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Agriculture, the cornerstone of human civilization, faces unprecedented challenges in the 21st century. Climate change threatens traditional farming practices and the world's population. expected To reach 9.7 billion by 2050, which will drive a 51% increase in food demand, it is imperative to develop new and innovative solutions to help improve the industry.
Tokenization of agricultural trading has emerged as a promising solution to many of its most modern challenges. Many tokenization projects have focused on fractionalizing illiquid assets, also known as real-world assets (RWA), allowing buyers and sellers to transfer ownership more quickly.
However, there is a common misunderstanding that tokenization is synonymous with fractionalization. Tokenization refers to the process of converting something of value into a digital token usable on a blockchain. For example, we could tokenize the Mona Lisa as an nft, representing the entire artwork as a single digital token. Alternatively, we could tokenize and fractionalize the artwork and allow multiple people to own a portion of it in the form of an nft.
These two approaches address different issues. The first, which turns the art into a single nft, addresses ownership of the asset and allows for easier transfer. There is no need to list it on an auction house or pay exorbitant fees to lawyers to transfer ownership; you simply transfer the nft to transfer legal ownership.
Fractionalizing the Mona Lisa solves the liquidity issues associated with the price of the painting. Since the Mona Lisa is worth hundreds of millions, fractionalizing it allows multiple people to buy shares in it and be tied to its future success. This also gives them the opportunity to buy and sell the asset easily.
We don’t need to tokenize the underlying assets in agriculture as they are divisible; the holy grail is to tokenize the contractual agreements themselves. The benefits of tokenization for farmers are clear: instant settlement of contracts, elimination of unnecessary paperwork, and a unified legal structure for the underlying business process. Much of the current cost and friction in traditional agricultural systems is in transactions between jurisdictions; blockchain-based transactions will simplify this.
In the coming years, more markets will leverage blockchain technology to tokenize agricultural trade. This shift is driven by the complexity of legal contracts, which can be simplified by smart contracts. These contracts will unify and automate underlying processes, removing friction and solving problems efficiently, allowing farmers to focus on what they do best.
The challenges facing agriculture
The agricultural sector is plagued by challenges that make it insufficient and unfair to stakeholders within the supply chain.
According to a studyA pack of four 350g supermarket beef burgers priced at £3.50 results in the farmer incurring high costs of 90p but making a profit of just 0.03% (0.1p). In contrast, with similar costs, the processor makes ten times the profit (1p) and the retailer makes 70 times the profit (7p). This pattern is seen Across the sector: for a packet of mild cheddar cheese, the farmer receives 0.02 pence, for bread, 0.01 pence, and for apples, just 1% of the retail price.
One of the main reasons for the disparity in benefits is the fragmented nature of supply chains, which require multiple intermediaries. Blockchain applications are streamlining these processes by automating transactions and reducing friction for and with intermediaries, thereby reducing costs and increasing transparency. Furthermore, inefficiencies and lack of transparency in the supply chain can lead to a disproportionate distribution of benefits, as farmers at the beginning of the supply chain often bear a disproportionate amount of risk relative to the reward they receive. This disparity highlights the need for improved market platforms and farmer support systems to ensure a fairer distribution of benefits.
Solution through innovation
Tokenization of agricultural trade will play a crucial role in creating more transparency and efficiency in the supply chain. This will ultimately provide farmers with a fairer share of profits and end-users with cheaper products.
The agricultural industry needs a blockchain-based real-world asset market to bring the $2.7 trillion On-chain agricultural trading. Immutable ledger technology brings a layer of verified trust to a system that has used pen and paper for too long. Settlement has for too long been dependent on archaic banking channels, and finally, access to markets has been hampered by unnecessary extra hands.
A new blockchain-based system would allow for instant settlement of transactions, with fees of just 0.15% for each part of the transaction – a stark contrast to traditional systems, where fees can be several percentage points per transaction.
For example, Oldenburg Vineyards, one of South Africa's largest wine producers, has recently established one of the first farms in Solana. Adrian Vanderspuy, owner and CEO of Oldenburg Vineyards, fixed:
“We settled the first transaction on a public blockchain and it is now on its way from South Africa to London. The funds arrived in our account in seconds instead of days and the fees were £5. We look forward to continuing our partnership and bringing more of our stock on-chain. This will help us reduce transaction and remittance costs, as well as the time it takes to receive payments.“
Stories like the one above are just the beginning of the agricultural trade revolution.
The road ahead
Faced with the challenges of feeding a growing population, reducing food waste, and ensuring sustainability, tokenizing RWA transactions offers a compelling solution. By leveraging blockchain technology and its ability to provide decentralized transparency and reduce transaction costs, we can address the inefficiencies of traditional supply chain systems. This approach promises a new era of efficiency and accountability in agriculture, ultimately helping to ensure a sustainable future for global food production.
Furthermore, one of the key benefits of tokenizing agricultural trade is improved transparency. Blockchain technology ensures that all transactions are recorded on an immutable ledger, providing transparency across the entire supply chain.
This can help reduce fraud and ensure that farmers and end-users receive fairer prices. The core attributes of blockchain – traceability, immutability, and provenance – promote transparency in supply chains. Farmers urgently need these blockchain properties to ensure fair remuneration for their labor and sustain their efforts to feed the world’s growing population.
