On the Financial Inclusion and Sustainability Benefits of Blockchain Adoption in Agriculture

An emerging financial innovation enabled by the Blockchain technology in agricultural supply chains is the capability to “tip the farmers.” This innovation empowers socially- conscious customers to identify the individual farmers of their sustainably-sourced products and reward these farmers by sending them direct payments, or tips, through mobile apps. We examine the implications of this new capability on farmers’ and consumers’ welfare and agricultural firm profits. This paper contributes to recent streams in the OM literature on private interventions for supporting farmers in agricultural supply chains, the operational impacts of blockchain technology, and the role of transparency in promoting responsibility in supply chains. In practice, leading financial and IT firms are beginning to introduce the tipping capability, and some agricultural firms are beginning to adopt them. This paper could help guide their decisions. We characterize the equilibrium of the game with and without tipping and show how different types of equilibria emerge depending on the model parameters. We investigate the implications of tipping on various stakeholders such as farmers, customers, and the agricultural firm and identify the conditions under which they may be better off or worse off. Furthermore, we find that even when farmers benefit from tipping in expectation, this financial innovation may create disparity and exacerbate inequity in the farmer population, which is undesirable from a social responsibility standpoint. Firms must exercise caution in implementing the tipping capability as farmers’ expected and actual income and consumer welfare may reduce in the presence of tipping. In contrast, if tipping is implemented under the right conditions, it can create a triple win for agricultural firms, farmers, and consumers.