For several years, Cotton Grower magazine has offered an essay contest for students enrolled in the annual ACSA International Cotton Institute in Memphis. This year’s winner, Nudhanai Lunchaprasith – who works with cotton-selling agents Emerald World in Bangkok, Thailand – offered a personal reflection on the evolution of technologies in cotton marketing…and what may lie ahead.
FROM TELEX TO BLOCKCHAIN
By Nudhanai Lunchaprasith
Many nights when I was young, my dad would come home late. He then would quickly eat and head back to the office. We lived in Thailand, and he was a cotton agent. When he had a bid in hand, he could not resist rushing back at night to check the Telex as the U.S. market opened.
In the 37-year career, his first 20 was all about the Telex. The world depended on them, as they made possible global communications and transactions. It was a necessity. Everyone was using one, because everyone else was.
And then the faxes came along. All of the sudden, the office had three machines, and our house had two. Although my dad no longer had to leave the house at night, he instead stayed up much later and more frequently than before.
Fast forward to now. We all have cellphones, e-mail, instant messaging and the Cloud. Like the Telex or the fax, the new technologies became new necessities, as not only did they make our lives easier, but more importantly, because everyone else was using them.
This brings us to today. As we are standing on the verge of the Blockchain applications, many are convinced that it will change the way we do business for the better. I, too, have no doubt that Blockchain will bring about a new technological era to the commodity that we all love. I believe that, eventually, distributed ledgers will be widely used in the industry, and the smart contracts would make LCs, physical bill of lading, invoices, and maybe even manual classing obsolete!
The benefits and applications are endless, as we can only [right now] imagine a fraction of what Blockchain could do. However, none of the above benefits will be the spark of any genuine change. Any significant transformations will require much more than that.
The technology of Blockchain is unlike those in the farming sector such as precision planting, round module pickers or GMO seeds. Farming-related innovations did not have to rely on the network effect, but only on the objective results such as yield, cost or time-savings. Early adoption works in their favor. When no one else was utilizing, the few people who did could maximize their profits.
Meanwhile, scarcity does not apply to Blockchain. When no one else is utilizing, there is no objective result. It will not matter if the perfect algorithm for the smart contract was written. The proverb “if it ain’t broke, don’t fix it” will keep most of our industry from moving forward with any new opportunities. The challenge is not how to create the best product, but how do we make it viral?
The World Cotton Futures contract is the perfect example of what does not work. The product mesmerized the cotton world with promises of superiority over Cotton #2. However, upon release, few signed up. The contract was too complicated, and the learning curve was too steep. The new contract did what it promised to do, but was not enough to cover the transition cost – or at least not convincing enough for the world to see the benefits. The product relied too much on the mass adoption, and was worthless with only a few participants.
Blockchain is similar to this in many ways, and may face the same fate if it never catches on.
However, the HVI machines told us a different tale. The now widely-used technology had convinced the industry that the old way was indeed broken and was only waiting to be fixed. The revolution had brought about peace in quality disputes among the classing gurus. However, even the most accurate machine would have been useless if no one had faith in it. What made HVI a success was that it didn’t need to convince everyone. All it needed was the USDA. Since it was adopted by a key governing body, eventually HVI caught on. And now, everyone is using it.
Overall, these historical scenes do not provide an optimistic outlook for Blockchain integration within the cotton industry. Unlike mechanized farming, Blockchain cannot provide objective results without the help of the network effect. Unlike the HVI, there are no governing bodies with enough authority to provide assurance – not even the USDA or ICE can dictate the usage. And just like the World Futures Contracts, it is extremely complicated, as it would likely alienate 90% of the industry if it were introduced today.
With that said, I do not believe that Blockchain will follow any of these paths that relied solely on the internal variables of the cotton industry. Instead, the catalyst will be an external one. Just as the fax machine replaced the Telex or as Skype replaced international calls, Blockchain will find its place in our industry.
There will be a demand of it in cotton as other industries begin to implement, because – let’s face it – the agriculture sector has never been early adopters! Eventually, the technology will become a necessity. It will be our job to educate our people, for them to be informed and prepared for changes. Why? Because everyone else will be using it.
At this point, it is too early to make any concrete predictions of how might the Blockchain technology alter our market. Perhaps we’ll no longer need LCs or banks, but how would purchases be financed? We may no longer need piles of documents or any governing bodies, but who will help us enforce laws in case of a dispute? Perhaps there are already answers for some of these questions. But our trading structure is so intertwined and complicated, new questions will never stop arising. That is why we need to look from a broader perspective.
Thinking back to the beginning of the fax era and how it changed my family: my dad could then work at home, but had to for more hours and even in the weekends. And at the age of smartphones, he could work while commuting, but also could not put it down. These technologies have made our work easier, but also demanded us to do more.
I think Blockchain will be similar. It will revolutionize the way we work, making it quicker, more accurate and more efficient. However, it will also bring more volume and more work. In some ways, we all will be demanded to work harder simply because everyone else will be doing so: an endless cycle.
Nonetheless, regardless of how the cotton industry has changed, I believe there’s one thing that will always endure, and that is the sense of community. As I have been following my dad’s career path for three years now, he always said that people are his favorite part of the work. As I write this, I am surrounded by 33 great people from 15 countries, attending the cotton school. From teaching each other about futures-options the day before the exam, enduring sleepy afternoons of cotton classing practices to late nights out at Beale Street and to a weekend at Hot Springs, I am certain that the friendships and the memories created here will last. I believe that this is what makes the cotton industry special, and no technology could ever take that away from us.