Smart Contracts as a Tool to Support the Challenges of Buying and Selling Coffee Futures Contracts in Colombia
Abstract
:1. Introduction
2. Key Concepts
2.1. Coffee Future Contract
2.2. Characteristics of the Coffee Future Contract
2.3. Smart Contract
2.4. Centralized and Decentralized Traceability Systems in Agri-Food Processes
2.5. Current Knowledge Status
3. Methods
- Obtain and define user requirements, both functional and non-functional, to establish the users’ needs and expectations for system use and contracting;
- Contract traceability—Defining and identifying traceable units of contract variables involves establishing clear criteria on how different stages of the harvest will be tracked, including data collection necessary during the contract development process;
- Design and implement a prototype (PoC)—This phase involves the concrete implementation of smart contracts designed to assess their feasibility and effectiveness in futures contracts and asset management;
- Analyze the capacity of the smart contract certification service—Providing and validating contract data, features, and prices in an application accessible through URI aims to integrate an element that contributes to the quality and accessibility of information, as well as the asset buying and selling process;
- Evaluate the prototype with the participation of experts and critical actors in the chain. This process aims to obtain valuable feedback and answers to the research question (RQ1), ensuring the relevance and effectiveness of the implemented proposal.
3.1. Positioning and Contribution
3.2. Smart Coffee Supply Chain
3.3. Future Smart Contract
4. Results and Discussion
5. Conclusions
Author Contributions
Funding
Institutional Review Board Statement
Data Availability Statement
Acknowledgments
Conflicts of Interest
References
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Variables | Indicator |
---|---|
Coffee Quality | Cupping score, defect score, variety |
Certifications | Fairtrade, 4C |
Pricing | The price paid, freight rate, and the spot price for each transaction |
Social/Economic/Sustainability | Payment of premiums to farmer producers (by the administration of a cooperative or estate by community development plans or work plans approved by an inclusive general assembly) Reliable and transparent payment systems |
Actor and Process | Description |
---|---|
FARMER PRODUCER | In step A, it is established that the farmer must meet specific requirements to participate in a future coffee contract: |
Know the costs of his production. | |
Define the month of delivery and the quantity and quality of the coffee. | |
Establish the price at which he will sell his load of coffee. | |
Agree on the delivery, quantity, quality conditions, and price with the cooperative. | |
Once the contract has been defined and the farmer has accepted the terms with the cooperative, the coffee load is delivered to the cooperative. This process ensures a clear understanding of the expectations and conditions between the farmer and the cooperative in the context of the future coffee contract [35]. | |
FARMER, COOPERATIVE, MULTINATIONAL TRADERS BUYING AGENTS (FT) | In step B, the negotiation of the coffee cargo is initiated between the cooperative and several futures buyers (FT) worldwide. Once the futures buyers reach an agreement, the cooperative becomes the intermediary in charge of setting and guaranteeing the compliance and quality of the coffee committed in the futures contract, according to the terms of time, quantity, and quality stipulated. The processes are: |
The cooperative defines the characteristics of the coffee and establishes a future contract with a farmer. Once accepted, based on step A, the farmer delivers the committed coffee load, complying with the defined quality variables and the established time. In this process, the cooperative controls the quality using a sample to determine the price and quality, ensuring its integrity, after which it makes the corresponding payment to the farmer. | |
Then, the cooperative uploads price, quality, quantity data, information related to storage, and other details. | |
The futures buyer (FT), based on the initial loading value data, can begin to set new prices based on the quality of the coffee, all backed by the margin from the day’s spot trades. This step demonstrates how the cooperative manages the transition from future contracts to physical delivery, determines prices, and maintains transparency in the supply chain [35]. | |
COOPERATIVE AND FNC | In step C, coffee processing is carried out by performing various functions within the coffee supply chain: |
Controls coffee quality, manages storage and supervises packaging. In quality evaluation, defects, size, and organoleptic characteristics are examined through cupping and assigning a cup score. These activities are carried out before transportation. | |
Dry-milling of the coffee is carried out in facilities operated by Alma Café, a subsidiary of the National Federation of Coffee Growers (FNC). | |
FNC | For step D, transportation and storage for subsequent export are carried out. |
Transportation is organized on an ad hoc basis, with the coordination of individual purchase points through independent logistics being the property of the FNC. These services guarantee efficiency and security in the transportation of coffee from the place of origin to its destination. | |
FNC | In step E, the import process is detailed, defining the procedures established by FNC. |
The importer specifies the quality criteria and the desired characteristics of the coffee. Subsequently, the importer receives a sample for roasting tests to evaluate the product’s final quality. | |
The shipment of the coffee by rail and truck is arranged for storage once it arrives at its destination. | |
The importer is responsible for storing the coffee, preparing the bags for transport, and shipping it to the roaster. | |
FT, ROASTER | In step F, the product transformation process in which the future contract plays an essential role is described in detail. |
At this stage, the future contract may involve sales of the product before its completion, allowing for pricing based on the quotation on the day of delivery and considering aspects such as the roasting process, cup qualification, and other procedures linked to the transformation of the raw material. | |
Once this process is completed, the transformed product is ready for sale, either wholesale or retail. This step represents a critical phase that adds value to the product and prepares it for its final distribution in the market, where the contract price may vary in the face of price speculation. | |
FT, COFFEE SHOP, DELIVERY, CONSUMER | Step G details the delivery process in which the conditions established in the future contract are fulfilled. |
The coffee is delivered during this phase according to the parameters previously established in the future contract. The product, which has been transformed and packaged, is ready for commercialization, either at the wholesale or retail level. | |
At this point, the owner of the future contract can adjust the product’s price according to its quality and value, considering the value and estimate of the spot price of the coffee. This process concludes with the distribution of the product in the market, thus fulfilling the terms of the future contract and closing the cycle in the coffee supply chain. |
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© 2024 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https://creativecommons.org/licenses/by/4.0/).
Share and Cite
Ordoñez, C.C.; Organero, M.M.; Ramirez-Gonzalez, G.; Corrales, J.C. Smart Contracts as a Tool to Support the Challenges of Buying and Selling Coffee Futures Contracts in Colombia. Agriculture 2024, 14, 845. https://doi.org/10.3390/agriculture14060845
Ordoñez CC, Organero MM, Ramirez-Gonzalez G, Corrales JC. Smart Contracts as a Tool to Support the Challenges of Buying and Selling Coffee Futures Contracts in Colombia. Agriculture. 2024; 14(6):845. https://doi.org/10.3390/agriculture14060845
Chicago/Turabian StyleOrdoñez, Cristian Camilo, Mario Muñoz Organero, Gustavo Ramirez-Gonzalez, and Juan Carlos Corrales. 2024. "Smart Contracts as a Tool to Support the Challenges of Buying and Selling Coffee Futures Contracts in Colombia" Agriculture 14, no. 6: 845. https://doi.org/10.3390/agriculture14060845