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Why Blockchain adoption in agri-tech will pave way for liquidity to the farmers

The rapid transformation India witnessed in the last decade due to the integration of technology into everyday life is unparalleled in the modern era. It has allowed a largely agrarian and rural country to adapt to new methods of operation. 

Through simplified smartphone based procedures that suit the digital literacy standards of the population, several companies have devised new-age tech to revitalize the economy. They have made them more efficient, while developing the next generation of technologies such as blockchain. 

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The technology will lead the way in organizing transactions for people in real-time, designed specifically to speed up the supply chain and the agri market needs.  However, the computational power and intricacy of the software behind these services often goes unnoticed, while the sector needs to cover more ground in familiarizing everyone with new applications.  

The state of affairs in the Agricultural sector and the case for using Blockchain:

The agricultural sector is undergoing positive disruptions, with agri-tech aiding the process of streamlining transactions between farmers, suppliers, buyers etc. With AI, machine learning and blockchain integrated procedures, securitized transactions are becoming a reliable alternative. It is facilitating easier warehouse and supply chain management of physical agri commodities, opening up agri-based commodities futures for institutional investors, eliminating chances of fraud, reducing human errors, and enabling transition from manual to computerized methods.  

When it comes to financing the sector, it is at 5%, a paltry sum for a country of India’s size. It is obvious that FinTechs find the gap appealing, so that tech can be integrated with agri procedures. The low levels of liquidity is often attributed to a dearth of formal sources of funding in tier III & IV towns and rural areas. Adding to these woes, the volatility of the commodities market, the impact of seasons and natural calamities, and a lack of knowledge on commodities has continued to affect opportunities, keeping institutional funds and retail outside of commodities financing. 

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Barring the usual public sector banks and NBFCs, there aren’t any reliable institutions that could provide formalized capital funding to the agricultural ecosystem. As a result, people have little choice but to flock to informal money lenders, who charge disproportionate interest rates for loan repayment. It further alienates investors from taking risks, keeping the sector unorganized. 

The traditional system involved frequent physical visitations to a single identifiable financial source for transactions, driving inefficiency and increasing difficulty to scale up operations and customize solutions. Customization is a requisite for successful trade finance networks to operate amidst a diversity of clientele, which includes retailers, corporate buyers, sellers, financiers etc. In addition to this, service providers often own the data, and control how it is used. 

Agri-commodities’ market functions and the disruption brought by blockchain:

By bringing all stakeholders onto mobile based apps or platforms, keeping a check on payment cycles, commodity movement, updates on the inventory etc. is made easier. Agri commodities management firms are refining procedures and reducing lead time, generating an interest in trading commodities such as maize, rice, wheat etc. For instance, instruments such as pass through certificates (PTCs) are being issued, which investors can receive on applying for commodity sales. PTCs act as security providing instruments for investors, considering that the market is confronted with several external scenarios that make it volatile. 

It de-clutters the commodity purchase mechanism by reducing losses, dematerializing it, so that those who do not understand the commodity market can invest in it. Moreover, High-profile regulatory bodies such as WDRA and SEBIs’ involvement provides assurance for investors to put their money into it. The idea among service providers is to eventually convert an institutional investors focused, PTC based service into a retail investment instrument in the future. It could lead to enhanced liquidity in the ecosystem, affecting productivity, use of technology, and supply chains. 

On the other hand, using a blockchain network to sustain and expand some of the above mentioned goals has been in the offing for a couple of years now. Integrating blockchain addresses the security and data related concerns by giving users control over their data, real-time access to all outstanding transactions, commodity records etc. 

It has enabled an environment where a smart data driven marketplace for agri commodities is possible, while eliminating constraints on access, and increasing the chances for mass adoption. Just like the other services in urban centers that are adopting digital KYC, blockchain is ensuring a seamless onboarding of users, digital ownership of assets, and simplified transfers of the assets. Consequently, real-time tracking of consignments has renewed the confidence over the newly adopted trade procedures. Even auditing has become easier through the recording of transaction histories, making it a universalized system for Agri-trade facilitation. 

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Be it better price discovery, efficient trade functions, securitized transactions or the causal increase in volumes, blockchain integration will have a permanent impact on the investors’ relationship with agri commodities. Therefore, with a fast-changing landscape, retail investments could be made possible in the near future, thanks to blockchain.

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Sunoor Kaul
Sunoor Kaul
Sunoor Kaul is the Co-Founder and Director of Origo Commodities, India’s fastest growing agri-technology company. It provides end-to-end supply chain and financing solutions to the agricultural sector, thereby, streamlining commodity procurement, storage and facilitation of trade.

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