Farmers are switching to stablecoins

Opinion by: Henry Duckworth, founder and CEO of AgriDex

We all need and buy it. Food is a common, universal ground across the planet. It should come as no surprise then that the agricultural industry is enormous. In 2023, the European Union alone imported 154 million tonnes of agricultural products and exported 134 million tonnes more. The market is growing too, projected to expand by 3.45% annually from this year to reach $5.52 trillion by 2029. 

Yet, farmers and agricultural traders are confronted with a serious problem. They need to export food abroad and interact with foreign currencies. The financial system — particularly in Africa — is, however, underdeveloped. Inefficiencies in their trade result in high transaction costs, delayed cross-border payments, and high interest rates for loans. Large corporations can better navigate financial hurdles, but this isn’t always the case for small farmers, who suffer the most from outdated banking systems.

Blockchain technology and stablecoins promise to smooth unstable waters for agricultural traders. Eliminating intermediaries and providing financial inclusion, the technology gives farmers direct access to global markets. With Africa’s food and agriculture market predicted to be valued at $1 trillion by 2030, stablecoins stand to be much more than simply another financial trend for the industry.

Cross-border payments are hiding significant costs

Cross-border payments are the beating heart of agricultural trade, central to accessing resources, such as equipment and seeds, or engaging in trade between countries. International transactions are vital to African agriculture, as exports within Africa represent only 17% of total African exports. 

Local banking systems are, however, underdeveloped and impede these payments to a shocking degree. A huge sticking point is that traditional banking systems are expensive — they charge farmers between 3% and 6% in fees. This is no small matter when profit margins are already thin.

In transactions, the demand for an intermediary currency, typically the US dollar, leads to even more exchange rate losses, often falling within the 3%-10% range. This affects small businesses in Africa, which can pay nearly 200% more than larger companies to clear their transactions through formal channels.

As if the expense wasn’t bad enough, the process is also painfully slow. Farmers can expect to wait up to 120 days for payment settlements. These delays are devastating for businesses relying on quick access to funds. They are forced to take out high-interest loans with no immediate liquidity, further eroding their earnings.

Stablecoins can fix agricultural trade

Frustratingly outdated financial systems hamper the global agricultural industry, but a glimmer of hope is arriving in the form of stablecoins. Poised to reshape the agricultural trade, crypto offers farmers three key pillars of transformation.

Stablecoins mean farmers and traders can bypass banking inefficiencies. With intermediaries taken out of the picture, they can transact instantly and with lower costs. Farmers save between 3%-6% per payment, and funds are received in minutes rather than in painful waits of weeks or months. The result? These players have the working capital needed to stay in business.

Traders can forget about unstable local currencies. By pricing their goods in a stable digital asset, they can gain access to global markets. Fluctuating exchange rates will become a problem of the past. Businesses operating in countries with volatile currencies will feel that relief most acutely, as sudden devaluations in a currency have the power to wipe out profits overnight.

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The agricultural trade is crippled by immense, systemic fraud and supply chain inefficiencies, with global food fraud costing $40 billion annually and global trade in fake goods another staggering $500 billion. Stablecoins could be transformative in reducing the original movement of counterfeit goods across supply chains, making the industry far more efficient.

Results are already being seen in African agribusiness. Zimbabwe-based conglomerate Parrogate, for example, is committing to blockchain to streamline payments to its suppliers while improving cross-border trade efficiency. The company, which prides itself on growth and development across the continent, is just one of numerous African businesses getting behind stablecoins and reaping the benefits.

Agriculture still faces global challenges

Stablecoins should be music to the ears of those working in agriculture. The road there could, however, be rocky. Significant regulatory uncertainty, especially in Africa, is one hurdle. Many nations have strict capital outflow controls, so farmers and traders must comply with local regulations or face legal issues.

Another limitation is technological barriers and an education gap across the industry, which prevent some farmers from fully grasping and using the technology. European farmers, who need stablecoins less because infrastructure is pretty well established, will also not have full access to these stable mechanisms for facilitating trade.