The presence of middlemen in the agricultural sector is a huge impediment to maximizing profits for small farmers and reducing costs for the end consumer.
They are present across the entire supply chain, charging brokerage at every stage, resulting in an inefficient system.
The farmer ends up selling his produce at lesser costs to these middlemen, and consumers end up spending more once it reaches the store shelves.
Blockchain technology can prove to be a game-changer by completely removing the middleman from the picture. Further, it can enable peer-to-peer transactions that could help farmers make more profits, which can increase production while consumers can access cheaper products. This makes it a win-win situation for both!
The technology allows direct transactions between buyers and sellers without requiring the involvement of an intermediary like a bank. It does so by doing away with a central authority. The trust is placed in cryptography and peer-to-peer architecture instead.
How Blockchain is Helping Cut Out Middlemen: Practical Implications?
Blockchain is playing an instrumental role in cutting out the go-betweens, and it does so by leveraging its unique and inherent characteristics.
Unlike other systems, blockchain verifies transactions using distributed nodes, allowing anyone to join or leave the network without causing any disruptions in forming consensus on transactions. This makes it a global system that can manage transactions more effectively and efficiently in real-time.
Here's a look at how it’s helping cut out the middleman in agriculture:
Decentralization of Exchanges
Blockchain technology allows the building of decentralized exchanges that are global, private, and secure. This enables users to exchange assets without interference from a central party or jurisdiction. It removes the major financial burden that’s put on by central parties and localization.
Since the exchange mechanism can be codified directly into the blockchain, it creates a distributed ‘order book’ that isn’t physically centralized. No single server has absolute access as the consensus is distributed across multiple servers.
Moreover, it is much more secure than a centralized server since it exists on an open network that can be audited by anyone. This allows people across geographies to trade freely with each other without border constraints.
These peer-to-peer transactions can help farmers maximize profits as they won’t need to rely on a middleman to sell their produce and get the best possible rates without paying any commissions.
Facilitates Direct Negotiations Between Buyers and Sellers
As mentioned earlier, blockchain is an open network that allows for direct negotiations between buyers and sellers, cutting out the intermediaries completely. It enables value communication globally without requiring any middlemen.
Traders can be anywhere and trade with anyone across the world. It’s like a globally accessible exchange providing asset liquidity at never-before-seen levels.
This can get rid of the outdated exchange systems in place and replace them with a far better and more efficient system. Here, assets are digitized and traded over a decentralized exchange, which is impossible with the current system making use of centralized exchanges while increasing trust and value.
Faster Transactions and More Savings Due to Reduced Commissions
With immediate payments, transactions within the blockchain environment are faster and more secure.
Moreover, unlike commissions charged by middlemen across the entire supply chain that shoots up the prices of products before they can reach the average consumer, blockchain provides a transparent system with no need for intermediaries to facilitate the sharing of information or goods between the buyer and seller.
As a result, the commissions will reduce, and this benefit can be passed on to both the seller and the end consumer. This is especially true for small farmers who have been subjected to exploitation due to their dependency on intermediaries, as they have no means to sell their products without depending on them in the current system.
Increased Incomes for Small Farms, Private Farmers, and Food Producers
With a decentralized exchange, direct negotiations between the seller and the buyer, and a reduction in commission at every stage of the supply chain, small farms, private farmers, and food producers can expect a significant increase in income.
The current system is obsolete and riddled with unnecessary costs that make it difficult for sellers and buyers to maximize their profits or offer a fair playing ground for everyone, be they big or small farmers.
It’s the nature of the game; the big ones will keep prospering while the smaller ones will be open to exploitation unless the playing field is even for both, and blockchain technology can effectively solve that issue.
The security, immutability, and transparency blockchain offers to the agriculture sector are unmatched.
By cutting out the intermediaries from the game and opening up a global market to every food producer where sellers and buyers can handpick whom to buy or sell to, it can usher in a new era in the way produce is traded across the globe.
It’s the need of the hour to dismantle the existing system that’s become antiquated and replace it with a newer one that’s open, secure, and offers equal opportunities to all.
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