An analysis on the role of blockchain-based platforms in agricultural supply chains

Abstract

The traditional agricultural supply chain (ASC) has been overwhelmed by several challenges, including financing risk, counterparty risk, and lack of consumer trust. Platforms based on blockchain technology combined with Internet-of-Things technology have emerged to address these challenges by improving supply chain visibility, guaranteeing the execution of contracts, and increasing the authenticity of products’ provenance information in the ASC. This study analyzes how the adoption of a blockchain-based platform can affect the decisions of ASC participants and identifies how the platform creates value for the supply chain by addressing these three challenges. We consider a two-level supply chain featuring a typical cooperative and a buyer and establish stylized game models with and without the blockchain-based platform. By comparing equilibrium outcomes with and without the blockchain-based platform, we show that the involvement of the blockchain-based platform can lead to increased production quantity and total surplus of the supply chain. This can also motivate more sustainability/green investment to produce greener products. Interestingly, we show that the value of the blockchain-based platform decreases in the credibility of the business environment in which the supply chain operates. Furthermore, the buyer will always benefit from the established blockchain-based platform, whereas the cooperative can benefit in most cases but could be worse off under certain conditions. The adoption and operational costs could outweigh the benefits caused by the addition of the blockchain-based platform.