Natural delays in the supply chain have long led to trust issues between producers and buyers of cattle. Concerns over timelines are one thing, but cybersecurity and forgery threats are another. Often the system is set up in such a way that neither party can truly feel secure in how goods are transacted.
This unease disrupts many other commodity markets, but is especially detrimental to the digital trading of livestock. For example, traditional exchanges will offer options contracts on live cattle futures and contracts for difference (CFDs), to allow traders the ability to speculate the price of live cattle. And while these systems are stable for what they are, investors, producers and buyers are always seeking even safer platforms on which to exchange commodities.
A platform that ensures security and ease of use allows for peace of mind for buyers and sellers alike. One way this is being done today is through blockchain technology. It can help companies digitize their supply chains, while instantaneously locking in transaction data so that the contract can’t be altered without a clear audit trail.
That said, parties seeking a digital means of trading cattle face three major hurdles: uncertainty about new technologies, a critical lack of information pertaining to the livestock itself, and a shortage of general traceability tools. All three aspects must be addressed to pave the way for a more equitable livestock market and a better functioning supply chain.
Hesitance Toward Digitization
Just as traditional exchanges moved from an open outcry system to electronic transactions in 2010, other aspects of the commodity trading realm are likely to see positive change in the form of new technological advances. A digital, transactional ecosystem with the correct protocols in place will make it nearly impossible to alter or forge documentation on lab results, quality, quantity or other characteristics. It also will improve the chain of custody, and effectively negate the possibility of one’s property being tampered with or stolen.
Part of the battle in convincing people of the safety of a blockchain ecosystem is realizing that blockchain and cryptocurrency are completely different. Many incorrectly assume these to be interchangeable terms, or somehow reliant on one another to function. While cryptocurrency is a digitized payment alternative to government-printed money, blockchain is the foundation on which crypto can exist as an asset class. This digital environment can be used for trading much more than cryptocurrencies — specifically, as a network for transacting commodities in a more stable and efficient manner.
Traditional exchanges have been reliable in many ways for buyers and sellers. However, there are certain characteristics of commodities that are unknown by both parties — including the cattle’s country of origin, its overall health and genetic history — which can sometimes lead to a lack of trust.
The disclosure of country of origin educates the end consumer. This could come in the form of scannable QR codes on packaged beef. Sharing data with all levels of the supply chain will lead to a more transparent system overall.
Lack of Traceability
Traceability is a natural result of using smart contracts, which standardize and automate work processes, on the blockchain. The growing use of smart contracts plays a crucial role in improving supply chains by creating a “verify then trust” mentality for buyers and sellers alike. Buyers know what they’re paying for through visual documentation of the supply, and sellers know they’re being paid the proper and fair amount.
As market transparency becomes a priority for commodity traders, buyers, and sellers, technology for orchestrating higher levels of trust and security will come to the fore. In the process, regionalized tracking and tracing of commodities trading, in particular for livestock, will become the norm.
Robert Alberghine is chief executive officer of Global Smart Commodity Group (GSCG).
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