When we think of the agriculture industry, we often picture the dozens of acres of land growing one type of food crop, harvested mechanically, and funded by big corporations. But we forget that there are small-scale farmers, independent entities that may not be interested in the commercialization of produce. These small farmers often struggle with capital and accessing the agricultural market as it is heavily monopolized. However, small farmers are now able to rise above such challenges thanks to blockchain technology that allows for the tokenization of assets.
What is Tokenization?
Tokenization is the process of using the blockchain to digitally represent assets. It also enables legal processes like transfer of ownership as well as the buying and selling of assets. Blockchain tokenization makes products with structured markets more transparent, ensures a fairer price discovery, and helps in speeding up the process of dealing with these markets.
How Tokenization Helps the Agriculture Sector
The agricultural market has a huge potential for investment and tokenization. The United Nations has predicted that the global population will increase to 9.7 billion by 2050, which will require the agricultural sector to develop tremendously with the increase in demand.
So what role can tokenization play in its growth?
Firstly, tokenization involves creating digital tokens that intrinsically represent a specific asset. In the case of agriculture, the assets include arable land, plants, and livestock. The digital token a user procures ensures that legally, the underlying asset the token represents belongs to the token holder wholly.
The token holder’s rights are exactly the same as a regular asset owner’s. The token can be sold, bartered, or bought at any place and at any time.
Tokenization in agriculture enables small-scale farmers to tokenize their assets, thus allowing both local and international investors to buy from their businesses.
Farmers can now trade with ease, transparency, and maximum efficiency. They can even freely trade their agri-based tokens for stablecoins on exchange platforms.
Current Struggles of Small-scale Farmers
As consumers today get increasingly concerned with the origin and procurement of their products for safety and sustainability, farmers have to adapt by using various modern farming methods.
Like most big industries today, the agricultural market is largely monopolized to an extent that makes it very hard for small farmers to be included in the market and grow on their own. They face various struggles such as:
- Financial risk: The perishable nature of agricultural produce puts farmers at risk. There is a big responsibility of having to sell off all the products and ensure it reaches their destination while they are still in good condition. To ensure this, their produce is, at times, sold at less than market prices, putting financial burden on farmers.
- Capital: Small farmers might also find it challenging to raise capital and funding to start or expand their business, due to a lack of collateral or simply insufficient outreach to investors.
- Brand image: Small businesses can find it very hard to improve their brand image and gain exposure with the limited resources they have and sometimes even because of their remote location.
Because of these challenges, tokenization represents inclusion for small-scale farmers. Being included in the big markets that power the agricultural economy is essential for the small farmers community to grow and adapt.
Benefits of Tokenizing Produce to Small-scale Farmers
Tokenization brings several benefits to a variety of industries, including small-scale farming.
One common advantage is enhanced liquidity. This makes it easier for any business to execute its operation and for investors who are looking for short-term investments to support the farmers.
Other advantages for small-scale farmers include:
Transparency and traceability
With tokenization, farmers can easily track their produce at any point because of the immutable data recorded on the blockchain. Since everything is digital, transferring asset ownership can also be done with ease and without the hassle of paperwork. Smart contracts enable these processes and ensure that they are secure and run smoothly.
The increased transparency of supply chains in the market helps farmers to ensure that the quality of the produce is maintained. The agricultural industry’s supply chains are known to be opaque and hard to trace as various products change hands several times before reaching their final destination. This makes it difficult for small farmers to identify the quality of their produce at the time it is being sold. Tokenization can change this by providing real-time data, enabling small farmers to be more aware and negotiate accordingly.
Access to funding
Many industries generally have difficulty trading and investing with users in varying countries due to the numerous aspects that need to be taken care of in the process. Not every business can afford the exorbitant costs that come with developing a larger network. The agricultural market is no different and small-scale farmers do not generally expand their network beyond what they know and are familiar with. Tokenization, however, allows owners of digital tokens to interact with a variety of potential investors in foreign countries with ease. This expands their investor pool by a big margin and is thus a highly profitable advantage.
How Can Farmers Tokenize Assets?
While there are some nuances, the asset tokenization process is relatively simple. Here’s an overview of how farmers can tokenize their physical assets into digital ones:
- Audit the asset. This is to verify its unique traits and value.
- Choose a token. There are various types of tokens that can be produced on the blockchain so one needs to ensure which is the right one for their asset.
- Understand regulations and guidelines. Farmers need to know any legal requirements or standards that might affect their tokenized assets.
- Choose a tokenization platform. This allows farmers to create, sell, and manage their tokenized assets.
- Vault the asset. Tokenization platforms or other blockchain-based companies offer the service of storing physical assets that have already been tokenized in secure vaults to ensure the asset’s quality and authenticity.
- Distribute tokens. Finally, farmers can list tokens on a commodity exchange.
The use of blockchain technology and its integration into different industries is no longer a hard-to-achieve dream and is now practically a necessity to help industries grow.
Tokenization can help the agricultural industry leverage food traceability, use technological tools to predict yields, protect their produce from risks, and liquidate various crops.
The process of tokenization has simplified not only financially and executively but can also help in innovatively transforming the industry into something radically different.