Coffee Just Got Better With Blockchain
The Coffee Board of India’ (CBoI) launched a blockchain-based electronic market platform for farmers on 28 March earlier this year. The response they got was dull, with only 23 registered, and just 100 tonnes of India’s 0.32 million tonnes of coffee produced in 2018-19 sold via the platform.
The lukewarm response was probably due to the coffee season, which begins in November and lasts till March, was about to end. However, its fortunes have changed. By October-end, about 30,000 farmers have signed up on the e-market platform after just eight months of the launch.
“There is a huge global market for Indian coffee. We are pushing farmers to join the platform so that they get better rates for their produce. Blockchain technology will help in this,” says YB Venkat Reddy, technology officer at CBoI.
It is the first time a government agency is using blockchain technology in the country to eliminate the need for intermediaries and increase the profit of the farmers. Bengaluru-based Eka Software Solutions has developed the web portal and the mobile app for CBoI.
Farmers, exporters, curers, roasters, importers, and retailers can register on the platform and trade. The registration is complete only after a CBoI official authenticates the details of the participants. Once this information has been recorded, it cannot be fudged because of the very nature of the blockchain technology, which makes the details temper-resistant.
Data of any interaction on a blockchain-based platform is converted into blocks and added to the blockchain with an encrypted code known as a hash.
If the block has to be manipulated, then the hash of every subsequent block needs to be manipulated. As the number of blocks keeps increasing, the manipulation becomes more difficult. For example, the Bitcoin blockchain currently has close to 0.6 million blocks.
Moreover, manipulating the hashes of all these blocks requires enormous computation power, which would result in spending a lot of resources and money. It makes falsifying data practically impossible.
“Blockchain offers unmatched traceability and increases the transparency, accountability, and efficiency of the coffee supply chain” agrees Shuchi Nijhawan, vice-president, New Business and Global Human Relations, Eka Software Solutions.
Granted that buyers should be ensured about the quality of the coffee, which is based on the region it comes from, they are likely to offer a better price. Considering that 70% of India’s coffee is exported and 40% of the export is from the six coffee varieties that have a Geographical Indicator tag, the initiative gains even more importance.
India’s coffee production has declined by 10% between 2016 and 2018, according to CBoI data, and it is crucial that farmers must get a better price for their produce.
The other significant advantage of this technology is that it removes the need for intermediaries. Traditionally farmers have been selling their coffee via agents. Since most farmers do not have storage facilities, they give coffee to agents, sometimes even without receiving payment.
Agents contact buyers, draw the sale-purchase contracts and, then pay the farmers, usually after taking a 5-10% cut and, farmers receive very less amount of money. Often agents hire other agents for different services, all of whom get a share in the coffee-trade pie.
“Farmers get less than 5% of the money for every cup of coffee sold”, says Reddy. These layers of agents can be removed with the help of this technology because it not only connects farmers and buyers, but it also provides for drawing the sale-purchase contract. It has become possible with the help of ‘Ethereum,’ a blockchain-based software that has “smart contract” functionality.
A smart contract is a self-enforcing piece of software that enables parties on a network to agree without the need for a legal agreement. “The contract captures counterparty information, quality, and quantity. The current smart contract has been made future-ready to also include digital certificates and payment gateways in the next phase,” Nijhawan says.
CBoI is training its staff to certify the quality of coffee coming from the farmers to provide certificates that can be uploaded on the platform. It will induce trust in the buyers, leading to a large number of transactions which, will help in scaling up.
“CBoI will also involve international coffee curers, whose certificates will have more value,” says Reddy. Officials are also going door-to-door to explain the platform to farmers and to motivate them to register on the platform.
However, blockchain also has shortcomings. The biggest concern is the use of cryptocurrencies, which also are based on blockchain technology but are illegal in India. For this reason, CBoI is not using blockchain for financial transactions, says Reddy. The other issue is building trust among farmers.
Although the response in this season has been good, there are 0.35 million coffee growers in the country, who have been selling through agents for decades and need to be won over for the initiative to progress.
“It would help if the government can ensure the trade,” says Mohan Kumar, who has a 60-hectare coffee estate in Haskavalli village of Karnataka’s Hassan district.
“There have been instances of coffee curers storing coffee on behalf of farmers, then selling it and not giving any money to the farmers. If there is insurance, we could feel comfortable going online,” says Kumar.
“The prices too fluctuate, sometimes by as much as Rs.50 per kg, which could hit either the buyer or the farmer. In such scenarios, to some guarantee would help,” he says.