Will blockchain change global grain trade?

In October 2018, four of the largest trading houses — Archer Daniels Midland (ADM), Bunge, Cargill, and Louis Dreyfus Company (known as the ABCD quartet)—joined forces to create a blockchain system aimed at digitizing global commodity trade operations. Later, Glencore and COFCO also joined the initiative. In 2020, the pilot project using this new platform is expected to be launched, which is designed to simplify grain shipping by sea.

Dmytro Mykhalchuk, the founder and CEO of GrainTrack, explained in an article for Capital Kazakhstan how the developing mechanism will work and its potential impact on global agricultural trade. In December 2019, the system was named Covantis, and participants shared their progress after just under a year and a half of system development.

The ambitious goal was to automate and streamline operations related to the trade of agricultural commodities. Participants acknowledged that, as of today, the industry still relies heavily on email for communication and document exchange, just as it did 30 years ago. Meanwhile, other sectors are actively adopting cutting-edge technologies such as cloud computing, artificial intelligence, and blockchain.

According to project participants, grain traders send 275 million emails annually to process 11,000 shipments of grain transported by sea, while also exchanging “tons of paper documents.” As a result, the grain trading process involves numerous repetitive tasks and manual operations, making it time-consuming and costly.

The advantage of blockchain technology, first used 10 years ago in Bitcoin cryptocurrency transactions, lies in its ability to allow network participants to easily exchange any kind of information. It is considered impossible to forge data in the distributed blockchain network, as copies of the information are stored on multiple computers.

With the Covantis system, developers aim to facilitate collaboration within the industry for document and information exchange. The system’s interface appears simple and practical, making it a useful tool for grain traders. It enables them to arrange agricultural product shipping by sea with just a few clicks, exchange necessary documentation with their counterparts, issue electronic invoices, and communicate via an internal chat.

The developers plan to make the system accessible to all market participants, though the cost of usage is yet to be announced. Initially, the system will handle soy shipments from Brazil to China, and by the fourth phase, it will cover grain operations in the CIS after first targeting markets in Brazil, America, and Argentina.

This is not the first attempt to automate business processes in grain trading using modern technology. In fact, the sector is quite advanced in terms of technology today. Over the last 20 years, a whole industry has grown in IT to meet the automation needs of grain traders. Market leaders have long been using specialized software that allows them to reduce time and financial costs in their business operations. Systems such as CRM, CTRM, and ERP fully automate the flow of documents within grain traders’ offices.

The blockchain platform currently under development could be a valuable addition, as it offers a similar solution for interactions with counterparties. The problem with handling maritime cargo deliveries lies in the need to exchange original documents between deal participants. Blockchain, with its high level of security, allows for replacing DHL document delivery with the transmission of reliable certified digital copies.

If successful, the new product will certainly benefit the market. However, there are no guarantees that the idea will come to fruition. Developers themselves acknowledge that the project will only be launched if approved by regulatory authorities.

When it comes to multi-million-dollar cargo shipments, the question of customs clearance inevitably arises. What kind of control scheme for trade operations, carried out through digital transactions, will be proposed by the project participants is still unknown.

Besides legal aspects, the implementation of the project may face technical difficulties. The blockchain technology itself is still not fully understood. Despite all the discussions and praise, it has not yet gained widespread adoption in any field.

It’s also possible that the main advantage of blockchain — the inability to make changes — could one day be questioned. In 2018, an American company applied for a patent for a solution that would allow changes to be made in the blockchain. At this stage, the proposed solution does not threaten the secure exchange of information within the blockchain, as the suggested method of making changes requires agreement from all participants in the chain. However, who knows what the future holds?