The blockchain is now part of the route from farm to table.
Louis Dreyfus Co, one of the world’s biggest food traders, last month teamed up with Dutch and French banks for what it says is the first agricultural commodity trade to use the ledger-based digital technology known as blockchain.
The 166-year-old Rotterdam, Netherlands-based trading house used a blockchain platform to sell a cargo of US soybeans to China’s Shandong Bohi Industry Co (山東渤海實業).
Dutch banks ING Groep NV and ABN Amro Bank NV, along with Paris-based Societe General SA, helped LDC and Bohi utilize digitized documents for the deal, including contracts and letters of credit, as well as government inspections and certifications.
By automatically matching data in real time, avoiding duplication and the need for manual checks, document processing was reduced to a fifth of the time, LDC said in a statement.
In addition, the transaction time was cut in half from two weeks to one, ING global head of trade commodity finance Anthony van Vliet said in an interview.
“The key objective is to design something that will be adopted in the market,” Van Vliet said. “It’s clear that a traditional, somewhat old-fashioned industry working with largely paper documents needs a bit of a digital upgrade.”
Commodity traders and trade finance banks, a sector dominated by Dutch and French lenders, are embracing blockchain as a way to reduce costs and administrative tasks, while improving record-keeping and tracking for trades. The biggest traders conduct thousands of transactions per year valued in the billions of US dollars, but those deals typically have low profit margins.
“We not only proved that this blockchain transaction is technically possible, but also that it yields what it promises,” ABN Amro global head of trade and commodity finance Karin Kersten said. “The trade saved labor and time, but also reduced the risk of fraud or human errors.”
However, for blockchain to succeed in helping traders cut costs and deal times, industry-wide adoption of standardized platforms and systems will be needed. That is why banks are teaming with the biggest trading houses such as LDC on early blockchain tests.
“Distributed ledger technologies have been evolving rapidly, bringing more efficiency and security to our transactions,” LDC chief executive officer Gonzalo Ramirez Martiarena said in the statement. “The next step is to harness the potential for further development through the adoption of common standards.”
Oil traders and commodity trade finance banks have already used blockchain to conduct energy trades.
Geneva-based Mercuria Energy Group Ltd, with support from ING and SocGen, last year used a blockchain platform for a deal to send African crude to China.
In November, some of the world’s biggest oil producers, trading houses and trade finance banks formed a consortium to develop a blockchain-based digital platform to manage physical commodity transactions. The venture is expected to be fully operational by the end of the year.
Van Vliet said he expects blockchain technology to soon be applied to a metals-trading deal.
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