GrainChain’s Smart Contracts Unite Honduras Coffee Business

Agro-focused blockchain platform GrainChain has brokered deals across the Honduran coffee supply chain to track the production and trade of beans over its smart contract system.

The launch, announced today, is starting with a 2 percent sliver of Honduras’ 7-million-bag-a-year export industry – equivalent to “10-15 percent of the organic fair trade market,” says GrainChain CEO Luis Macias, who hopes to expand its reach.

GrainChain’s rollout in Honduras comes as players in both coffee and tech embrace blockchain to tame the global coffee market. In May, Starbucks announced that it would track its global coffee supply chain on Microsoft’s Azure blockchain for the benefit of consumers who want to follow the bean from plantation to coffee pot.

While tasting notes and sourcing information headline Starbucks’ mobile app – GrainChain’s smart-contract-based ecosystem targets the on-the-ground financing of coffee production.

GrainChain’s platform connects the Honduran farmers growing the beans with the exporters shipping them to roasters around the world.

“This is the first solution that we see that allows banks, insurers, vendors, cooperatives, exporters and farmers to be all on one platform,” Francisco Fortin, a representative for participating loan guarantor Confianza Hondura, told CoinDesk.

“We feel that this will encourage trust among the supply chain.”

Engaging the Ecosystem

CEO Macias first pitched his “top-down approach” to Honduras’ financial institutions: banks, whose capital the farmers need to fund their seasonal industry.

“They wanted to find a solution on how to loan their farmers money, but even if the banks guaranteed the loans, they were still having trouble figuring out how to do it,” Macias said.

Macias had already tested GrainChain’s bean-to-buyer tracking system on farms in Texas, where the company is based, and Mexico, and both examples were presented as models to the banks. They latched on almost immediately.

Farmers were on board with the project. GrainChain’s launch participants include fair trade and organic specialty coffee producers, Macias said — “people who are trying to make a difference in the social aspect of creating coffee.”

The farmers were excited to build for stronger trust with the banks. It represented a new wave of capital from banks more willing to loan.

“Having technological support and money changes many things,” German Delcid, a farmer with the participating Santa Rosa de Copan farm, said. “I feel that with access to financing and security of payment will have great effect on our farms.”

GrainChain’s biggest struggle came from the exporters and buyers, who Macias said did not immediately understand the benefits a smart contracts system might have to their supply chain.

But after seeing the tech’s potential cost savings – cutting out middlemen, securing and paying off loans, reducing administrative overhead – they, too, signed on.

Exporters additionally saw the opportunity to use the tech for additional profit, Macias explained. Each step on the blockchain was, in itself, a marketing tagline.

“When they’re able to show buyers in Italy and Miami exactly where the coffee came from – the path that it took, the ingredients that were used, the fertilizers, everything – they saw it as a great marketing opportunity.”

Counting Beans

Under GrainChain’s platform, farmers at Santa Rosa de Copan and other participating growers document their coffee production via a real-time mobile app, according to Macias. Each stakeholder tracks those beans as they make their way through the system.

The system’s smart contracts pay each stakeholder exactly what they say they will, without regard for potential biases that humans often introduce.

This transparency contrasts with the often informal “handshake-like” deals that Macias says permeated the market beforehand. Farmers might agree to sell their crop for $5, for example, but end up earning far less because of a middleman’s opinion. That would, in turn, impact the farmers’ ability to pay back bank loans.

“It’s very different than what you can get away with when a person’s involved,” Macias said.

GrainChain’s real-time record-keeping system makes the banks more eager to loan to farmers whose output they can check, and whose use of loan funds they can control.

“Given a lot of our traceability and logistics applications that we have within our system, it opens up the door to people to see what’s really going on,” Macias said.

Off-the-grid Honduran farmers and concept-heavy blockchains make unnatural bedfellows; Delcid, the Santa Rosa de Copan coffee farmer, is the first to admit it.

But he’s nonetheless optimistic that GrainChain’s platform will build a new level of trust across the entire coffee ecosystem.

“The technology has been explained to us.” Delcid told CoinDesk. “It sounds complicated but we are looking for results.”

Coffee farmer image via Flickr