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Real blockchain payoffs

Sure, a lot of what you hear about blockchain technology is hype. But there are also very real pathways to higher net returns

By now, we’ve all heard about the new kid on the ag tech block, known as blockchain. But we’re far from understanding what the use of blockchain is going to mean at the farm level.

What benefits will it provide? Will its chain-of-custody and traceability for identity-preserved (IP) crops, including seed, keep Canada competitive? Is it actually going to provide higher profits for individual farms? How would that work?

For this and more, Country Guide went with your questions to some of the top minds in Canadian ag blockchain application.

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But first let’s go over the technology. A blockchain is simply a secure digital ledger. It’s a permanent record that can be used to keep track of goods in a given supply chain and to record payment transactions and more

It’s as simple as its name. “Blocks” of information are added at each step in the “chain” along with a timestamp. If an input error is made, an amendment is added. No data can be deleted or changed.

While blockchains can be public, with all their information visible to everyone, Grain Discovery CEO Rory O’Sullivan notes that private, permission-based blockchains are generally used in ag supply chains. (Grain Discovery is a new firm working to integrate blockchain into the Canadian grain system.)

In these scenarios, users are all verified and receive access to view or add information according to given defined permissions. For example, a certain party may have permission only to accept or reject a shipment of this or that at a given point in a supply chain. Blockchain does not replace existing systems, notes O’Sulllivan, but is a layer on top that enhances data management by connecting information that was previously isolated.

With support from the Grain Farmers of Ontario, Beechwood Agri Service and Agriculture & Agri-Food Canada, Grain Discovery and the Canadian Seed Growers Association (CSGA) recently completed a blockchain pilot demonstration project involving tofu. (Visit the project webpage at id.graindiscovery.com)

The tofu in the project was made from an IP soybean variety developed and grown in Ontario. Tofu shoppers could see this information on the project webpage (along with other illustrated steps in its processing and distribution) by taking a picture with their smartphones of a “QR” code on the package.

The demo helped the team members understand some specifics about what’s involved in creating this type of blockchain. CSGA managing director of certification and technology services Doug Miller (who has also recently finished an MBA on blockchain) explains that as he and others went through the process of adding information to the blocks, they learned where in the supply chain there was ease and where there was a bit more difficulty in accessing information. That is, some parties already had all their systems completely digitized and their information was very easy to access and insert into the blockchain. For others, the situation was more paper-based.

Benefits for farmers

There are several ways farmers can achieve benefits through participation in supply chain/traceability blockchains. Some of these are down the road, and some are more significant than others. In looking at them, we do have to remember that blockchain is a new technology and it will take time for it to be integrated and put to full use.

Miller first explains that blockchains have the potential to reduce administrative burden for grain shipments, and these savings should flow directly back to farmers in the form of higher prices.

Grain storage on farms is increasing, adds O’Sullivan, and grain sales, like all other aspects of agriculture, are going to evolve into more streamlined and efficient forms. Blockchains are likely to play a role.

Reduction of the on-farm paperwork burden is also a way that farmers can directly benefit from blockchain use. The verified information in a blockchain could be used when applying for crop insurance, for example, allowing farmers to manage information more efficiently. “With blockchain, as with any digital system, information is entered once,” says Miller. “In the future, producers will be able to agree to share information with different sources — retaining control and gaining administrative efficiencies.”

Another benefit will likely come in price premiums on grain shipments and more, Miller explains. “In low-cost, high-volume situations, farmers accept the commodity price,” he says. “Using the verified data in blockchains, Canadian farmers will be able to achieve a premium on higher-cost, lower-volume transactions. At this time, an ideal area would be IP programs. Also, by providing value chain traceability downstream, companies may see blockchain as a way to mitigate their risk. That is, they can see what the product is, where it came from, how it was produced, and so on.”

However, this all assumes that every other country won’t also come to offer verified supply chain data using blockchain. “Yes, other countries will come on board,” agrees O’Sullivan, “and the extra traceability data that blockchain collects and records may be required to access certain premium markets, but if Canada is first in adoption, then we have that reputation established and that will be a lasting competitive advantage.”

So, how would farmers ensure they actually benefit and receive a premium? Miller puts it like this: “What we’re trying to do is create a model that is developed by producers and is producer-friendly. The idea is that we are out here building these networks where we want the producer to see some additional value. We don’t want big multi-nationals coming in and dictating the terms. We want the producers to have a seat at the table.”

Product premiums?

There is also the possibility for blockchain to enable price premiums directly from retail sales of food products. Miller notes that, as demonstrated in the pilot project, blockchain can enable farmers, processors and others to weave verified local detail into the presentation of a retail product, and for farmers to therefore tell their stories in an unprecedented way. Additional verified information could be added to blockchains as well, for instance about the ingredients and production practices that went into a food or bioeconomy product (more on this later).

Indeed, we are in an era where customers want more information on how their food is being produced, and to determine if the food aligns with their values, notes Miller. In the midst of a sea of food product and company claims about sustainability and more, blockchain provides verified — and therefore highly valuable — information that can be used as a product differentiator. “To be able to visually see the steps of production outlined in a blockchain, as consumers could do in the pilot project, we are proving local production in a very concrete way,” Miller says. “Some consumers are definitely willing to pay a premium for that.”

However, Miller does agree that in the retail arena, as with international grain sales, making blockchain-verified traceability accessible through smart phone apps or another way may become standard with most or all food products. Said another way, this sort of thing could become the expected norm and not a market-differentiation factor that warrants a premium.

It’s also important to note that because the pilot project was mainly a technology versus a product marketing demo, there were no point-of-sale materials in the store to distinguish the blockchain tofu from other tofu — that is, there were no marketing efforts to entice customers to buy it because of its added blockchain-traceability value.

There was also no measure in the project of how many customers bought the product because it had an online blockchain associated with it. Nor did the study actually track how many shoppers or customers actually used the QR code to view the supply chain details.

Adding information

Returning to the idea that blockchains allow farmers to tell their story in new and verified ways, O’Sullivan notes again that blockchain is not a singular technology, but part of a larger digital architecture ecosystem ensuring information is recorded accurately. But with the rapid shift to automation on farms worldwide, much of the information that will be added to blockchains could be automatically deposited from multiple tamper-proof “internet of things” (IoT) sources, such as barn feeding stations, precision ag systems or weather sensors in the field.

This will raise the trust level in our food system, O’Sullivan says, and allow Canada to be proactive in future food traceability requirements, thereby earning a premium compared to our competitors.

Indeed, blockchains that contain agronomic data from IoT sources are the focus of a pilot project involving Grain Discovery, an Alberta-based precision ag firm called Decisive Farming and researchers at Olds College. Data on hops production will flow directly from existing farm management software in the tractor/combine to a blockchain related to beer production.

Another project that Grain Discovery is working to propose involves calculating the carbon intensity (CI) of corn at the farm level. “Displaying and recording this granularity of data may make sense for premium or niche commodities, but it also makes sense for the biggest crop of all — yellow corn,” explains O’Sullivan. “Ethanol is the biggest user of corn in North America, consuming around 40 per cent of the crop. Ethanol plants use a variety of life-cycle assessment (LCA) models to calculate the carbon intensity (CI) of their fuels — it’s basically a scorecard for the carbon dioxide emissions associated with extraction, processing and distribution over the entire life cycle from corn in the field to the final processed product. Currently, LCA models are calculated using regional averages. Verified farm-based data would provide much more accuracy.”

Many factors contribute to the CI of a corn crop, including fertilizer application, fertilizer technologies, cropping practices such as tillage, distances (tail pipe emissions), drying methods and moisture at harvest, yield, and field drainage. If the proposal proceeds, a pilot project will integrate much of this data into a blockchain that traces a shipment of corn from grower to the ethanol facility. Through data from precision ag software, each farm (and eventually each truckload of corn) can have its own “digital passport” and assigned its own CI.

When attached to corn offers in an online marketplace, the verified data will allow ethanol producers to buy low-CI corn and receive performance incentives/credits for blending lower-CI ethanol. To further enhance the effectiveness of the initiative, some of the profits could be used to establish a premium for farmers. “That is, through premiums for lower-CI corn, producers can be incentivized to use lower-CI practices relating to agronomic factors that are within their control,” O’Sullivan explains.

While capturing the value of adding more verified information on traceability, food safety and sustainability to food, fuel and other ag products “is still ahead,” says O’Sullivan, he notes that adding blockchains to harness this value should not be terribly difficult.

Blockchain payment

An Ontario-based startup called mPowered is using the power of blockchain to create income opportunities for farmers (to “empower” them, if you will), using the data they generate on their farms every day. Over the last few years, its founder Joel Sotomayor has also co-founded the revolutionary “Be Seen, Be Safe” geo-fencing biosecurity system, its sister system Farm Health Monitor, and Transport Genie, a system that uses real-time feedback from sensors in livestock transport trucks to ensure animal welfare standards — all with former Livestock Research Innovation Centre CEO Tim Nelson.

Before we look at how blockchain comes into play in what mPowered offers, we must understand what it offers. Every day, farmers are generating valuable data through their precision ag systems and automated barn systems, and this data is being transmitted and used by the makers of the technology, without compensation to farmers. “Your data has significant value and the days of providing it to companies for nothing are coming to an end,” says mPowered chief technology officer Idris Soule. “Your data is being used in several ways, for R&D for example, to get a competitive edge over other precision ag or automated system makers, to get a picture of your farm and also your industry. We are now creating a market for your valuable data, enabling you to be rightfully compensated.”

Hold on, you might say — why would the companies who have been getting data without paying for it suddenly agree to pay? And isn’t there likely something in the precision ag contract that specifies that the company can collect and use individual farm data?

To explain how mPowered believes the situation will play out, Soule underscores two things: farm ownership of data, and the critical mass of farmer pressure. “There are a lot of companies out there with leaders who already understand what’s in the cards with regard to compensation for data,” he says. “The rest will come to understand very quickly that data generated by farmers running their tractors and operating their barns belongs to farmers. And that farmers are going to realize this and realize that there is a value to their data. As farmers become educated, it will be in the best interest of companies to be respectful and pay for the data. Said another way, they will not want to risk losing their farmer-customers to their competitors who respect farmers and will pay them for data. At some point in the near future, one company will be the first to pay and others will follow suit. It’s inevitable.”

(It’s also inevitable, in the view of mPowered, that we as individuals and consumers will be paid for the data that we have traded for membership on platforms like Facebook, but that we give away for free every time we shop online or in reality, every time we search the internet, and so on.)

He also wants it understood that there will never be a cost to use mPowered to manage and sell on-farm data — mPowered is paid by data buyers. There is no registration or sign-up fee, and buyers of data incur fees when they purchase it from a farmer/seller.

Because farmers’ understanding of all of this is critical, mPowered is focusing in on education. In the near future, they will host a Q&A in Guelph, Ont., and will also be presenting at conferences, AGMs and so on (the firm is also working with some commodity groups, but can’t provide details at this time). “We are currently approaching the stage where individuals can sign up for trialing the app and provide their feedback,” says Soule. “They will of course be compensated for this information. We are planning to offer early beta testers the ability to be ‘virtual’ hosts of master nodes, so that they will receive a sum for every transaction on their node.”

In addition, Soule explains that there is much more data on a farm that has value, outside of precision ag and automated barn system data, and that companies definitely want that data.

(And as Miller and O’Sullivan have highlighted, data from various sources can also be amalgamated and put into useful forms for farmers and other members of the supply chain using blockchain technologies, making farms and the entire food system more responsive, efficient and secure — something which Sotomayor presented on in August when he was invited to visit South Korea to meet with government officials, researchers at Seoul National University, producer groups and tech companies to discuss the potential of blockchain.)

Farmers generate vast amounts of data every year, notes Soule, from which varieties of crop or livestock feed they choose to buy and why, to how much water the farm uses, to what pests their crops have, to which animal health issues they face. He says mPowered will enable farmers to gather data that they already are generating, and package and offer this data on the market if they wish to do so. Based on the type of data and demand, they can sell to researchers or big corporations.

Blockchain will ensure the buyer of authenticity and security of the data. There are particular systems that will “lock” data from automated farm systems to the mPowered platform, and Soule says right now, he and his team are working out these issues by forming various partnerships with companies such as data broker Farm Mobile. Data from farm spreadsheets and other formats can also be loaded onto the mPowered ecosystem with ease.

In terms of payments, they will all be transacted through one large blockchain. “Payment is immediate and settled as soon as the transaction is confirmed on the blockchain,” says Soule. “For those who are financially savvy, mPowered also enables the use of futures contracts.”

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