Last week, we examined the goal of traceability in beef markets. Traceability helps ensure a safe food supply and keeps markets open.

Further expanding traceability from birth to beef empowers individual choice and supports American ranchers.

USDA doesn’t have to achieve this goal alone. Blockchain-driven agricultural cooperatives could play a crucial role in achieving these goals. As the demand for traceable and sustainable beef grows, blockchain technology and Decentralized Autonomous Organizations (DAOs) offer transformative solutions for American ranchers.

How could a blockchain-driven Decentralized Autonomous Organization (DAO) revolutionize cattle ranching?

What is Blockchain-Driven?

Imagine a group of bookkeepers who work for different companies. The companies recently formed a partnership. They don’t have much history working together, and each company's survival depends on getting its portion of the revenue from the partnership. Record keeping and transparency are vital pieces of their joint venture.

To ensure each company gets its correct share of the profits, they bring their bookkeepers together in one office. They record all transactions on a large whiteboard on the wall. The bookkeepers arrive and leave at the same time every day, ensuring that everyone can see and verify their records and everyone else's.

That’s blockchain in a nutshell.

In industries where partnerships are critical and trust must be built from scratch, blockchain provides a secure, transparent system for transactions without a central authority.

The bookkeepers working in one office where they can see each other's work mirror the decentralized nature of blockchain. In blockchain, all participants (nodes) in the network have access to the entire ledger. They can independently verify the ledger’s accuracy and the validity of new entries.

The whiteboard represents the blockchain ledger, a cryptographically encoded digital record of all transactions executed and confirmed by the network. The ledger is visible to all parties at all times.

The bookkeepers opening and closing the office together symbolize the consensus mechanism used in blockchains. Like all bookkeepers agreeing to open and close the office, record keepers in blockchain technology must gain consensus before a new block can be added to the chain.

The nature of blockchain ensures that all transactions are openly recorded on the ledger and accessible to all involved parties. This helps prevent disputes and ensures that each party receives their due, per the agreement.

Blockchain provides a framework for fairness, transparency, and security in joint ventures without needing a trusted third party. Applications such as supply chain management, financial services, and other sectors where joint ventures are common can benefit from blockchains. One structure that benefits from blockchain technology is a DAO.

What is a DAO?

Decentralized Autonomous Organizations (DAOs) operate through smart contracts, like automated agreements coded into a blockchain. When predefined conditions are met, these programs automatically execute actions (like payments). This ensures that all participants adhere to the rules without the need for intermediaries like lawyers or banks.

DAOs aren’t governed by a single entity like a CEO or Board of Directors. They operate in a distributed manner across a network of computers. Members of a DAO collaboratively discuss and democratically vote on the rules governing their interactions and the organization's operations. Computers then automatically execute these agreements, mitigating the risks of centralized corruption and avoiding single points of failure.

When agreed-upon business conditions are met, the computer executes specified actions without human intervention. This means the organization can run efficiently and consistently without bureaucracy.

All transactions and rules in a DAO are recorded on the blockchain, making them fully transparent and easily auditable by anyone in the partnership. This transparency builds trust among participants and can make organizational decision-making more accountable and fair.

Essentially, DAOs represent a new approach to organizing collective efforts. By harnessing blockchain technology, DAOs ensure operations are democratic, transparent, and efficient. They represent the potential to usher in a new era of partnership management. Implementing blockchain through DAOs could radically streamline cattle ranching in America.

What is Cattle Ranching?

Cattle ranching involves raising cattle for beef. It requires experts in animal husbandry, pasture management, veterinary medicine, and nutrition. Ranchers must understand and respond to environmental conditions such as weather patterns, soil health, and water availability. They also need expertise in sustainability, market fluctuations, trade regulations, and economic policies to be profitable and make sound decisions.

Further, national cattle ranching is a segregated operation. Figure 7, below (also shown last week), taken from USDA Economic Research Service Report Number 830, depicts the complexity of beef commodities.

An important note about the diagram: most cattle ranchers don’t operate in more than one sphere. Cow-calf operators are not also stockers. Stockers don’t run feedlots, and feedlot operators don’t slaughter and process animals. Each segment of the ranching industry is largely segregated from the next.

Enter the possibility of blockchain-driven Decentralized Autonomous Organizations (DAOs) revolutionizing cattle ranching.

Let’s take a simple example: A large operation cow-calf operator in Wyoming with excellent genetics, a stocker in Kansas, and a processing agent in Missouri agree to form a partnership. They all want to realize the increased profit potential of the direct-to-consumer market for high-quality, pasture-finished beef. They need to share ownership from birth to beef to achieve their aim. But they individually don’t have the resources to do it alone.

The cow-calf operator needs the partnership because she doesn’t have enough grass to feed her calves year-round. The stocker agrees because he doesn’t have many cows to have calves, but he has outstanding overwintering forage. The processing agent agrees because he thinks there’s more profit potential than in the beef commodity market. The processing agent runs a USDA-inspected facility, so the beef will have a final USDA grade and be sellable to restaurants and grocers. They find a restaurant customer for the finest cuts, the Golden Ox in Kansas City, which overlooks the historic Kansas City stockyards. The rest of the cuts will go to local area butchers.

They agree to establish a DAO. They all agree that Ethereum is a good blockchain platform because of its widespread use and robust support for smart contracts. The calves each have their tag number registered on the blockchain, and the processing agent agrees to maintain the blockchain information post-processing.

They agree that each of them will earn one token, or share, for each calf they transfer to the following individual. So, the Wyoming producer earns a token when a calf arrives in Kansas, and the Kansas producer earns a token when the calf arrives at the processing facility. This arrangement promotes responsibility and ensures each participant is invested in the health and quality of the cattle as they pass through the supply chain.

The total revenue is continually divided by the number of tokens, paying out the total. Over time, their revenue increases because they compete in the lucrative direct-to-consumer beef market instead of the wholesale beef commodity market.

Three ranchers agreeing to a DAO partnership grows into ten, then fifty. It keeps growing and Americans start to expect traceability from birth to beef.

By forming a DAO, the ranchers leverage blockchain technology to:

Track and Verify Genetic Quality and Handling: From the calf's birth through its growth at the stocker to its processing, all data can be recorded on the blockchain. This includes genetic information, health records, feed type, and USDA beef grade.

Automate Revenue Sharing: As each participant adds value (e.g., the cow-calf operator providing calves, the stocker raising them, the processor handling slaughtering and packaging), they receive tokens representing their contribution. Smart contracts automatically calculate and distribute revenue based on the number of tokens each member holds, ensuring fair compensation.

Access Data in Real Time: All parties can access the blockchain ledger to see each animal's status, location, and health. This transparency helps in planning and management.

Maintain Compliance and Quality Assurance: The processing agent maintains blockchain records post-processing, which adds a layer of compliance and quality assurance. Restaurants and butchers purchasing the beef can verify its USDA grade and trace its entire history, a significant selling point.

There are some downsides to setting up the DAO. For example, the DAO partnership maintaining ownership of the animals from birth to beef means the cow-calf producer won’t be paid for two years. Producers would have to accept the technology and arrangement. Regulatory environments for blockchain technologies aren’t the same across the nation. Consumers would need to accept the technology as proof of the quality of the product.

Even with the challenges, there is significant upside to cattle ranchers competing in the lucrative direct-to-consumer beef market instead of the wholesale commodity beef market.

Blockchain-driven DAOs are a way to enhance transparency, increase efficiency, and open up new markets for ranchers.

Traceability from birth to beef enables individual Americans with the capability and freedom to choose beef that aligns with their needs and values.

Traceability further improves ranch management and profitability, bringing more funds to rural communities.

Entities such as blockchain-driven agriculture cooperatives will drive innovation in cattle ranching.

May God bless the United States of America.

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