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COVID-19 speeds up the adoption of digitalization in grain trade

18 January 202115 min reading

Andrei GrigorovAndrei Grigorov
Founder / CEO
Cerealia

 

"Cerealia is the first online marketplace for international agri-trading. We digitalized the agri-trading and its brokerage. Our platform brought certainty to traders. I think the projects like ours, will pop up. Blockchain will revolutionize agri-trading with smart contracts when payments in digital currencies will be widely used. And COVID-19 pandemic will push the adoption of digitalization and blockchain.”

The impacts of digital applications and blockchain technology on global value chains and agri-trading have been evident in recent years. And the COVID-19 pandemic has unveiled the potential of such technologies for the market. These technologies can make agricultural trade more efficient, reduce transaction costs and paperwork and improve the flow of information. “For me definitely blockchain will revolutionize agri-trading, through the application of smart contracts, when payments in digital currencies will be widely used,” says Andrei Grigorov, CEO of Cerealia, a revolutionary blockchain-powered trading platform.

Switzerland-based Cerealia launched its platform for commercial use in November 2020. It is the first professional online marketplace for international physical agri-trading that enables grain traders to transact with, so far unseen, high certainty.

Cerealia

With over 20 years of experience in international agri-trading, Mr. Grigorov is a visionary agri-commodities trader who has realized the importance of digital applications long ago. The launch of Cerealia’s is the result of two and a half years of work. Mr. Grigorov is very satisfied with the interest in the new platform. “We realized that a lot of parties from all over the world are interested in such a solution. We have already onboarded companies from all continents, from major multinationals to smaller local trading houses. We are now expanding further worldwide”. He believes that blockchain would transform grain trading and it’s long overdue, as this sector remained very archaic, with business still done through uncertain means like phone, faxes, paper docs and so on.

Cerealia’s CEO Andrei Grigorov shares his thoughts on the future of the agri-trade with Miller Magazine’s readers.

Mr. Grigorov, could you please provide us with some background information on Cerealia?

Cerealia is a project which has been in the making for the last two and a half years. I took all this time to elaborate the platform, the marketplace, together with the best IT and blockchain developers in Switzerland. I just realized that in our sector, which is a big bulk, international physical agricultural commodity trading, we had no single, online marketplace. And for me, it was a shame. It was a shame because I was thinking of applications in the US like Robin Hood, which provides to retail investors. So seamless and easy way to trade shares, equities, and other financial products, without commissions even. At the time of such easy applications, it's a shame that our grain trading is still in this archaic state with paper, phone calls, and all these. I have been a broker and a trader myself in the past. I have seen that basically, all the grain trading process has flows and also brokerage is flowed as well.

WE DIGITALIZED THE AGRI-TRADING

Cerealia project digitalized the physical brokerage, and agri trading together with it. It is, first of all, a marketplace but also a physical brokerage house. We are like traditional physical brokers but only online. Our platform is only for international (FOB/CIF mainly) agri-trading and strictly only for professional market participants (traders, originators, importers, industrial consumers, gov agencies). So basically, they place bids and offers. They're able to negotiate through our platform with each other, book the trades, and also do execution on our platform.

blockchain

Participation in our platform is by invitation only. It is not available to everybody. This is only because we are overseen by and regulated by respective financial and other state regulators and need to follow sanctions and anti-money laundering legislations. Therefore, we are sending invitations to market players. And before sending we must do some due diligence. We are helped by our lawyers in this respect. So we are obliged unfortunately to limit access to our platform. Obviously, professional parties can request access to Cerealia marketplace, which we will grant them with pleasure, after due diligence.

grain trade

In our platform, you can consult market interests (bids & offers). You can post your interests (firm or non-firm). You even have some further free services like documents authentification with the help of blockchain. All this is free. Only as soon as you do a trade, you owe a commission to Cerealia. So it's where it begins to be paid service. As for the commission, we decided initially to apply the same amounts of commission as traditional physical brokers currently do.

On the one side, we realize that parties would like lower commissions, but on the other side we didn't want to disrupt brokers, therefore we didn't decrease commissions. The only change compared to them, we charge 50% of these commissions from the buyer and 50% from the seller, instead of traditional brokers are charging 100% seller. We think it's more fair because we provide the technological tool for both parties and they equally pay for it in case of trade. The aim of this project is for the agri-trading community to improve their trading experience as much as possible. We are asking for commissions because as I said, we don't want to disrupt brokers, but also we need money to build further our technology. But the idea, ultimately is that the agri-trading community will take over our marketplace and in the spirit of blockchain will decide collectively how it will evolve. And then most likely the commissions won't exist. This is the trend anyway.

In November, Cerealia launched its blockchain-based physical agriculture trading platform for commercial use. Can you give us some detail on the launch? 
We launched it on the 10th of November. The launch was very successful because we signed up tens of customers for less than a month. What was really surprising for us is that first we were targeting the Med and Black Sea geographical zones but we have been contacted by parties from elsewhere in the world, and we signed up big names like Mitsui from Japan, Savola from Saudi Arabia, GTCS - number one Russian grain exporter and some multinationals.

So we realized that a lot of parties from all over the world are interested in such a solution. For example, we got sellers of American hard red spring wheat. We have a Canadian company. We have a Pakistani company. We are just very happy and we are now expanding worldwide. So, the launch was a success for us. We are adding new customers every day, our marketplace becomes very active.

I’d like to say to serious market players - come to our platform, you have nothing to lose, as you can freely consult available market interests, post yours and use our free docs’ authentification service (eliminates the need for original docs). You are not obliged to trade. But by staying away, you are losing plenty of live market opportunities, attractive bids & offers. Additionally, parties can freely use our platform’s internal chat service - to directly ask other market players any questions you want. We believe technological advantages our marketplace brings will prevail of the parties’ desire to just steal the contacts and do the business directly. Why? Because of the, so far unseen, certainty of doing business we provide to them. On Cerealia you’ve done the business - you are really sure you’ve done one.

Right now, we also provide a traditional brokerage service in the Black Sea, because we have our responsible for the Black Sea market based in Odessa, Ukraine. And he's also calling people and doing the traditional way as well because some of them need this support while they're learning how to use our platform. He basically posts the interests on their behalf on our platform.

How does the blockchain platform work? Can you tell us it in a simple way?
It is not exactly a blockchain platform. So as I told you, it's first and foremost the first online marketplace for international agri-trading. We digitalized the agri-brokerage and agri-trading. It was extremely complicated because it's so complex. You need to have extensive trade’s and broker’s experience to do it and work with IT developers. I think we definitely succeeded, we built the killer app as it's called. So we think we have the best possible application right now available. But to realize the full extent of its capabilities, parties need to do everything on it - to negotiate, book the business and execute it on our execution module.

international grain trade

CERTAINTY AND TRACEABILITY

In terms of blockchain, we can do a lot of things with it already, as our Chief Technology Officer has blockchain innovations on his account and worked on Artificial Intelligence projects for years. The problem is that we realized that a lot of much deeper blockchain applications are too early. They simply won't work practically because it's too early for two reasons. Number one, the payments in digital currencies must be widely used by the parties, which is not yet the case. And number two, countries still need to set up the standards for tokens and other blockchain features, and without these standards, it's very difficult. Tokens, smart contracts, etc must be recognized as having the same force as traditional documents and contracts. In the future, you will put digital payments with tokenized commodities into the smart contracts, which will enable automation of the transactions and show the full blockchain’s strength.

agri trading

Currently, we are applying blockchain for two functions. The first is blockchain-powered Advanced Electronic Signatures (AES), for which parties independently generate their own cryptographical keys. Then they sign with that AES all the firm bids & offers, contracts and main execution events. The second function is recording. All firm bids, offers, contracts and important execution events are recorded «forever» on blockchain (you can not erase blockchain recordings). So with these two functions, AES and recording everything on blockchain, we are bringing, so far unseen, certainty - you‘ve done the business, you are really sure you’ve done one. These features are great for eventual disputes, arbitration or whatever.

To some, it might seem like a limited application of blockchain. But this is what realistically can already be used by the market players.

You need to consider that we are using public blockchain, which is consultable at any moment by any party. But you need to know that no file or no open information is recorded on blockchain that can be consulted by other parties because you need to realize that on blockchain in general, you do not store or record files like Word or PDF. You only record hashes. Hash is a unique cryptographic identifier. So, what you do in practice? You first take the file of contract in say PDF version. You put it through a cryptographic algorithm, you generate the hash. And then only this hash - long line of numbers and letters, you record on the blockchain. So, when the people consult, they consult only these hashes but not the files themselves. Of course, you can see the activity of parties if you know their public key. You can see that one party has been active is registering, recording very often. You can trace the activity with blockchain.

What are the benefits and advantages of using a blockchain platform for supply chain actors? What are the opportunities the blockchain can bring?
The main advantage -and I think it's a huge advantage that our platform brought to the market- is that we brought certainty to agri-traders. First and foremost, that when they have done the business, they are sure they have done it because currently on the market usually brokers book the business on the phone, discuss the conditions. And then they send the broker’s confirmation. But the problem is parties, especially in emerging markets like Russia and Ukraine, need signed contracts because unsigned broker confirmation is enough for GAFTA but you cannot enforce it in Turkish or Russian court. So in our platform, you can immediately sign the contract with an advanced electronic signature, so you are sure you've done the business.

The second thing is negotiation, given bids and offers… Firm bids and offers are very chaotic and uncertain because you give an offer for one hour on the phone but when this hour exactly ends is sometimes unclear. While Chicago is moving wildly, there can be disputes. However, on our platform, you give a clearly defined firm bid with a so-called « time-bomb » and it expires when the allocated time is over. And it is signed by an Advanced E-signature. So we brought certainty. This is the best advantage of our platform. And I think it's an enormous advantage, especially when you're working with counterparties which you don't know very well.

Also, we have an execution module on our platform, which streamlines contracts’ execution. We use the execution electronic templates as per Gafta contracts, which facilitate and speed up considerably execution process as they economize by up to two-thirds of the time and cut costs by about 30%.

BLOCKCHAIN WILL REVOLUTIONIZE AGRI-TRADING”

How would you define the blockchain-based transaction? Would you call it a revolution in commodity trading?
The blockchain transaction is ultimately one which is done through the so-called smart contract. And a smart contract is a computer program in which parties engage on certain conditions. Then this smart contract is executed automatically. The blockchain’s « atomic swap » principle ensures exchange of payment token vs token representing a commodity. You won’t care anymore about the reliability of your counterparty, you will trade with whoever. For me definitely, blockchain will revolutionize agri-trading with such smart contracts when payments in digital currencies will be widely used and goods tokenized.

Why would it revolutionize? Because a smart contract is like a letter of credit, but in a digital way. You issue a letter of credit on certain conditions, it's irrevocable but automatic, digital. This is the beauty and that is why it will revolutionize commodity trading in the years to come. I'm expecting these to begin to be implemented in 2021.

So, basically what we need, because nobody wants to trade in bitcoins, which can vary by 20 even up to 40% in one day, but we are expecting the beginning of next year, the issuance of Diem, Facebook’s cryptocurrency, digital Yuan, digital dollar, digital Euro. With the advent of such currencies, there will be the possibility to use smart contracts. 

As you can see on our website, the current platform we brought into the market is only phase one.

Phase two, Cerealia becomes a FinTech company. The beauty of blockchain and digitalization also is that trade finance, freight, cargo insurance… everything needed for a trader is coming in a digital way. At Cerealia, we'll be there also to provide such services, most likely from our partners, because we don't want to become, a digital bank. And we will bring such exciting services to our customers, therefore, they not only come in on our platform for the marketplace but also they will be served with FinTech products & services by Cerealia.

And the third phase of our platform is basically total automatization of contracts with blockchain, with smart contracts which will enable ultimately to conclude the contract between the parties which don't know each other. Because if it has engaged into a smart contract, engaged with its digital wallet, then you're guaranteed to be paid with an atomic swap principle. So you're guaranteed the execution of the smart contract. And so the great beauty is that it will enable you to work with totally unknown counterparties. I think the platforms like ours, will pop up. And then we are welcoming that. It is nice if other platforms will come up with better blockchain solutions. We only will be happy for them.

Do you think the system has any risks or handicaps? What are some potential challenges?
There are some IT-related risks in the blockchain. Let's say it is not yet a mature technology. Basically, the recording of any information on a blockchain depends on miners on a specific blockchain whether they include your record in blockchain transactions in the blocks or not. So, you depend somewhere but practically, we are using a great public blockchain that works very quickly and without any bugs or whatever so far. The blockchains being improved more and more, and there are more and more new ones. There are a lot of choices. We think that private or permissioned blockchain is not good because it's controlled only by a limited number of parties and they can do whatever they want. But normally you can not amend the record on blockchain because it's an upend-only technology. You can only add blocks. You can not delete previous blocks.

There are concerns that Covid-19 will have lasting impacts on international grain trade. Do you share these concerns? What would be the potential changes in the global grain trade system? 
In terms of COVID-19 lasting impact on international grain trade, yes, there will be some definitely. But the most important for me is that it will push the adoption of digitalization and blockchain. Take for example, original documents… after the vessel is loaded, the seller makes original documents and sends by fast courier to the buyer or to his bank. The problem is with COVID, it's a big risk to get COVID. And of course, it's ineffective. It takes time for the courier. So, the pandemic definitely will speed up the adoption of digital documents, digital platforms like ours, blockchain and everything. And this is good.

What will be the key factors affecting the wheat prices in the coming months?
I think it's more probably China because it is has a shortage of grains. China is buying very massively and will continue to buy as massively. Therefore, I'm expecting the prices to be to go up and be firm.

[box type="shadow" align="" class="" width=""]

Benefits of the blockchain-based grain trading

  • Certainty
  • Considerable gain of time and costs’ reduction, compared to “normal” trading
  • Effect contract’s execution with surgical precision
  • All authorized parties are able to authenticate cargo docs remotely and their data integrity is guaranteed by blockchain[/box]

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