RWA Tokenization: The Future of Farming
Over the past few days, I spent time at my friend's 12-hectare farm in Mindoro, Philippines.
Just like how I dive deep into research and craft a thesis before investing in any blockchain project, today I explored the parallels and crossovers between farming and blockchain. Let me share my thoughts with you:
Untapped Potential
Farming can be very profitable. With some high-value crops, you can easily multiply your investment two to five times. However, the exact numbers can vary. Smaller productions have higher fixed overhead costs relative to income. While larger productions have higher profit margins, increasing production would also increase the risk, as there are many things that could go wrong.
I see farming as an opportunity for several reasons, but mainly because farming in the Philippines is not government-owned. The farmers themselves are the entrepreneurs and they bear the risk. No, I didn't say that the government doesn't have its hands on agriculture because that is completely wrong; the government does. As a matter of fact, farmers have been receiving various forms of grants, money, and equipment. And if I were to play the devil's advocate, I would speculate these funds were not spent efficiently. I'm sure there is a public ledger, but it is not easily accessible. I'm not going to start the conversation about accuracy and reliability because there are audits, but it would be crazy to assume that a farmer would have extensive knowledge in accounting and business administration, not to mention that there exists politics and corruption. In my view, there is so much untapped potential that can be easily fixed through an easily accessible public ledger that everyone can audit and scrutinize.
Ownership of Lands
Most of the land owners in Mindoro are old and are already rich. I have met at least 5 land owners there and they are all part of a non-profit co-operative called SALIKA. This organization aims to spark agriculture in Mindoro, with the larger goal of transforming agriculture in the Philippines.
While I haven't done research how each one of them obtained big pieces of land (we're talking about thousands of hectares at least just from the five folks I met), I would suppose their ancestors are immigrants from Manila that bought big pieces of land in Mindoro while nobody cares about it. Matter of fact, some lands can still be purchased around $20'000 to $40'000 per hectare. Prices can vary of course, but the point is, land is STILL relatively cheap even if it is that profitable.
source: Agricultural farmland - Oriental Mindoro [Lot 🚜] (July 2024) in Naujan, Oriental Mindoro for sale (onepropertee.com)
Note: I am not advertising these properties, and I haven't checked them myself. This is just to show that there are affordable lands available. These are listed for sale on a website, and you might find an even better deal if you visit and survey the area yourself with the right people and more thorough research.
Diversity in Business Models
Land owners have figured out which business models work for them. Some want a small, steady income, some prefer management-intensive, high-risk, high-reward models, and some choose to pivot to tourism (by the way, I think pivoting to tourism is counterproductive. Farmland prices would increase, and production costs could rise. Moving on...). Each choice, naturally, carries different risks. However, their decisions appear to be based on their comfort rather than optimization and profitability. After all, it is private property, and that is their prerogative.
Crypto folks have relatively high business acumen, and tapping into agriculture could spark MASSIVE growth through the introduction of various modern models, large capitalization, and optimization of process flow. I am not saying we, as crypto folks, are smarter than the farmers, but there would definitely be a big difference if many smart people work together rather than just one experienced land owner.
Regulations
Land ownership in Mindoro is not as decentralized as it seems. I won't be able to show you a tokenomics-style chart as the information is not easily accessible. However, I met a few landowners, and they all own BIG PIECES of agricultural land which already is a big tell.
There are many policies surrounding agriculture here in the Philippines, but one that affected them the most negatively is the DAR. It is an agrarian reform aimed at redistributing land in the Philippines. The government took a percentage of their private lands to distribute among other people, essentially decentralizing ownership.
While I don't like confiscation-style implementation, I like that we are spreading out the distribution of lands. Decentralization is the key!
Another policy that has impacted them them the most is the rice importation tariffs. It was once 35% and now 15%. To give you an overview, tariffs are somewhat taxes put on top of a commodity to control pricing. This is to give our farmers an "edge" to compete with agricultural countries that can import super cheap rice here in the Philippines.
In my view, this is the right path. A 35% tariff is a massive gatekeeping. If our farmers are just messing around, working at their comfort, then they will end up having high operational costs and will be forced to sell at a high price, essentially letting the Filipino consumers tank the inefficiency.
This means to say, the old system induced an artificial market price for rice which could've been outsourced cheaply from other countries. The reduction of the tariff is now forcing the farmers to be efficient to compete with the international market. This is the right path. Slowly, but surely.
source: Rice Exports by Country 2023 (worldstopexports.com)
While there are many regulatory uncertainties ahead, the government will never abandon agriculture. I am more optimistic about agriculture than ever. My family owns hectares of land as well, but we are not farmers and we don't really care about it. But now I am considering that somewhere in this decade (about two BTC cycles), I'd be able to do something with them.
Final Thoughts
The Philippines has so much potential in agriculture. Once we get international regulatory intersections on RWA Tokenization, the Philippines will be one of the many that will benefit. Again, further disclaimer, I am not selling any land, and I am not encouraging you to buy any land, but I am presenting to you that blockchain will stay and will be very useful for agricultural countries. Public ledgers, DAOs, and expirable NFTs will play a major role. Though I can explain in complete detail how these will play a role, I believe it would be wiser to just let RWA flourish and develop by itself. Then, when the time comes, we can talk again and spark agriculture in the Philippines on an international level.
By the way, my friend and I has agreed to supply Vermicompost to SALIKA. This is not exactly farming, but it is a part of it. Vermicompost is very passive, but has lots of demand due to the shift from commercialized farming to organic approach. It is part of a larger project called "Permaculture". Right now I am dipping my toes, and we can see it from there.
Whether ALPH lands on the moon or Mars and back, this blockchain will be used as the user experience is top notch, very programmable, the TPS is very usable, and highly scalable for micro transactions.
Please do not expect any project launch in the near future. We can only proceed once we achieve regulatory clarity, which may take years or even decades in the Philippines.
If you want to learn more about RWA Tokenization, check out this article from Coinbase.
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