One of Colombian’s most famous, and delicious exports is coffee. For many years now it has remained a high demand industry, with a very intricate supply chain that is critical to the Colombian GDP. With over 2 billion cups consumed a day, Colombian Coffee will continue to be a profitable sector for a very long time.
Even though 90% of the world’s coffee is produced in developing countries, it has not been a reliable source of income for many farmers. Economic issues such as limited market access for producers, lack of product and market information and depreciating market prices all contribute to supply chain problems that farmers face every day. General market prices of coffee do not always reflect the quality of an individual’s Colombian coffee crop, or their personal financial situation.
On top of that, there are a number of large Colombian coffee companies that claim to be engaging in fair trade, when in reality they purchase their coffee through other middlemen. Exporters and middlemen generally get an extra cut from this transaction, while the farmers rarely do. For these reasons, farmers rarely receive fair compensation both for their labor and for the value of their Colombian coffee product.
The Colombian coffee supply chain can be broken down into a large complexity of parts:
The Commodity Fairness Index measures fairness for members of a commodity supply chain by evaluating degrees of imbalance. For example, the index showed that almost 90% of Colombian coffee producers are capturing less than 5% of the value created by their coffee. If other developing countries have similar levels of inequality in their coffee supply chain, then thousands of producers are being undervalued and under paid for their labor.
"Redesigning the coffee supply chain to increase transparency, efficiency, and win-win economic transactions can help to rectify this situation. Blockchain in the coffee supply chain can help growers see where their beans end up, and enables consumers to see where their coffee comes from. This technology can help ensure that growers are given fair payments for their crops and are maintaining sustainability practices. And it can allow consumers to make more informed decisions about where they should purchase their coffee."
Some believe that economic loans or social programs are the best way to help farmers through this dilemma. But in reality, it only masks the systemic supply chain issue. It would be more equitable to create a system with blockchain that enables farmers to make a fair profit as a member of the Colombian coffee supply chain and rectifies imbalances through full transparency and traceability, rather than be taken advantage of for profit.
Head of Operations, Blocolombia
The growing demand for Blockchain in Colombia and cryptocurrency is leading to new endeavors and pilots in the country among young Colombians. This is spurred by the current fears in Colombian politics, economic failure to fully recover after the pandemic and a peso at risk of collapse. This has created the perfect environment to test new financial products and services to offer Colombians. The Banco de la República of Colombia is doing just that.
The IDB Group and Banco Davivienda have launched a bond pilot that will be issued, placed, traded and settled on blockchain technology. They will utilize the power of smart contracts to legitimize this to be placed on the Colombian stock market. This pilot will be the first of many steps towards the implementation of the technology in capital markets. Davivienda will issue the bond and IDB Invest will subscribe the entire issue. This is a big bid to help grow interest around Blockchain in Colombia and ignite the industry.
The benefits of this blockchain bond pilot include the potential for reduction of operating costs, optimization of processing times, greater traceability, elimination of misinformation and better financial risk management practice. This can all contribute to a more efficient and integrated securities market in Colombia without exposing the protections of investors.
The Banco de la República expects to act as an observer node in the blockchain network. They are participating in the experiment in order to better understand the process of issuing and trading securities in a decentralized manner with Blockchain in Colombia. They also want to better understand the effects on the primary and secondary market, including the challenges and regulatory needs to improve upon a blockchain-based bond, among other potential financial products in the future.
Davivienda has already become the first bank to apply advanced blockchain technology to guarantee the security, monitoring and transparency of its products and services. The bank has made significant investments in infrastructure, guaranteeing users a trustworthy, friendly and transformative experience. Davivienda is looking to set a benchmark for digital banking in the region and lead this path of integrating Blockchain in Colombia.
Colombia, and the entire Latin region, has a long way to go before they can call themselves a blockchain-based country, or even a technologically advanced nation. But despite the lack of proper infrastructure and government policy, that hasn’t stopped the surging growth in demand and the foreign investment that is pouring into Colombia to see these changes come to fruition.
Over the next 5-10 years, you will likely see regulators step back or introduce friendlier laws that encourage innovation around Blockchain in Colombia. Colombia has come a long way in the past 10 years already and there is much to be excited about in the years to come if the Colombian people keep pushing forward and the Banco de la República continues to favor the adoption of Blockchain in Colombia alongside similar technologies and various other financial institutions.
Head of Operations, Blocolombia