Using Blockchain to Solve Market Imperfections in Africa’s Agricultural Sector

The average coffee farmer in Kenya falls below the international poverty line. Nearly 4 hours of flight from Nairobi are several Starbuck coffee shops in Cairo selling a cup at $3. A bag of the product sells at $20 and the basic assumption is part of this fortune goes back to the coffee farmer. But look at the disparities. The international poverty line is currently $1.90 per day. This threshold determines whether a household is living in poverty or not. Besides coffee farmers, this situation is common across the agricultural sector in developing nations. But the most affected ones are small-scale farmers.

Recently, coffee farmers in East Africa have been uprooting their crops. These farmers have already resorted to other crops as a result of low-profit margins and drought. 

Besides, innovators like Harvard Business School Margaret Nyamumbo, feel 90% of labor on coffee firms is under-compensated. 

On observing the situation, Nyamumbo founded Kahawa 1893 to help build a sustainable supply chain for coffee growers. She says most of the labor in coffee farms comes from uncompensated women owing to the continent’s patriarchal system.

She goes on to emphasize most of these women own no more than 1% of the land. 

A study by the African Development Bank indicates women face severe challenges in small-scale farming. Women, who make up 47% of the entire labor force are discriminated against by customary laws and hash ownership rules. 

The research found out most of these women lack access to modern inputs, finance, and skills of modern farming practices.

It turns out, most of the problems facing agricultural farmers are a result of the continent’s ailing supply chain. 

Researchers from Celulant say Africa’s agricultural sector is disorganized. The disorganization of which causes the following problems: 

Problems Facing the Agriculture Sector in Africa

  1. Market Imperfection and inaccessibility – There are millions of small-scale farmers in Africa who are cultivating but are not connected to the market. The farmers also lack adequate market information and prices are hardly transparent. Agrikore, a blockchain startup, is making markets more accessible to smallholder farmers by deploying digital payments, a marketplace system, and customer relationship management. The startup has already deployed successful smart blockchain solutions in Nigeria, Togo, Afghanistan, and Liberia. This seems the genesis of more emerging technologies for solving market imperfection in Africa.
  2. Liquidity is a Challenge – The sustainability of any market is dependent on liquidity. Market participants will only remain motivated if payments are made on time and consistently. The pricing and means of payment should also be transparent. A key method for driving liquidity is creating credit facilities. This will avail credit and financial services to farmers. And therefore maximize yields and contribute to the efficiency of the supply chain. Agrikore is also solving the liquidity challenge, while Kahawa 1893 is allowing end-customers to tip farmers. Kahawa 1893 implemented a smart contract to enable consumers to tip farmers through an eWallet. The farmer receives the tip through Kenya’s leading money-platform M-pesa.
  3. Lack of Transparency, Inherently Complex for Investors – Most investors perceive the Agriculture sector as a complex one to dip their toes. It is inherently complex to perform feasibility tests on farms and mostly, investors have to physically visit these farms. Other times, investors deploy complex contracts to enforce efficient partnerships with producers. For example, a prevalent challenge for both small and large-scale farmers is crop failure caused by erratic weather conditions and unfavorable climatic conditions. Companies such as IBM are using the blockchain to increase agricultural precision and enable farmers to monitor crops. 

Conclusion

Blockchain shows immense potential in solving market imperfections in Africa’s agricultural sector. The emerging technology is already implementing proof ownership, transparency, financing systems, and cooperation between farmers. Most of the developments in the implementation of blockchain in agriculture are taking shape in Nigeria, Ghana, Uganda, and Nigeria. While the technology is still in its nascent stages, integration with other emerging technologies such as the Internet of Things, Machine Learning, and Artificial Intelligence will further transform the direction of agriculture in Africa. 

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