Finance
Harvest tokenization: a new path for agricultural financing
By Avocate · · Updated on
Tokenizing a harvest means representing rights over it, or over what its sale will bring in, as digital assets on a distributed ledger. Done well, it can make those rights cheaper to manage, split them into small parts and bring financing within reach of producers who cannot access it today. This article explains what it involves, why it matters to small farmers and which legal framework applies in Spain and the European Union.
What does it mean to tokenize a harvest?
Tokenizing a harvest means representing a right linked to it, such as a share of the crop or of the income from selling it, as a token on a distributed ledger. The issuance, ownership and every transfer of that token are recorded on the ledger, which all parties share and no single party can change on its own.
The potential advantage is operational: faster settlement, a common record between farmer, buyer and investor, and the option to split the right into small fractions so that more people can take part.
Why do small farmers struggle to get financing?
Small farmers struggle to get financing because they have little scale, few guarantees and an income history that banks see as risky. The International Fund for Agricultural Development (IFAD) estimates that the financing needs of some 270 million smallholders in sub-Saharan Africa, South and Southeast Asia and Latin America exceed 200 billion dollars.
These farms carry enormous weight. According to the FAO, there are more than 570 million farms in the world, and those under one hectare make up 72% of the total while controlling only 8% of agricultural land. The FAO itself notes that these are orders of magnitude, not exact figures.
How can tokenization help finance a harvest?
Tokenization can help finance a harvest because it turns expected production into something that can be offered, split and transferred with a reliable record. A buyer or a group of investors can advance money to the producer before harvest in exchange for tokens on that crop, and the ledger records who holds each right.
Combined with smart contracts, tokenization also lets the payment be set aside and released only when delivery is confirmed. The producer gets paid sooner and the buyer does not pay for goods it has not received.
What is the legal status of a token on a harvest?
The legal status of a token on a harvest depends on the rights it grants, not on the technology used to issue it. If it gives financial rights, such as a return or a share of income, it may be a financial instrument, and Spanish Law 6/2023 on Securities Markets states in Article 2.2 that financial instruments remain financial instruments even when issued or transferred using distributed ledger technology.
The same law allows, in Article 6, negotiable securities to be represented through systems based on that technology, provided they guarantee the integrity and immutability of the issues. Article 11 adds that transfer takes place through the transfer recorded on the distributed ledger itself, so the ledger has legal effect.
What does European regulation say?
European regulation distinguishes between crypto-assets and financial instruments, and a token on a harvest can fall on either side depending on its rights. Regulation (EU) 2023/1114, known as MiCA, governs the offering and trading of crypto-assets and has applied in general since 30 December 2024. Its Article 2.4 expressly excludes crypto-assets that qualify as financial instruments.
Financial instruments have another route: the pilot regime for market infrastructures based on distributed ledger technology, Regulation (EU) 2022/858, applicable since 23 March 2023. Under its Article 3 it admits shares, bonds and fund units, subject to size limits.
What risks should be considered?
The main risk is mistaking technology for legal protection. A token on a harvest does not remove the risks of farming or of the financial product it represents, and whoever offers it must comply with the rules that apply to it.
- Farming and market risk: the harvest may be smaller than expected or sell at a lower price.
- Regulatory risk: the European framework for these assets is still being developed.
- Technology risk: failures in the ledger or in smart contracts have real economic consequences.
How does Avocate approach it?
Avocate sees harvest tokenization and crowdfunding as ways for agricultural producers to access capital, and guaranteed payments as a way for them to get paid on delivery. The project is developing its product with the aim of complying with Spanish and European law on the tokenization of real-world assets.
This article is for information only and does not constitute financial or legal advice. Any investment carries a risk of loss.