Blockchain in the agri sector

Operators in the New Zealand agricultural sector are likely to have heard of blockchain, the technology that underpins Bitcoin, and will be starting to see the very real application for blockchain in supply chain management.  As the interest in blockchain technology increases in numerous sectors, it is agri-business which is one of the sectors that seems set to see significant transformational benefits from its adoption.

This article provides a short summary of what blockchain-based supply chain management is and what it might mean for the industry, particularly in the New Zealand context.

Blockchain – distributed and unalterable record keeping

Blockchain is a database that stores information on a growing chain of blocks that is replicated and distributed around a decentralised network of participating computers.  Transactions are permitted once a consensus is reached across the network that the transaction is legitimate, then a block is added to the chain.  The blockchain maintains a permanent and unalterable record of every transaction, and this is transparent to the participants.

Why blockchain?

Blockchain is considered by many to be revolutionary because it enables trust to be established between unknown third parties, and is cost-efficient and fast in enabling transactions (particularly in comparison to traditional transactional methods).

In the agri-sector, this allows friction, risk, time and cost to be removed or reduced from the supply chain, and can help build brand value and increase margins.

Tracing the provenance of products

Consumers, and notably consumers in the important Chinese market, are increasingly concerned with food safety.  A premium can be earned on products from trusted brands which New Zealand should be well placed to capitalise on.  The challenge is in how to establish confidence that products on the market shelves are what they appear to be.

Blockchain can be used to trace a product from its origin to the point of consumption, or from ‘farm to table’. Provenance is tracked through the creation of a token at the source that is transferred through the supply chain as a product is transported around the real world. At any point in the supply chain the blockchain can be accessed to verify where a product came from.

This traceability is beneficial for suppliers, retailers and consumers, in that it will:

  • Minimise counterfeit goods
  • Verify product claims, such as ‘organic’, ‘ethical’ and ‘sustainably produced’
  • Increase trust and verify food safety
  • Link consumers to their products
  • Verify the accuracy of information, minimising the need for certifications and regulations

The supply chain made simple

Blockchain can also simplify the complex and inefficient agricultural supply chain. In a supply chain there are numerous players, who are often disconnected and distrusting of one another.

Blockchain can solve some of these issues through the use of ‘smart contracts’, being agreements represented by programmed instructions that sit on the blockchain and automatically execute when certain events happen. For example, payment can be made simultaneously and automatically upon delivery and transfer of title, and without an escrow agent taking a cut.  As the blockchain can verify that funds are available at the time physical product is released to the third party, counterparty risk can be eliminated.

The blockchain can also offer a wealth of information which can be accessed by the supply chain participants, providing insights into product inputs, transportation routes and timings, and consumer preferences.  Blockchain could provide suppliers, especially those in remote rural areas, with access to market information allowing them to obtain a fair price for their goods.  Friction at international borders could be reduced where authorities have access to trustworthy data.  Blockchain can provide a reliable and complete history of a product, enabling any issues to be traced back to the point of origin.

In addition, as so much digital information is available from the blockchain, administrative processes will be able to be streamlined which will result in more accurate data, efficiencies and cost savings.

Real-time financing

Traditional financing options available to agri-businesses involve accessing funds once specified hurdles are overcome and are charged at rates that incorporate the financier’s perceived risk of default, which is typically based on limited information. Blockchain can be integrated with machinery and data collection equipment to record and store information on an asset in real time, which can then be accessed by financiers. This provides financiers with far more accurate information on the farm’s assets, making the finance less risky and therefore cheaper. It will also allow funds to be provided in real time as and when the assets grow.

Conclusion

Partnerships have been established in this area that are working on piloting blockchain-based supply management, some international and some with New Zealand participation.  There is a way to go before we see widespread commercial adoption of the technology, and ultimately there remains the question of which platform or platforms will become the market standard which will enable the promise of access to an integrated database to be fulfilled.

As with all new technologies, the finer points are still being worked out, and until we reach the stage of complete automation there is still a role (and a risk) associated with the inputting of data by humans and the inaccuracies this may create.

Nevertheless, blockchain-based supply chain management (and other blockchain applications) holds real promise for the agri-sector and sector participants would be wise to take an interest in how this technology develops.

The above is just a sample of the ways in which blockchain might be used by agri-businesses. If you would like further information or are looking to making some changes to your business, please contact one of our specialists.

Who can help

Tom Maasland

Partner - Corporate and Commercial

Tom is a Partner in our Technology, Media and Telecommunications (TMT) practice – a practice which has been recognised by international legal directory, Asia Pacific Legal500, as Tier 1 for TMT in New Zealand.

Tom advises on the full gambit of technology law issues – from advising clients on major technology transformation programs and large scale technology procurement, through outsourcing and managed services and “as a service” arrangements, to the more run of the mill software licensing and support agreements. Tom also advises on emerging technology areas such as cyber security, artificial intelligence, blockchain and smart contract related advice.

To compliment his “black-letter” law expertise developed in private practice in NZ and the UK, Tom is able to draw on deep commercial acumen following significant in-house experience at Spark NZ (where he was Assistant General Counsel) and at Telefonica O2 in the UK and Ireland.

Tom has been ranked by Chambers & Partners as a leading TMT lawyer since 2013 where sources say “He is a very good communicator, able to articulate what can be a complex concept in a way that is easily understood by various parties.”  The Asia Pacific Legal 500 ranks him a leading individual in TMT, where sources describe Tom as “very client-focused, passionate and proactive.”

Tom Maasland

Partner


Corporate and Commercial
Auckland

P: +64 9 353 9875
M: +64 27 453 6511
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Jeremy Muir

Partner - Financial Services

Jeremy is a specialist financial services and investment lawyer. He works with retail and wholesale fund managers (including KiwiSaver and superannuation), trustee companies, derivatives issuers, FinTech (including crowdfunding and peer-to-peer lending platforms), insurers and start-ups.  He is also one of New Zealand’s leading lawyers advising on cryptocurrencies, initial coin offerings (ICOs) and digital tokens – working closely with the Financial Markets Authority and other regulators in relation to the treatment of coins, tokens, schemes and exchanges under New Zealand law.

Jeremy advises on all aspects of the Financial Markets Conduct Act 2013 (FMCA), in particular managed investment schemes and all required licences. He also advises on all other financial services legislation (including financial service provider registration, non-bank deposit takers (NBDTs), insurance prudential supervision, financial advice and broking).

Jeremy enjoys working with alternative assets and structures across private equity, venture capital, hedge funds, property investment vehicles, marinas and innovative platforms and products. He is a limited partnerships expert, having established numerous private equity and venture capital funds, including negotiating with significant cornerstone investors such as the New Zealand Venture Investment Fund (NZVIF), New Zealand Super Fund, ACC and Maori investors.

Jeremy also spent several years working in offshore funds for a major offshore law firm, and is admitted to the bar in both Guernsey and the Cayman Islands.

Jeremy Muir

Partner


Financial Services
Auckland

P: +64 9 353 9819
M: +64 21 625 319
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Sonya Forbes

Senior Associate - Technology

Sonya is a Senior Associate in our Technology, Media and Telecommunications (TMT) team with expertise in data, blockchain, technology, telecommunications, outsourcing and complex projects. Sonya also advises on regulatory and ethical compliance and on corporate transactions.

Clients describe Sonya as a positive, proactive and focused business partner whose work product is high quality, thorough and delivered on time. They note her organisational skill, tenacity, and ability to analyse and find practical solutions to multi-dimensional problems.

Prior to joining MinterEllisonRuddWatts, Sonya worked for other major law firms in New Zealand and in-house for large corporates in the United Kingdom

Sonya Forbes

Senior Associate


Technology
Auckland

P: +64 9 353 9756
M: +64 27 519 1297
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Andrew Suggate

Senior Associate - Financial Services

Andrew is a Senior Associate in the Banking and Financial Services Team. Andrew is a financial services specialist and has broad experience in all areas of New Zealand’s capital markets, with a particular expertise in financial services regulation, funds management, private capital raisings, stock exchange rules and listed financial products. Andrew has worked with many of New Zealand’s major financial institutions assisting with reviewing and drafting offer documents, trust deeds, investment management agreements and other capital markets documentation as well as advising on a range of issues related to offering securities and operating financial services or financial advisory businesses in New Zealand. Andrew has previously worked in‑house at NZX in New Zealand and the London Stock Exchange.

Andrew Suggate

Senior Associate


Financial Services
Auckland

P: +64 9 353 9890
M: +64 22 341 5966
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