Smart contracts for smart rural supply chains

Gunnar Prause, Ivan Boevsky

Abstract: Rural economy is often associated with small firm size together with low level of business sophistication, thin business networks, limited ability to attract investments, regional orientation and weakness in entrepreneurship. Nevertheless, there are strong activities towards smart rural development by applying recent advances in information technology (IT) to foster new development paths of Europe’s rural areas. A new and promising IT invention is related to blockchain technology and smart contracts, i.e. to computerized transaction protocols intended to digitally facilitate, verify, or enforce the negotiation and execution of the terms of an underlying legal contract designed to fulfil common contractual conditions comprising payments, legal obligations, and enforcement without third party. But the potential of smart contracts goes far beyond cost reductions by facilitating entrepreneurial collaboration of cross-organizational business-processes in the context of smart rural supply chains. An analysis of existing or ongoing smart contract projects reveals that the majority of smart-contract applications in business life are linked to industrial solutions. But a closer look to all successfully applied cases of blockchain technology and smart contracts also shows high potential for integrating fragmented rural supply and value chains towards smart rural development. Hence, one important development perspective lies in the use of digitalization approaches to overcome rural shortcomings in rural networks of small and medium enterprises (SME) and value chains by coordinating and optimizing their supply chains and to market their products in order to reduce or even avoid the dependency of multinational agricultural commodity traders. This paper discusses the research question how and to which extent smart contracting and blockchain technology can be applied to empower rural SME in smart rural supply chains. The research results will be empirically validated by two case studies from the area of smart supply chains in a rural context.

Keywords: blockchain; rural areas; rural development; smart; smart contracts; SME networks; supply chains

Date published: 2019-07-31