THE BEEF BLOCKCHAIN
The introduction of blockchain technology into the beef business holds the promise of a positive transformative change to and for the industry. The creation of individual transactions into Blocks and linking them together in a time sequenced Blockchain will make material changes to the ways people do business. It also will allow each Block to be processed by Smart Contracts assuring uniform standards throughout the industry. The Blocks are simply buy/sell transactions that occur daily throughout the industry. Together they will create a transparent profile of the Market in action in near real time as the time sequenced Blockchain map the daily changes in both spot cash and forward futures markets.
Trade matching, or a completed buy/sell transaction between a buyer and seller, can occur anywhere in the physical world and will be confirmed on the web validating the first stage of the transfer of ownership of cattle, whether on centralized trading platforms, or in private treaty transactions. These transactions or Blocks will allow the best buyer to find the best seller at any given point in time – improving the efficiency of the markets. Trades will occur faster, cheaper, and more securely than any previous transactions and will deliver clear title unencumbered by complex multi-state UCC regulations.
HOW ARE BLOCKS CREATED
Blocks are little more than a single transaction at an agreed price point to transfer ownership of cattle for one head or a group of cattle. Each Block will be time sequenced and linked with encryption to other Blocks in the Blockchain. The Blockchain is comprised of the thousands of individual cattle transactions that occur each day, week, month and year that are linked together in time order to provide a transparent, non-repudiatable, trusted, and auditable ledger for the industry. Each transaction is confirmed online by the buyer and seller at the time of occurrence.
A typical Block might contain the following fields of information:
Date and Time of transaction:
Spot or Forward Market: [“S”] or [“F”]
If Forward List the Month and Basis to the most forward CME futures Contract
Price or Basis to Futures Month:
GPS point of delivery:
Delivery date range:
Health and Implants
THE FOUNDATION FOR BLOCKCHAINS
The Blocks in the Blockchain will be given their authority because of the necessity of transferring ownership rights of the seller to the buyer using animal identification numbers. These ISO numbers [the world numbering standard] uniquely identify each animal, associated with the lender if there is one, to record a change in ownership and a price point for the transaction.
Animal Identification now has the support of a most of the largest beef processors, a majority of the largest feeding companies and many of the largest breeders. The U.S. Roundtable for Sustainable Beef [USRSB], an organization of the fast food companies, beef retailers, beef processors, and operators in the live beef production chain, has endorsed animal identification as a necessary component for measuring the sustainability targets in the beef chain.
The next step is rulemaking, a requirement for identification by USDA. The industry will own and govern the national animal database, provide the rules and requirements for animal ID use and designate the standards to be used in the applications. The Governance Board made up of elected members from all beef sectors, will work with APHIS to provide the necessary traceback needs of our health monitoring teams. APHIS will assist in both the implementation of identifying the animals using RFID chips and collaborate on a plan to finance the initial installation of tags for the U.S. herd.
The governance of the National Beef Blockchain would be placed in the hands of the industry. Members from each industry sector would set the rules for data collection, for animal ID, and for Block creation, Blockchain linking and market price reporting. Additional data gathering can occur at each transaction stage including the final collection carcass data at slaughter. All data would be encrypted, and no proprietary data would be released in public reporting. Only aggregate data reports would be provided to the industry members.
The use of animal ID and Blockchain technology should drastically inhibit cattle theft and food fraud further reducing costs to producers.
Each transaction will be conformed to industry standards regarding the delivery and payment for the cattle. Smart Contracts, delivered following the initial transaction, will provide both Buyer and Sellers confirmation of the transaction as well as step by step trade standards used during the consummation of the terms of contract. Trade standards will assure transfer of good title and verified collected fund transfers between the parties. Disputes between the parties will be adjudicated by Omsbudsmen appointed by the Governance Board.
SETTLEMENT AND CLEARING
Funds transfers will occur using ACH electronic transfers between the bank accounts of the parties. ACH transfers are governed by the rules of the National Association of Clearing House Associations. ACH provide near risk free payments to the parties and can include third party service providers to the transaction such as freighters, brand inspectors, brokers, and other parties to the transaction. All funds are transferred as collected balances to the bank accounts involved and are final. Title passes only after collected funds are received by the seller and the financing institution.
BENEFITS OF BEEF BLOCKCHAIN TO THE INDUSTRY
Traceback. Food safety is the bedrock of consumer confidence whether a foreign or domestic consumer. The need to identify health events that might erode this confidence is fundamental and critical to a sound beef production machine. Traceback is already in place in other beef producing countries with whom we compete in the global marketplace. APHIS will be allowed access to traceback information as needed by the Governing Board.
Good title. The millions of dollars spent by lenders arguing over good title is unnecessary and costly to the lenders and the industry participants. The ID system combined with the Blockchains will assure good title and provide a secure pathway for transfer of ownership and title with each transaction. Each animal will host as part of their record in the data store, the name of the lender and the contact person at the lending institution. Electronic notices will be transmitted to secured lenders by the Smart Contracts. With delivery of good title will come the end of theft. Millions of dollars are cattle are stolen and resold each year. Those sales would be impossible without proof of title.
Demographics of the National and Regional Herds. Interested in how many cattle are in the national herd by class of animals or just like to see regional data on animal numbers? That information and more is yours at a click of the mouse. Want to know how many cattle were placed on feed today, this week or this month? No problem, all information is current and readily available without guesses made from mail out surveys. Find out how many cattle reside on wheat fields by region or cows ready to calve in any region. This data is front and center towards understanding the dynamics impacting herd growth or contraction and at the core of price forecasting.
With block chain technology, producers will have data on cattle numbers that have previously been available only to packers and feeders with large research departments. Accurate data will be available free to big and small producers.
Benchmarking. No function has more importance to the many and varied operations in the beef industry than benchmarking. How are your weaning weights when compared to other breeders in your region? How is your death loss on high risk sale barn calves compared to other buyers of similar cattle? How are your sales prices from the feedyard compared to your competition in the same area? The inquiries are endless and Blockchains provide ready and immediate comparisons without disclosing any proprietary information. All reports would be generic but be all inclusive and have up to the minute accuracy.
Mechanism for cash settling cattle futures. Cash settling the cattle futures will not eliminate price movements or even large price movements. What it will do is provide a marketplace that is transparent and allow traders to develop trading strategies which will bring more liquidity into the cattle futures markets. Increasing liquidity will reduce volatility. The cash settlement of futures will provide a fair and ultimately accurate mechanism for assuring all traders, whether long or short, the price point at the termination of the contract is The Market at that point in time.
Supply Chain. It is no secret that consumers want to know more about who produces the beef they consume and how it is produced. Blockchains provide the link from consumer all the way back to the breeder. Consumers using a smart phone can scan the package on the beef counter at the grocery and find out all they would like to know about the cut they are selecting. Not only will this provide confidence to consumers but also eliminate dishonest mislabeling occurring across the country every day.
Building sub-set blockchains off the primary DataStore. Smaller blockchains could be designed and built to support and service the master Blockchain. For example, each transaction or Block could serve as a notice to cattle freighters of a potential shipping event and freighters could compete for best rate for freight. Settlement and clearing of the charges could be built into the delivery settlement with freighters making a deposit to assure compliance with the obligation.
Interstate cattle movements. The requirements for interstate cattle movements vary from state to state. Heath officials issue multiple documents of “heath papers” that are carried with the livestock haulers. Integrating the GPS locations of both the point of origin and the destination in a digital record can simplify, streamline more accurate movement records as they become standardized for the industry.
The beef industry in the United States has lagged other countries in innovation. Beef Blockchains provide an opportunity for the U.S. to leap frog other competitors and bring multiple benefits to the domestic beef industry. Blockchains are the pathway to growth for the industry. The simple steps required to put Blockchains into action are: