Blockchain technology is already changing the way players in the food value chain interact. Rabobank’s Trade and Commodity Finance division is investigating what part the digital register can play in its future.
Characterized as an ‘immutable’ record of transactions, Blockchain technology has created whole new ways of working and – perhaps most notably – underpins electronic currencies like Bitcoin. Over the last two years the Trade and Commodity Finance (TCF) team at Rabobank has been running proof-of-concept projects to see whether blockchain can be applied in the food value chain to improve efficiency and create new opportunities.
“Financing bulk trading in commodities such as grain, soy, coffee and cocoa still relies on sharing large amounts of information manually,” explains Jasper van Schaik, Global Head of TCF. “So there are huge opportunities to bring cost savings and efficiencies to what is traditionally a long-winded, paper-based process. That’s why we’re investing in the potential of blockchain.”
“Blockchain poses huge opportunities for efficiency”- Jasper van Schaik, Rabobank
The team first began looking into the technology in 2016 and started building real-use cases the following year. For example, it investigated the use of digital tokens – discrete entries on the blockchain ledger – in the metals sector to denote ownership. At the end of 2017, Rabobank announced it had teamed up with Sydney-based agtech company AgriDigital to deliver inventory finance using blockchain.
The AgriDigital exercise tested whether blockchain could be used to execute a commodity purchase and sale transaction, including title settlement as well as automated cash flow settlement, all in bank-backed digital Australian dollars.
“The trade was conducted as a simulation that included us, a grower and a buyer,” says Fatih Agirman, Product Manager, TCF Innovation. “The successful result means we believe we can build a faster, leaner transaction process.”
“As well as reducing the back-office administration associated with these transactions, blockchain enables faster handling and reduces risk, since we have better visibility of each of the players in any deal.”
Onward to the next link in the supply chain.
Transparency, traceability, sustainability
The bank believes the technology offers new business opportunities for all links in the food value chain and will also increase transparency, traceability and, ultimately, sustainability practices. To that end, the bank has teamed up with others, including financial institutions, start-ups and NGOs, to test the use of blockchain to reward more sustainable tea growing in Malawi.
This project uses smart contracts and algorithms to convert supply chain data into preferential pricing terms. Ultimately, it aims to make all participants better off by providing valuable data about each stage of the transaction, as well as financial incentives to farmers who can prove they are growing tea sustainably.
“The technology still needs to mature”- Michiel Teunissen, Rabobank
Finding the right business model
As with most new technologies, there are challenges to overcome before any adoption can be called a success. “The technology still needs to mature,” says Michiel Teunissen, Head of Innovation at TCF. “As it’s still in its infancy, it’s unclear what the business model is and what the ideal governance structure is. Also, there is a so-called ‘coopetition paradox’: each player wondering if they are helping their competitor more than themselves in their search for a mutually beneficial result.
“That said, the potential offered by blockchain is huge and we’re already seeing enough benefits to persuade industry players they need to be a part of it.”