When you hear the word “blockchain,” what’s the first thing that comes to mind? You probably don’t think about food.
Blockchain is a platform for digital transactions. In order for a blockchain to exist, there has to be a network of people with computers who act as links in the chain. When a person in the network initiates a transaction, they create an encrypted block of data with its own unique code. Using a public cryptographic key, the other members of the network agree on the legitimacy of the transaction and the data is permanently entered into the digital ledger. The transaction is visible to all. The person initiating the transaction receive a certificate of deposit, which, in the case of blockchain, is called a cryptotoken. Cryptotokens are basically just lines of code that signify a block of data.
Blockchain serves as the ledger for cryptocurrencies such as Bitcoin and Ether, and as such — thanks in large part to the mainstream press — it’s primarily associated with a speculative, anarchic, volatile, and oft-maligned movement to disrupt the centralized banking system. Cybercriminals, drug dealers and terrorists pay each other with cryptocurrency on the dark web. Without blockchain, these illegal dealings wouldn’t have nearly as strong a footing.
Yet people are figuring out different ways to use blockchain. One example is Solar Bankers, a company using Skycoin blockchain to create a peer-to-peer energy sharing network. Users tap into solar power and Solar Bankers allow them to trade that energy with others on the blockchain. To those who use Solar Bankers, clean energy is currency on the blockchain.
To Ethiopian coffee farmers, blockchain is taking on an entirely different role — it helps them fetch a fair price for their coffee through direct trade. According to the FairChain Foundation, an organization working directly with farmers, coffee is the second most valuable commodity in the world behind oil, yet farmers only see about 2% of the profit from a cup of coffee, in their pockets.
The problem, says FairChain, is that “Big Coffee” buys low and sells high. On the way from farm to supermarket, coffee changes hands through multiple middlemen who all profit from the final sale. Poor producers in developing economies make minimal profits. The World Bank reports that smallholder farming households live on less than two dollars a day. According to FairChain, “Big companies have over the last century established a power imbalance, leaving nearly no room for developing countries to grow their economies, even though their land hosts many valuable goods, like coffee, cocoa and tea.”
This is a backward state of affairs that FairChain hopes to turn around through blockchain. The primary players in this endeavor are Moyee, the social enterprise coffee maker from the Netherlands that founded FairChain, and Bext360, the app developer from Denver, Colorado using blockchain from Stellar to facilitate transparency and pay farmers.
The arrangement goes like this: in the field, an artificially intelligent robot from Bext360 weighs the coffee cherries and determines how many are suitable for roasting and how many are not. Farmer and buyer are able to see the quality score for a batch, and then they negotiate a fair selling price based on local market price for single origin coffee of the same quality. Buyers then pay farmers through the app. The app uses blockchain as a way to record each transaction.
Each transaction in the supply chain creates a new cryptotoken that shows the value of the commodity at the point of transaction. As the coffee makes its way through the supply chain, each new cryptotoken is more valuable than the last.
The roaster pays the farmer a certain price and the app automatically records the transaction on the blockchain. Then, the roaster goes through the process of preparing the coffee cherries to sell. The next time the coffee changes hands, from the roaster to the seller, the app creates another cryptotoken. This new token will be more valuable than the last because the roaster will need to recoup the cost of coffee, processing, labour and transportation. Through blockchain, Bext360 reduces paperwork and eliminates physical inspection, which can cost up to €0.80 per pound of coffee. Therefore, the roaster can pay the farmer more.
Due to the nature of blockchain, cryptotokens can’t be reversed or manipulated, and users at each stage of the supply chain can view all cryptotokens once they’re created. A cryptotoken is like a receipt that records all information pertinent to the transaction, including location of the transaction, market price, weight of the commodity and identity of the transactors.
In Moyee’s case, the company uses the Bext360 app to show farmers what their coffee cherries are worth, and then pays them a premium of 20% on top of the market price as part of the FairChain agreement. The transaction blocks look like this on the app:
The FairChain agreement includes education on best practices for farmers, and Moyee roasts the beans in Addis Ababa, Ethiopia, where it employs Ethiopians. Down the line, consumers will be able to see every block in the supply chain as the coffee cherries go through a series of checkpoints, including washing, hulling, roasting, transport and sales. Instead of a vague label that says, “Single Origin, Ethiopia,” a consumer could scan a bag of coffee with the app and the app will show them exactly where the coffee came from, who the farmer is, as well as whether the buyer paid the farmer a fair price for it. This model could be applied to other foodstuffs as well.
Bext360’s mission is to “utilize technology to improve the global supply chain for agricultural products.” Improving supply chain transparency is extremely important for all stakeholders in a world where ingredients in your food could come from absolutely anywhere, and brands aren’t exactly honest about it. For the consumer, it’s a matter of wanting to know the source of something you’re consuming. And it can be about more than that. As the FairChain project demonstrates, supply chain transparency can improve the economic outlook for impoverished small farms.
Global income inequality is linked to global trade. According to Norwich University, “Global trade is driven in part by companies seeking to lower costs, oftentimes to the detriment of native workers.” As is the case with coffee, large companies buy agricultural products in developing countries where they can pay a minimal price to producers. From there, they ship the products to processing and packaging facilities, and then to developed countries like the UK or the United States, where they sell the products for a much higher price than they paid for them, unbeknownst to the consumer.
While fair trade assures the consumer that farmer co-ops are being paid a fair price for commodities, blockchain can help facilitate transparency in direct trade, which goes beyond fair trade in assuring that individual farmers get the most value out of their work.
Photo Credit: Dennis Tang
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