Global merchant company Louis Dreyfus (LDC) has been experimenting with blockchain technology on an agricultural trade and the results are “even higher” than they expected.
In December they sold and delivered 60,000 tons of soybeans to China. Such a transaction is extremely complicated and brings in multiple counterparties. This trade involved the seller, Louis Dreyfus, the buyer, Shandong Bohi Industry Co, and financial firms, Societe Generale, ING and ABN AMRO. All signed up to use the blockchain platform Easy Trading Connect (ETC).
ETC was built to bring digitisation and standardisation to transactions in commodities. In February 2017 it was successfully tested on an oil transaction but this is the first time it has been used for an agricultural trade. According to Societe Generale, the complexities of international trade in agricultural products include, “complex and rigorous documentation chain flows” involving financing the trade and signing all contracts.
The benefits surprised everyone. Anthony van Vliet of ING compared the gains to the oil test of last year, saying that, “the efficiencies were a multiple of the energy side”. Document processing times were reduced by 80% and the head of trade operations at LDC, Robert Serpollet, said, “our expectations were high but the results were even higher”.
ABN AMRO also pointed to other benefits, such as the opportunity to view real time status of the trade and lower fraud risk. Their Head of Trade & Commodity Finance, Karin Kersten, said that “blockchain technology has the potential to significantly optimise administrative processes around international trade” and that now it had been successfully tested they could, “move to further exploring the added value and use of the blockchain technology.”
However, despite the successful test, there is much to do if blockchain technology is ever to become dominant in the industry. Network effects come into play here, whereby the more people agree to use the technology, the better the technology will work. For widespread adoption there will need to be broader agreement and standardisation. The Financial Times quoted LDC’s Robert Serpollet as saying that for ETC to work, “we will need to design an industry standard which will bring together the main players of the agricultural commodity space”.
Even if it takes time to spread, all participants on this test agree on its success. At a time of such disagreement over cryptocurrencies, a consensus is building on the usefulness of the underlying blockchain technology.