With recent events such as the collapse of Lempriere Grains and news of Queensland grain trader, Dalgrains now in liquidation, the push for shorter payment terms for farmers is at an all-time high. And with good reason. When you pick up your morning coffee on the way to work, you pay the barista as you receive your flat white, not one month later.
While some buyers are beginning to offer more competitive payment terms such as ‘end of delivery week’ as Farm Online explained recently, there are still plenty of grain buyers out there offering 30 and 60-day payment terms.
Our farmers do it tough — not only are they at the mercy of the harsh Australian climate, but they are also then left in a vulnerable position come harvest. Upon delivering their grain to site, title to the asset is transferred to the buyer, and the farmer is left waiting potentially up to 60 days to receive payment. These actions significantly impact cash flow and liquidity, which can make building a farm business and making ends meet incredibly challenging.
AgriDigital’s commodity management solution was born out of a vision to solve the myriad challenges facing agri supply chains, in particular, that farmers should get paid for what they deliver, when they deliver. AgriDigital founders knew there had to be a better way to manage supply chain transactions and eliminate payment delays, particularly with the growth of technologies designed to combat this.
We looked to blockchain technology — a new way of storing data, allowing users to transfer value, or assets, between themselves without the need for intermediaries. These transactions are stored in a ledger that is shared by all participants in the blockchain network, providing all users access to necessary data. The nature of blockchain means that transactions are visible to all collaborating parties and can only occur once verification against predetermined rules is authenticated. Once authenticated, an immutable and cryptographically secure ‘block’ is created that cannot be changed or deleted; building an effective and accurate audit trail. This immutability eliminates the occurrence of fraudulent transactions and captures and tracks provenance, while also making payments instantaneous, improving cash flows and helping businesses to grow.
At AgriDigital, we work with blockchain to create ‘digital trust’ along supply chains, reducing counterparty risk, and matching delivery to payment. On the AgriDigital’s cloud-based platform, all participants — farmers, buyers, storage operators, and in time, even consumers can operate, interact, and conduct transactions around a common asset in real time. In essence, we create one single source of data — one single source of truth.
Key to our decision to work with blockchain was its ability to enable secure, ‘atomic transactions’ — whereby transfer of asset title is made to the buyer at the same time that payment is made to the seller. This was demonstrated successfully in our pilot project in 2016, where we executed the world’s first settlement of a physical commodity on a blockchain. The pilot scenario had a farmer from NSW deliver grain to a large buyer — Fletcher International Exports. At the time the farmer delivered his grain to Fletcher’s site, the quality of the grain was recorded at the weighbridge and authenticated against a ‘smart contract’ on the AgriDigital platform. The contract verified the buyer had sufficient funds available in their digital wallet to pay for the grain and then secured them against the farmer’s name. Once delivery of the grain was complete on-site at Fletcher’s, the digital title transferred to the buyer and payment was made to the farmer simultaneously.
In a further pilot project scenario in 2017, a delivery of oats was made to a processing site in South Australia. Using the AgriDigital platform, digital title to the oats was generated on a private blockchain network and held in the farmer’s digital wallet. Seven days later, settlement occurred in an atomic transaction; payment was made from the buyer to the farmer, and simultaneously title transferred from the farmer to the buyer. For the period up until payment, the farmer had clear ownership of the digital title token that represented the physical grain delivery and therefore, security over their asset.
The AgriDigital platform was used to capture information around the quantity and quality of the oats, with data pushed through various integrations to generate digital title ‘token’ on the blockchain. The token was then held and flagged for payment in seven business days. The payment on the blockchain layer was made using a second token, minted by AgriDigital and known as ‘Agricoin,’ which was pegged 1:1 with the Australian dollar. Smart contracts were used to auto-execute payment on the blockchain layer, which was parallel processed using traditional banking methods; to ensure the farmer received payment in fiat (the Agricoin was then destroyed).
AgriDigital’s work with blockchain is ongoing — we know shorter payment terms and transactional transparency for farmers is achievable, and we’re determined to deliver. Our blockchain protocol, Geora is the outcome of over three years spent testing and piloting blockchain conducted with leading agriculture organisations. On top of this, our finance team is developing innovative products to facilitate shorter payment terms for farmers.