Milking With Blockchain

Photo credit: iStockphoto/sarah1810

Australian dairy farmers are enlisting blockchain technology to regain control of their industry and redress the power balance with processors and retailers.

The recent history of the industry has been bleak for farmers, who have endured drought and bushfires on one hand, and have been squeezed by the market on the other.

The result is that margins have been worn down, and many farmers live frugally on almost subsistence incomes.

Many have walked off farms held in their families for generations, with the number of farms falling from 15,000 in the 1990s to just over 5,000 today. Australia’s share of the dairy trade has also slumped from 16% down to 6%.

“The Australian dairy industry must grab every opportunity to stay competitive,” wrote Terry Richardson, the president of industry group Australian Dairy Farmers (ADF), earlier this month.

Lactose-tolerant blockchain

So, how can blockchain help? The ADF has been awarded a contract by the Australian Government to develop a real time payment and supply chain information sharing system using blockchain.

When a farmer sells milk, the sale is recorded on the ledger and linked to the contract, with all accredited parties having instant visibility. The ledger also keeps records of contracts, orders and deliveries, test quality results and payments, while smart contracts can be included to eliminate payment delays.

“The transparency of shared information using blockchain technology empowers our dairy farmers,” says Richardson.

“Blockchain will reduce costs to compete more aggressively in local and global markets. It will also allow greater knowledge of what happens to a farmer’s milk once it leaves their farm, and will provide consumers with trusted information about where their milk comes from.”

Reframing pricing

One problem for the dairy industry has been that’s its principal product — milk — is a commodity.

Home branding by supermarket chains and the scale game of larger processors has separated the small dairy farmer from their consumers.

The result is a supply chain in which price has become the only lever, and this has created a race to the bottom which has put the most pressure on those at the bottom of the supply chain — the farmers.

Blockchain works against this by enabling better transparency on the provenance of milk so that consumers can better differentiate between milks, understand that some brands are premium, and that different geographies might produce different quality products.

Whenever a product passes from one supplier to another, blockchain will record it, enabling discerning consumers to understand its provenance.

Ultimately, this could take us back into the past, to a time where specific brands of milk in mainstream supermarkets carried a premium price, because consumers recognized their quality.

Milking transparency

According to blockchain solutions provider, Connecterra, the chain can even monitor the health of individual cows and potentially deliver transparency on where the milk from individual cows goes through the supply chain.

For consumers, Connecterra sees a future in which QR codes will be part of the communication between farmer and consumers. A consumer will go into the supermarket, scan a QR code on their phone, and then be directed to all the information contained within the blockchain.

From this, the consumer can understand not only the provenance of the milk, but information such as whether the cows have been healthy or diseased, was the milk analyzed, was the milk stored correctly during transport, how old is the milk and how much is the farmer actually making out of the supermarket price.

Deduplication of efforts

It is not clear whether the ADF will use a vendor for its project and seek to develop it in-house or leverage other blockchain startups springing up in Australia’s agricultural sector. The issue is that there are many initiatives happening, raising potential problems around duplication and scale.

Startup company AgriDigital, for example, has been working since early 2018 and has successfully executed contracts in pilots in the grain industry, also working with specialist lender Rabo Bank.

National science and research organization Data61 has also developed the Australian National Blockchain platform in collaboration with legal and technology partners, but it is yet to be seen if this becomes a more universal piece of infrastructure — spanning industry sectors — or if it services a niche.

Beyond supply chains

In the dairy industry, however, the supply chain is not the only area where Australian dairy farmers are eyeing blockchain.

Up to 200 dairy farms in the Latrobe Valley in Victoria could share the use of solar energy through a “virtual micro grid” being put together by U.S. company LO3 Energy, best known for installing a micro grid in Brooklyn.

LO3 has a peer-to-peer trading platform called Exergy which can share solar energy generated and stored by customers.

The company says it is part of its push to “democratize energy” and allow consumers to be the new energy producers.

Australian farmers have been doing it tough for most of this century. Just when many people thought it was a doomed industry, new blockchain applications present not only as a way for farmers to reduce costs but also to take back some control they have lost.

Photo credit: iStockphoto/sarah1810