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The digital transformation of the ag supply chain

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The ag industry has seen it happen time and time again with production agriculture – the rapid advance of technology that reshapes an industry in a way not predicted. For past generations, it was the movement from horses to tractors; for more recent generations, precision agriculture and data analysis have dominated the way farmers produce grain and livestock. Farmers and ranchers have always been experts at maximizing yields and production using whatever technology they can get their hands on. 

Industry players along the whole supply chain are no different, incorporating leading-edge technology into processing and distribution of agricultural products. Together, producers and buyers are now looking to digital technology to facilitate trade–– specifically, contracts–– faster and more securely.

There’s a technology wave underway, and it’s happening further down the supply chain – opening up the doors for merchandisers, managers, and logistics operators to streamline trade and optimize prices.

 

For a long time the ag commodity trade space has suffered from market failures, most notably, missing information and information asymmetries that increase transaction costs. The Organization for Economic Cooperation and Development describes trade logistics as “underpinned by data flows” and notes how “being able to pass on information, together with the traded goods, throughout the chain . . . can create a competitive advantage.” Digitalization stands to increase “the efficiency and reliability of . . . the trade logistic chain, reducing trade costs.” Most notably, trade costs would be reduced in the exchange of paper contract inadequacies for digital contract improvements.

Reducing trade costs by swapping risk for reliability

Agriculture is leaving paper behind.

Paper documents leave too much room for error in modern agriculture. Buyers and sellers depend on accuracy down to each bushel and penny. Lost, damaged, inaccurate, or fraudulent documents have no place in this fast-moving industry. As technology advances, data is standardized and secured among all players and systems, giving power and legal validity to electronic documents and signatures.  Through seamless, timely, and accurate connection, paperless trade ensures each transaction saves hard costs for both traders, by eliminating errors, reducing office supplies, and freeing up clerical workers for additional tasks. 

The benefits of a more digital way of trade are soon to trickle down to the local producer and merchandiser. 

 

Reduced costs in trade will come from increased data integrity and the capacity to transport it between parts. More transparent, accurate data with increased traceability lowers risks for all parties in the supply chain. Mitigating risk is a central challenge that commodity buyers and sellers face today. The ability to eliminate contract errors and speed up processes diminishes risk previously promulgated by paper contracts.

Not only are risks reduced through data integrity, but also through the mitigated exposure of price volatility for local grain merchandisers and producers. Already tools and strategies exist for these purposes, but a heightened presence in a more informed market means more risk-relieving power in the small business manager’s hands, whether a grower or a grain merchandiser.

Cooperation is enhancing the ag industry for all involved

Cooperation is fostered through digitization of processes.

The ongoing digital transformation of agriculture will lead to greater transparency, accuracy, and timeliness – an overall improvement in ease of doing business – which will foster smoother cooperation amongst agriculturists. As Jeremy Jackson, associate professor in the NDSU Department of Agribusiness and Applied Economics writes, 

“This is how a prosperous, flourishing society is built. It is not the ruthless competition of the marketplace that leads to wealth; it’s the cooperative and voluntary interactions among individuals . . . Each market exchange is an act of cooperation that makes all parties better off.” 

Cooperation is key in streamlined trade, and digital processes facilitate seamless, cooperative trade. Asymmetric information, errors, and lack of access to trade infrastructure or information will all be a thing of the past as paper is left behind. New opportunities, such as innovative digital contracts and eSignature capabilities, will become commonplace tools used by buyers and sellers to connect digitally.

 

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