Blockchain technology creeping into Nigeria’s agriculture sector

BY ONOME AMUGE

The Nigerian agricultural sector, despite being riddled with a myriad of challenges and underutilised potentials, remains the largest employer of labour accounting for an estimated 34.66 percent of total employment, as well as and one of the most effective income-generating activities in the country, according to a 2020 World Bank survey of development indicators.

The National Bureau of Statistics, in its report of Nigeria’s 2021 gross domestic product (GDP), stated that the agricultural sector contributed N18.7 trillion or 25.8 percent to the country’s N72.39 trillion of real GDP, to once again emerge as the sector with the highest contribution to GDP.

In recent times, indigenous agritech startups have triggered technology adoption and enhanced farming methods across the country through the utilisation of commodity linkage applications, location intelligence, among other innovations. The extensive adoption of technology has resulted in agribusinesses embracing supply chain management software and applications to improve food safety, food quality, and the traceability of the entire farming supply chain.

However, agriculture analysts opine that Nigeria’s technological-agricultural synergy is still a long way from attaining a financial performance comparable to developed climes, noting that the Nigerian agricultural sector is not only distorted by market failures, institutional glitches and inconsistent governance structures, but also has a complex supply chain that can be effectively addressed not only by leveraging data and information but also through the application, increased investment and exploration of a fundamental technology approach facilitated by blockchain technology.

Blockchain’s impact on Nigeria’s food supply chain

Blockchain technology, also referred to as Distributed Ledger Technology (DLT), is defined by technology experts as a decentralised, distributed and public digital ledger that records transactions across many systems and ensures that any involved record is transparent and unalterable, making it a legitimate disruptor for stakeholders in the agricultural sector as it allows participants to verify and audit transactions independently.

In essence, a blockchain database is managed autonomously using a peer-to-peer network and a reliable timestamping server which are authenticated by mass collaboration powered by collective self-interests, designed to enhance a sustainable workflow where participants’ uncertainty regarding data security is marginal, and also ensures the accuracy and security of a dataset that one can trust without the need for a third party.

On a global stance, blockchain technology has helped reshape the agriculture sector by decreasing the risk of fraudulent activities, boosting transaction speeds, helping farmers control and analyse crops, enabling stakeholders to easily obtain up-to-date information and make informed decisions regarding the use of farming techniques.

More so, blockchain technology has served as a major innovation that makes the process of growing and supplying crop products simpler as it can be applied effectively in managing warehouses, and also utilised in the field as a tool for transmitting real-time data about crops and livestocks, help address market failures, arrange data ownership and nourish data-sharing models that helps participants make informed decisions through the platform.

In addition, blockchain technology provides agripreneurs and related stakeholders with a system that organises and digitises the value chain, as well as provides access to potential investors in a central database. It also serves as a real-time management system for supply chain transactions and financing to provide information on the state of farms, inventory and contracts, while maintaining a seamless identity database of partners including farmers, insurance companies, financial institutions, government and development partners.

According to a projection by Reportlinker, a leading market intelligence platform, the size of blockchain innovations in the agriculture market is expected to grow from an estimated $41.2 million in 2017 to nearly $430 million by 2023, representing a 47.8 percent compound annual growth rate (CAGR).

Considering the fact that farmers in emerging economies like Nigeria sometimes find it hard to access a broader market due to structural loopholes, analysts assert that the agricultural supply chain involves complex interconnected processes between various stakeholders. The typical challenges have been attributed to tracking provenance and place of origin, tracing custodian information, lack of trust and transparency among stakeholders leading to potential delays in downstream decision making.

Blockchain technology, according to them, can help connect farmers with vendors and food processors globally by providing a secure and trusted environment for buyers and suppliers to transact. This, they explained, is enhanced by its ability to promote a source of information that is accessible by all participants simultaneously and is practically impossible to falsify.

EOS Intelligence, an economic research provider, in its position on the relevance of blockchain to the agricultural sector, stated that it can act as a platform to connect farmers with vendors, food processing, and packaging companies, providing a secure and trusted environment to both buyers and suppliers to transact without the need of a middleman. It averred that this leads to elimination of margins that need to be paid to intermediaries, and helps improve the margins for buyers.

Noting that less than three percent of smallholder farmers in sub-Saharan Africa have adequate access to agricultural insurance coverage which leaves them vulnerable to adverse climatic situations such as droughts, EOS Intelligence suggested that smart contracts based on blockchain can be harnessed to provide crop-insurance, which can be triggered given certain set conditions are met, enabling farmers to secure their farms and family livelihood in case of extreme climatic events such as floods or droughts.

Other benefits of blockchain technology to the agricultural sector outlined by the economic research platform includes, better traceability in the crop supply chain as the technology can be utilised to track crop yield and put trusted information such as asset exchange in the hands of farmers; distributors, and consumers; providing farmers and businesses with access to agricultural financial services; reducing financial risks and promoting inclusive trade; generating smarter market data for better decision-making with data science in agriculture; and enhancing quality control and food safety through reliable and trustworthy information to farmers on soil quality, irrigation, and pest control in a precise and highly efficient manner.

Nigeria’s leading commodities market player, AFEX, which is currently operating a blockchain-based Warehouse Receipts System (e-WRS) in partnership with Trade Finance Market (TFM), said the blockchain-based innovation, serves two basic purposes which include averting fraud and corrupt practices through its immutable record of transactions, while also empowering farmers by streamlining the process through which smallholder farms can access credit facilities on the back of the value of their produce.

According to AFEX, by utilising TFM’s blockchain application to reduce risk, funders are given added assurance that the transaction has been de-risked and the risk of fraud reduced. As each warehouse receipt is encrypted and stored on the blockchain, funders are able to check if a receipt has previously been financed, avoiding a problem which has globally cost the industry over $1 trillion.

Ayodeji Balogun, chief executive officer, AFEX, explained that the innovation is a risk management service for the agriculture sector in line with the company’s focus on unlocking finance for the sector.

Balogun stated further that the blockchain service will enable the company to layer its warehouse receipt check on existing technology stack to streamline the process of financing agriculture to smallholder farmers and other players in the commodities markets.

Raj Uttamchandani, executive director of TFM, also considered the blockchain collaboration with AFEX as a game changer for the African continent.

“Warehouse receipt check provides a solution which utilises blockchain in a way that has never been done before by providing funders with security and ensuring liquidity flows to the agricultural sector which is the backbone of the economy, thereby protecting countless jobs and livelihoods,” Uttamchandani noted.