The fifth graduate research conference was organized by I-SET Nepal, Resources Himalaya, CDES TU, Schems on 2012/04/5–6 on Hotel Himalaya, Kupondole.
My review paper entitled “Potential Benefits to Nepalese Agriculture from Blockchain Technology was presented here. The objectives of this paper was to assess the current state of literature on application of this technology in agriculture, propose a theoretical framework for Nepalese agriculture export supply chain and finally point out potential benefits and constraints in adoption of this technology.
Blockchain basically is an internet based technology which allows two parties/individuals to carry out without need of trusted third party. It is a shared ledger where records are kept in every computer participating in that node. Blocks are basically a set of data and blocks are linked by cryptographic hash and proof of work. You might have heard about the crypto currency Bitcoin, bitcoin does not equals to blockchain but the underlying technology behind bitcoin is blockchain. Although what I am proposing here is not bitcoin blockchain but consortium blockchain. The difference lies in the fact that anyone can take part in bitcoin blockchain and solve the proof of work but in consortium blockchain, the nodes participating in the blockchain are pre-determined and the consensus algorithm is different.
Last fiscal 2073/74 year Nepal imported food worth 196 billions NRs and this year also so far we have already imported food stuffs worth 105 billions NRs. Our exports compared to that is dismal. Our main exports are high value agriculture crops like coffee, cardamom, ginger, tea etc. our supply chain is very inefficient and is plagued by so many problems. Blockchain technology could be a hammer to these plaguing issues.
The theoretical framework I am proposing has following nodes: Cooperatives, Transporters, Customs/Government, Bulk Importer. Farmers have all kinds of plantation and cultivation data like date of plantation, ph, latitude, altitude, variety, fertilizer use, doses etc. farmers themself cannot take part directly on the blockchain as it would not make sense economically. What they can do is bring their products to cooperatives where those cooperatives could code those data in the form of QR codes and upload any relevant documents on to the blockchain. Our Nepali agriculture products hardly have any brands, cooperatives could create such a brand and bring uniformity in farmer’s produce. They supply the produce themselves or through transporters/middlemen who upload time stamps on to the blockchain. These nows reaches to customs which performs required biological and phyto-sanitary tests and code those information in form of QR codes or any scan able tags. They also upload any relevant documents on the blockchain. Finally the importers and buyers could track the source of food and the way in which it was produced.
Benefits of this technology would be:
a. Supply chain & International Trade:
Blockchain is based on a shared ledger which is updated in real time and requires validation from each network participant (Gro-intelligence, 2017). It enables equal visibility of activities and reveals where an asset is at any point in time, who owns it and what condition it’s in. Researchers have pointed out that one of the main reasons farmers getting marginalized is due to the presence of inefficient supply chain. Inefficient marketing service in agriculture sector is another problem where farmers are getting low price while the consumers are paying high price. The marketing margin is higher in the farm to wholesale market as compared to the wholesale to retail market (Shrestha, 2012)This inefficiency erodes the bargaining power of farmers and middle men, necessary evil, take the major chunk of the profits. Introduction of blockchain however should not be understood as a targeted blow on middlemen, it is rather an opportunity for all genuine marker players to turn their business more efficient.
While mobile payment and blockchain technology international trade will be possible even for a small rural farmer. It will open up new markets for Nepalese agriculture and extra incentives for farmers to raise their quality and scale. Blockchain provides a distributed digital record that does not require a trusted intermediary between firms, it enables for secure, rapid transactions to occur, even across borders” and thereby facilitates international trade. The adoption of blockchain would especially benefit importers and exporters, granting them access to the financial backing that many now lack. (Liao R, 2017)
b. Access to Credit, Liquidity and Remittance:
The number of banks has risen over the years but the banks consider rural small-holder farmers as risk and instead release loans for real estate (Suman, 2017).There are 16,127,006 deposits account out of which 12,375,072 in commercial banks, 3,205,568 in development banks and 546,366 in financial institutions. The number of mobile banking customers is 1,589,266 and 476,213 internet banking customers (Nepali telecom, 2017). Access to credit from these institutions still is a tedious bureaucratic hassle however the number of saving accounts increment as well as increased use of mobile banking signal towards a different story. There are around 1.5 lakh subscribers using eSewa in mobile applications whereas 8 lakh people use their web payment portal (Nepali telecom, 2017). However it needs to be pointed that esewa payment adoption has been more in Kathmandu than other parts of Nepal. The contribution of remittance to national GDP is increasing each year and has become more than 30% of National GDP Remittance from diaspora into agricultural areas in developing countries is four times the global overseas development funding for agriculture provided by donor countries and similar is the case for Nepal. This has occurred in spite of the expensive fee constructs that traditional money transfer charge and time lag of traditional money transfer organizations. Using blockchain remittance payments into mobile money to reach directly into rural areas will enhance and transfer the value proposition for mobile money, enhance the efficiency of the entire commercial agricultural process. Traditional money transfer organizations (e.g. Western Union, MoneyGram) charge fees of 10% or more and taking days to clear. Blockchain technology can do the same work within minutes and save lot of money (Nepal Remitters Association(NRA), 2017). This high cost of remittance has made Nepalese diaspora abroad to use informal channel for sending money back home and use Hundi.
Farmers have assets like standing crops, livestock but they can hardly use that as collateral to gain credit in traditional financial institutions. Absence of network for transfer of rights of these assets prevents these assets from gain liquidity. Blockchain enables does the job of verification and transfer making those assets liquid. (Chinaka M, 2014)
c. Certification of Products:
Certification of production technology mainly organic products in Nepal is a long, expensive process. Many farmers of Nepal are producing organic products but their label isn’t organic, the cost of organic certification and bureaucratic barrier makes it extremely hard for farmers to do so. Blockchain can help certify those products with immutable transparent data from farm to table (Redmann, Blockchain will transform the Agriculture, 2016). Blockchain enables farmers and actors of value chain to justify pricing of commodity based on their qualities as consumer are given information about source of food and the nature in which it was produced. Landholdings, micro insurance.
The underlying constraints are:
Blockchain could likely revolutionize agriculture and many other sector however it is still in early phase and its stability has been questioned at times, the understanding of technology in itself isn’t huge and the high speed internet infrastructure in developing nations where it could be of most profound impact is missing. It has been argued that there are already plenty of solutions for supply chain management and blockchain is a solution looking for “a problem” (Gro-intelligence, 2017). There is a real chance that blockchain’s potential has been overhyped. In the case of trade finance, however, it might just be a tool that could make global markets more accessible at a moment when they seem to be closing off.” (Liao R, 2017)
a. Legality and Bureaucracy
Bitcoin and blockchain technology is currently banned in Nepal. “Bitcoin is illegal in Nepal.” (Acharya K.P., 2017). According to Central Bank of Nepal, the reason for ban is that it is not able to track the transaction and is a high risk for going outward remittance for buying bitcoins than inward remittance. 7 people in Chitwan and Kathmandu have been recently arrested for transaction in bitcoins (Redmann, Bitcoin illegal in Nepal? Police Arrests seven for trading in bitcoin, 2017)Nepal government will miss a trick if they do not soon realize the possibilities blockchain offers instead of viewing it as a threat and should formulate regulation and policy to support growth of blockchain technology and foster innovation.
Legislation of blockchain technology has been increasing throughout the world while Nepal has banned it. Lobbying of people who believe their business will be disrupted might use their influence to stop this technology from use in Nepal. Nepal is the 131 least corrupt nations out of 175 countries, according to the 2016 Corruption Perceptions Index reported by Transparency International. Even after legalization, the procedure filled-regulating tendencies of Nepal government could impede it from attaining desired results. Nepal ranks 107 with respect to ease of doing business in World Bank’s Doing Business Report. (World Bank, 2017)
b. Education level and Trust
Adult literacy was 59.63 % in 2011; internet literacy (ability to perform basic transactions, activities through internet) is even lower. However the youth literacy (age 15–24) was 84.76 % shows the young generation is going to be ready for the technology. (United Nations Educational, Scientific, and Cultural Organization (UNESCO) Institute for Statistics, 2011) Knowledge gaps could hinder acceptance and use of blockchain technology. The role of widely networked DADO office and service center in disseminating information, skill could be a way forward. Adoption of blockchain requires trust and farmers and supply chain players who do not understand its intricacies may not trust the technology. The technology due to their unfamiliarity might intimidate them, increase reluctance for adoption. Adoption by all stakeholders is a challenge- middleman and players getting large chunk of profits in current inefficient system are unlikely to let go of their super normal profits without resistance. As blockchain ledger requires participation of all involved parties, lack of trust of one party will stop from the technology being adopted.
c. Internet Infrastructure
Nepal has made leaps and bound progress in adoption and use of smartphones and internet access. The number of smartphones is increasing both in rural areas and cities. While these ICTs have relayed information and have empowered them many folds, their lives in true sense has not been transformed and this all could change through blockchain technology in not so far future. The broadband penetration has reached 28 % population and given that there is huge incentives for internet service providers to expand, this is expected to grow at similar high rates. There are 14.18 million internet subscribers in the country, or nearly 56 percent of the national population of 26.49 million. There are 7000000 subscribers of WCDMA, HSPA (3G, 200000 users of EVDO, 80,000 customers of ADSL, 16,000 customers of wimax, 200,000 private ISP (Nepali telecom, 2017). Widespread blockchain adoption requires access to a fast reliable internet connection, which at present is a question mark for rural Nepali farmers and farmers of the developing world. Broadband still is far from rural farmers. The speed needs to go up and costs need to go down. Increasing number of smartphones in rural household with ever expanding 3G/4G network is a positive sign.
d. Security
Security arguably is the biggest hurdle for blockchain like an individual losing a private key and that key falling in hands of hackers threatens the security of the entire chain. Blockchain is considered safe and “unhackable,” the same can’t be said for the systems developed around the technology. Security breaches in bitcoin exchanges and, more recently, in Ethereum exchanges have led to hundreds of millions of dollars in losses (Gro-intelligence, 2017). Also any device involved in the blockchain is a potential link to vulnerability. Weak passwords and a poor network structure can become easy targets to hackers looking for ransom.
Global Evidences from blockchain technology in Agriculture
Blockchain technology has evolved in terms of perception, understanding and use. Digital currencies have started to set a foothold in the economy of many countries not as a replacement to traditional currency but as an additional means of getting things done (Novoseltseva, 2017). Its acceptance at individual, community and government level has accelerated. Global blockchain market is expected to be worth in $20 billion in 2024. Average investment of $1 million is already recorded in blockchain projects. IBM is investing $200 million in blockchain powered projects allocating 1000 of its employees in these projects. 90 % of European and North American banks are exploring block chain and 90 % agree that blockchain is a banking disruptor (Expanded Ramblings, 2017).
Value of blockchain based crypto currency bitcoin since its beginning up to now has been volatile. In January 2009, it has basically no value. In April 2011 a bitcoin equaled 1 dollar, which reached to $13 in December 2011, $266 in April 2013, $750–1000 in January 2014, $200–300 in July 2015, $600–630 in July 2016, $800–1150 in January 2017, and $4332 in 30 September 2017 (History of bitcoin). There already are entrepreneurs devising solution to agriculture related problem based on this technology, so the evidence and data is out there for users, entrepreneurs and government to see.
Filament, an IOT startup has created a platform where users connect physical objects and existing networks into “wider networks and applications” — making smart farm technology into reliable infrastructure. Smart farming using blockchain technology can broadcast tamper-resistant weather data, SMS alerts, machinery protocol, GPS positioning and tether many more precision agriculture-related platforms. (Redmann, Blockchain will transform the Agriculture, 2016)
Skuchain is trying to make the agriculture supply chain efficient and cost effective. . SkuChain’s technology is focusing on creating direct relationships while augmenting trust and visibility into the flow of goods. ( (Redmann, Blockchain will transform the Agriculture, 2016)
Provenance, another startup based on blockchain system tracks goods (food) and makes the information public, secure and all-inclusive. The startup says its state-of-the-art monitoring tools can “prove authenticity and guarantee quality.” Provenance software service has enabled businesses to comply with legislation and consumer demands which will create a “positive social and environmental impact.” (Baker, 2017)
BitPesa in East Africa and Rebit in the Philippines are using the blockchain to help transfer remittances for fees of 3% or less with near-immediate transfer while traditional money transfer organizations (e.g. Western Union, MoneyGram) charging fees of 10% or more and taking days to clear. BitPesa raised $1.1M USD in their second round from a roster of venture capital funds which shows where the industry is headed. (Weston & Nolet, 2016)
Tierra Buena, another organization in Argentina, is helping farmers sell their goods online to bitcoin shoppers. Organic farmer Santiago Zaz told NPR bitcoin accounted for around 10 percent of sales in 2013. When mobile money transfer is connected with blockchain, bitcoin and international trade becomes accessible to small and large scale farmers across the world.
To conclude, Blockchain could transform the way we agriculture, but that outcome at the moment is very much in the future. As Population pressure makes food security a threat to mankind’s survival blockchain based solution are likely to be the solution/ part of solution. As pointed out earlier, farmers in rural Nepal might benefit the most from blockchain; they also may face the most difficulty adopting it. Unreliable slow connectivity, obsolete technology, and knowledge gaps could impede implementation of blockchain. Finding flexibility, educating farmers and stakeholders and further innovation in making it accessible and stable will enhance the rate at it which the technology will be adopted.
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