Processing of Complex Agriculture Transactions Through Smart Contracts

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Written by
Shivani Tripathi
Published on
September 13, 2022

People, now more than ever, want to know exactly where their food comes from. The prevailing agricultural product supply chain's complex nature makes it challenging to corroborate several essential qualities of the produce.

Due to a lack of innovation throughout the supply chain, farmers are not paid, and customers are kept in the dark while intermediaries/processors continue to raise wholesale prices.


This, combined with the contemporary consumer's desire to eat healthily, has led agribusinesses to seek a method to enhance the quality of produce, food safety, and traceability of the entire agricultural value chain.

As the human population grows, so does consumer demand for digital services tailored to their specific needs. Blockchain, a technology made famous by the Bitcoin phenomenon, is progressively being considered a potential inhibitor to the current agricultural value chain's flaws and to improve the farmland's profitability while meeting the food requirements of an expanding population.

Blockchain technologies, such as smart contracts, are enabling agrarian enterprises to obtain better outcomes in terms of agricultural production and processing transactions to deliver fair dues to both consumers and producers. Smart contracts can boost agronomic supply chain delivery, efficiency, and trust.

Benefits of Blockchain and Smart Contracts for Finance in Agribusiness


Blockchain-enabled technologies in agribusiness are poised to standardize payment transactions and equalize the playing field for farmers and harvesters, particularly in impoverished areas.

In fact, the rate of blockchain innovation in the agriculture market is expected to accelerate from $41.2 million in 2017 to $430 million by 2023 at a 47.8% compound annual growth rate (CAGR).

Smart contracts are some of the most revolutionary applications of the technology among these novelties. The smart contract framework facilitates the coordination and enforcement of contractual arrangements among digitally interconnected participants without traditional contract clauses. The data recorded on the blockchain will cause smart contracts to execute the procedures outlined in them.

Smart contracts automate the execution of transactions in accordance with a set of criteria, reducing ambiguity and facilitating trust among market participants.

Since information will be available to all agricultural market participants, crop price tracking will be made more streamlined, allowing for the more transparent processing of agriculture transactions.

Challenges of Implementing Blockchain in Agriculture and Steps to Overcome Them

The lack of proper monitoring across the agricultural value chain causes sluggish banking transactions at every level of the supply chain, posing a risk to all relevant parties, government entities, and customers.

This problem is so widespread that, as per an Agrilinks report titled Counterfeiting in African Agriculture, manufacturers in the agriculture industry have lost €510 million. The farmers have undoubtedly been the most affected, having lost €1.3 billion due to untested fertilizers.

Smart contracts developed on distributed ledgers can improve the transparency in agronomic monetary operations, payment history, and financial contracts for small-scale farmers looking to invest in farming.

By reducing uncertainty and eradicating intermediate links in the supply chain, blockchain solutions and programs can reduce the risk of counterfeiting and improve the efficiency of blockchain-based agriculture. What's more, smart contracts can eliminate the human factor and make financial transactions simpler, quicker, and more transparent.

Innovation Map: How Smart Contracts Transform the Agricultural Sector?

Amongst the numerous issues obstructing mainstream financial incorporation and smallholder farmers are an inadequate level of transparency, inaccurate credit reports, and challenges in contract enforcement.

Further, according to the U.N., counterfeit food ends up costing the world economy almost $40 billion per year.

Visibility and distributed control accessibility provided by blockchain-enabled smart contracts have the potential to revolutionize agricultural finance. It can aid in the management of agricultural transactions through two simple steps:

  • Stakeholders sharing information at every step of food production: Each payment transaction will be recorded on the blockchain, allowing all stakeholders to view the transaction status. Communicating critical information throughout every stage of food manufacturing will also improve the overall system's fairness.
  • Auditors can effectively conduct more transparent audits of the produce: Smart contracts can also act as a corroborating source for accounting entries because they can record data indefinitely and securely. Rather than requesting accounting statements from agricultural producers or retail chains, auditors will verify payments directly through these contracts.

The automated auditing procedure has the potential to reduce audit costs. Instead of conducting evaluations at the year's end, auditors will be able to conduct investigations anytime across the year. Smart contracts will enable auditors to substitute arbitrary auditing, making it more beneficial to obtain every single transaction.

Through rigorous investigation and real-world testing of methods for applying blockchain to the agri-food sector, businesses can begin recognizing its most favorable use cases and enhance the agrarian value chain.

How can blockchain assist farmers?

There is an intrinsic element of risk in transactions involving international trade. Financial companies use forms of credit to bridge the divide between purchasers and sellers, such as guarantees, crop insurance, etc. Blockchain technology has the potential to improve security and foster trust in financial transactions between importers and exporters.

Extra copies of contracts between banking firms and cargo suppliers, as well as contracts on the worth of the cargo and how it is loaded, are required for global commerce. These intricate payment systems and processes are often inefficient. 

The prevailing payment processes are drawn out and expose all parties to certain vulnerabilities. Extended spells between payments and shipment delivery have a detrimental effect on the cash flow of both exporters and importers.

Digital platforms for trade finance based on distributed ledger technologies can enhance supply chain performance by lowering risks and expenses for vendors and financial firms.

Blockchain uses smart contracts to digitize real-time billing and payment. By lowering transaction costs and fostering access to trade-related finance, technology can facilitate SMEs to participate.

As a result, smallholders will be able to complete payments for equipment and raw materials in installments or upon delivery, ensuring fair market pricing thanks to shared access and irrevocable contracts.

The Future of Smart Contracts in the Agriculture Industry

Agriculture continues to trail behind other sectors in terms of adopting new technologies. While sophisticated heavy equipment is widely used in production, pre-harvest and post-harvest transaction processing are still carried out using conventional methods.

By utilizing blockchain-based smart contracts, agribusinesses can completely automate the procedure while defining complete trust among all stakeholders. Today, more than ever, there is an opportunity for innovation in aggrotech.

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