Technology’s fundamental role in food and agriculture cross-border trade
Bulk food and agriculture cross-border trade is traditionally driven by physical networks where trust helps mitigate risks of a long supply chain involving many actors. Technology can make it easier to establish, maintain and mediate trust between parties, thus allowing more trade to happen.
The fundamental issue
To someone who hasn’t engaged in a B2B cross-border transaction in food and agriculture. The question usually is “what makes this trade different than say a domestic experience of buying from a local wholesaler?” A simple answer is an inherent lack of trust in such transactions and difficulty in resolving a breach of trust.
Trust is missing because there are a variety of issues which can be broadly classified into structural, financial, logistical and legal issues as highlighted below :
Structural Issues
- Fragmented Ecosystem — Multiple parties are involved each operating in independent silos requiring separate relationships
- Information Asymmetry — Credible pricing, regulatory and counter-party information is not easily available
- Unstructured Trade Process — There is no standard process for conducting cross-border transactions leaving every transaction at the mercy of a negotiation
Financial Issues
- Slow and Risky Payment — Fast, low cost, easily accessible, low-risk payment methods aren’t available
- Large Capital Engagement — Amounts involved in a transaction are large and could form a significant chunk of the working capital of a business without access to credit
- Complicated to Access Credit — Availability of credit is scarce as financial institutions are often unable to take risks on parties in less-developed countries, smaller businesses and low-shelf-life products. In 2020, the Asian Development Bank estimated the global trade finance gap to be at $1.7 trillion
Logistical Issues
- No Returns — In case quality of goods is an issue, returns are difficult and often impossible
- Long Transit Times — Shipments are often done by oceans, requiring long transit times, where real time pricing and tracking are rare
Legal Issues
- Difficult Legal Recourse — Buyers and sellers are in different parts of the world with different legal regimes, which makes resolving disputes problematic
This trust issue is further exacerbated in transactions involving low-margin, high perishability agriculture goods like fresh fruits and vegetables. This means that trust has to be established at not only a low cost but with greater efficiency.
A trusted digital eco-system
A platform like www.maalexi.com is essentially a “digital ecosystem” for cross-border wholesale food and agriculture, coordinating trust between multiple parties by deploying technology, and thereby mitigating risks in a transaction. Parties involved in a cross-border transaction are spread across multiple regimes, with multiple levels of digital sophistication, and Maalexi’s role is to facilitate exchange of data between them as the transaction moves from origin to destination with the explicit goal of maintaining the underlying trust between parties.
Data principles for a digital ecosystem
At Maalexi, our digital eco-system provides a full-stack of services (pricing, business information, inspections, logistics and payments/financing) for conducting a cross-border trade in food and agriculture. We adhere to the following 3 basic data principles in the provision of these services that help make every transaction faster, cheaper and safer -
- First Principle : “Collect data from verifiable sources”. So, whether it is freight data or financing data, we try to connect straight to the source using APIs or generate documents automatically (e.g. a digital contract) or ask the Seller to upload them, to ensure credibility and provide a trace to the origin. All the partners sourcing data within our eco-system are reputed institutions like DHL, Dun and Bradstreet etc.
- Second Principle : “Ensure trust in the data”. We create a cryptographic has of vital documents (e.g. Commercial invoice) and put these on a Distributed Ledger (we use Hedera Hashgraph) to provide financial institutions the ability to check the authenticity of documents. This reduces instances of document tampering and fraud.
- Third Principle : “Allow for transparent and timely action on data”. On Maalexi, trade documents are transparent to all parties, and we are building AI/ML models, automatically check for errors. This allows decisions to be made in seconds, that otherwise traditionally take days.
Case Study
Maalexi.com allows a seller to upload documents that are required from their side on their deal dashboard. These documents like the commercial invoice, packing list, certificate of origin, product certifications etc. are usually provided by the Seller for import clearance by the Buyer. This follows our first principle where we collect these documents from a verifiable source. In the future, documents issued by a regulatory body, for e.g. a certificate of origin, could be picked up by maalexi.com from that source itself.
In accordance with our second principle, once these documents are uploaded and confirmed by the Seller, they can be stored on a Distributed Ledger to guarantee their authenticity to a Buyer.
The Buyer is now able to instantaneously review these documents and accept them as valid or reject them in case something is missing or incorrect and fulfils our third principle thats surfaces information to a relevant party to allow for fast action .
Conclusion
Trust is the fundamental factor in cross-border trade, and bringing all parties involved in an end-to-end transaction in a digital platform can facilitate trust by allowing data to move between these parties transparently. The full-stack digital solution at Maalexi enables this trust by credibly collecting data, storing it securely, and allowing action on it. This data when aggregated over time also provides a history of transactions and users that further enhance trust.
If you export or import food and agriculture products, register for free at www.maalexi.com to conduct your next trade with trust.
