliver long-term value. These projects fail to take into consideration the context that Fairtrade farmers often face, and don't offer a safety net if anything goes wrong. We’re keeping our ear to the ground to find projects that work for farmers and workers. If you’ve got a project that does just that, or if you’re looking to solve a complex challenge in supply chains and you’d be interested in our input, please get in touch at innovation@fairtrade.org.uk.

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