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Smart Contracts as a Tool to Support the Challenges of Buying and Selling Coffee Futures Contracts in Colombia

Author

Listed:
  • Cristian Camilo Ordoñez

    (Telematics Engineering Group (GIT), Telematics Engineering, University of Cauca, Popayán 190002, Colombia)

  • Mario Muñoz Organero

    (Department of Telematic Engineering, Universidad Carlos III de Madrid, 28911 Madrid, Spain)

  • Gustavo Ramirez-Gonzalez

    (Telematics Engineering Group (GIT), Telematics Engineering, University of Cauca, Popayán 190002, Colombia)

  • Juan Carlos Corrales

    (Telematics Engineering Group (GIT), Telematics Engineering, University of Cauca, Popayán 190002, Colombia)

Abstract
In Colombia, coffee futures contracts represent essential financial agreements that allow producers and buyers to establish prices, quality, and conditions for future transactions in the coffee market. Despite the evident benefits of stability and predictability, this practice faces significant sustainability challenges that threaten its long-term viability. One of the reasons is the significant lack of transparency in the supply chain. Farmers, affected by abrupt price fluctuations and adverse weather conditions such as the El Niño phenomenon, experience an increase in market prices, leading to the non-delivery of the final product, and contract breaches as they find better prices in the local market. In this context, smart contracts emerge as a promising technological solution to address these problems. These contracts enable the verification of each step in the process, from harvest to final sale, within a blockchain. Therefore, this research designs a smart contract managed through a platform called SmartBeanFutures, which records the clauses of futures contracts using the IERC721 framework, allowing the generation of a unique and non-repeatable asset. It aims to sell, promote, and manage coffee sale prices during the agreement’s signing, creating a transparent environment for chain actors. This proposal undergoes evaluation in a test environment, providing farmers access to the designed platform. Following the validation of the proposal, it was identified that over 74% would use this type of contract in their agricultural processes, highlighting that implementing this technology contributes to eliminating intermediaries in the chain and gives farmers more control over their participation in the market.

Suggested Citation

  • Cristian Camilo Ordoñez & Mario Muñoz Organero & Gustavo Ramirez-Gonzalez & Juan Carlos Corrales, 2024. "Smart Contracts as a Tool to Support the Challenges of Buying and Selling Coffee Futures Contracts in Colombia," Agriculture, MDPI, vol. 14(6), pages 1-20, May.
    • Handle: RePEc:gam:jagris:v:14:y:2024:i:6:p:845-:d:1403978
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    References listed on IDEAS

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    1. Andrea Bastianin & Alessandro Lanza & Matteo Manera, 2018. "Economic impacts of El Niño southern oscillation: evidence from the Colombian coffee market," Agricultural Economics, International Association of Agricultural Economists, vol. 49(5), pages 623-633, September.
    2. Bernhard Tröster & Ulrich Gunter, 2023. "The Financialization of Coffee, Cocoa and Cotton Value Chains: The Role of Physical Actors," Development and Change, International Institute of Social Studies, vol. 54(6), pages 1550-1574, November.
    3. Arthur Blouin & Rocco Macchiavello, 2019. "Strategic Default in the International Coffee Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(2), pages 895-951.
    4. Jordan, James V & Morgan, George Emir, 1990. "Default Risk in Futures Markets: The Customer-Broker Relationship," Journal of Finance, American Finance Association, vol. 45(3), pages 909-933, July.
    5. Simon L. Bager & Eric F. Lambin, 2020. "Sustainability strategies by companies in the global coffee sector," Business Strategy and the Environment, Wiley Blackwell, vol. 29(8), pages 3555-3570, December.
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