Tokenization in Agriculture

Agriculture has always been the world’s largest business and an important source of income. Even today, there are over 570 million farms maintained and cultivated by over 1 billion farmers worldwide and roughly 2 billion people (26.7% of the world population) derive their livelihoods from agriculture. The agricultural land accounts for about 37.7% of the world’s total land area, of which approximately 10.6% was arable. These factors have made up a $12 trillion market, of which the Asia Pacific was the largest agriculture market in 2017, accounting for $6419.05 billion or 54.49% market share mainly because of the rapid economic development and rising purchasing power in the region. Africa was the second largest market accounting for $1492.79 billion or 12.67% market share while the Middle East was the smallest region accounting for $414.64 billion or 3.52% market share.

The massive market of agriculture is growing fuelled by the rising demands for food as the current 7.3 billion world’s population is expected to become 9.7 billion by 2050. To meet the challenges, it requires a concerted effort by governments, investors and innovative agricultural technologies. The World Government Summit launched a report called Agriculture 4.0 – The Future of Farming Technology. Agriculture will no longer depend on applying water, fertilizers, and pesticides uniformly across entire fields. Instead, farmers will use the minimum quantities required and target very specific areas. The report further states that farms and agricultural operations will have to be run very differently, primary due to advancements in technology such as sensors, devices, machines and information technology. Future agriculture will use sophisticated technologies such as robots, temperature and moisture sensors, aerial images and GPS technology. These advanced devices and precision agriculture and robotic systems will allow farms to be more profitable, efficient, safe and environmentally friendly.  

Most agricultural companies, especially smaller farmers have a very difficult time when it comes to raising capital. They have limited access to financing, tedious and slow processes which involve heavy amounts of paperwork and they typically lack collateral. Therefore, we see tokenization in agriculture as a future of the investment business by converting rights to an asset into a digital token on a blockchain. 

Tokenization is a new financial instrument to revise and upgrade asset-backed securities. This fits well in all real economic assets. With the STO model that tokenized assets as a means to provide collateral to prospective investors added security to them. Farmers can significantly benefit from the ability to raise private capital with security tokens. Moreover, security token offerings are not affected by any borders or country standards, which means you can reach your investors in any part of the world and as an investor, you can invest anywhere you want to. 

In the case of agriculture, tokenization assets could be a piece of land, plants (especially bearing plants like grapevines, fruit trees, rubber tree plantations, and oil palms), livestock, etc. We take Malaysia durian farm tokenization as an example. From here, what can become a tokenized asset? Each security token can be backed by 1 square meter of a durian farm. With proceeds of the token sale, the company can acquire a piece of land to start farming or acquire a poorly managed durian farm and obtain higher and more sustainable cash flows for investors. With STO, even an ordinary person, no matter where in the world he/she is living, is able to become a potential investor for the durian farm.

Agricultural-backed tokens are becoming a critical solution to solving volatility and liquidity issues inherent in most cash and stock-based saving plans. As such, tokenized agriculture has the potential to help developing countries generate more investment and export opportunities across a range of agricultural industries, improving financial inclusion on the ground, and giving locals a medium of exchange that’s not at risk of devaluation.