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Blockchain: from farm to table

According to the 2018 policy paper by the Food and Agriculture Organization of the United Nations (FAO), blockchain could dramatically transform the food supply chain. As per the policy paper, blockchain technologies can help in building an immutable contract between the various players in supply chain, enabling further transparency in the system.

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Application of blockchain in food industry

Blockchain, when integrated with the latest technologies for data capturing, has huge potential in the food industry. Building on the respective strengths of blockchain and the Internet of Things (IoT), we can revolutionise the food industry. IoT solutions link the physical and digital worlds, capturing data like temperature and humidity during transportation or storage of product. Blockchain provides a secure and an immutable platform where this data can be stored and accessed by every participant in the supply chain.

Blockchain is a new way of storing information, preserving it without modification, accessing it and integrating new information that becomes unforgeable. The information is recorded on the equivalent of a vast distributed register, i.e. shared on the computers (called “nodes”) of all the members of the network. The distributed nature of the registers allows transparency and auditability.
The main advantages are decentralization, security and immutability. The applications of blockchain aim to create trust where it is lacking or to replace centralized trust mechanisms.

Blockchain used with IoT sensors and trackers will have several advantages:

  • streamlining the supply chain, reducing retailers’ costs
  • simpler regulatory compliance
  • enhancing and expediting the food recall process
  • enable $31 billion in food fraud savings globally by 2025, according to Juniper Research.

A food supply chain is very complex. The numerous producers, harvesters, processors, consultants, agents, temporary workers, retailers, who participate in the production of food often only impact a very little portion of the food journey. Such a decentralized process calls for a decentralized solution. The Blockchain simplifies the challenging task of aggregating information from a multitude of actors by providing for one-to-many data integration and process orchestration among participants.

Farmers

The blockchain will enable the birth of this new real-time, local produce market by enabling transparency for evidence of quality (freshness, taste, safety) traceability (for risk management and brand integrity), food sustainability with fair incentives from buyer to grower, combating food fraud and regulatory compliance. The blockchain is enabling supply chain transparency and providing access to data that was otherwise not available creating a path to shrink the supply chain to the farmer.

Distributors

These entities rely on verbal assertions from farmers while being under pressure from processors and buyers to provide more transparency to the origin of the product (product type, farming practices, harvest date, treatment information, fair-trade, certifications, etc.). Distributors are also exposed to risks related to changing supply or demand.

Distributors are pressured by their consumers to source more local farm product but are constrained by the farmers’ inability to supply them. The blockchain will give them access to new, or in the vernacular of finance, “IPO-ed” produce by farmers. The jury is very much out on whether they want to move into this new, more local and sustainable world. We view distributors and brokers as the predictor of the long-term adoption of our blockchain.
We believe that eventually they will have no choice but to adopt, but will be slow and reluctant to do so.

Traders

Traders (Cargill, Bunge, Louis-Dreyfus, etc.) are powerful players that move grain and commodity product across the world, manage vast amounts of data, and are principals in the institutional trading and risk management of all these elements. They have a vested interest in retaining hegemony in managing the commodity business.

This means their trading know-how and infrastructure of ports, vessels and predatory pricing relationships with producers can remain the dominant competitive advantage. These entities will likely be first in line to try to coopt the blockchain, as individual enterprises, for their purposes and add it to their infrastructure. Their strategy will likely be one of forcing adoption or leveraging large infrastructure company efforts to enable others to connect to their chains.

The other aspect that trading houses will be able to implement are their connections into traditional financial exchanges, brokerages and institutional trading markets. There are several large consortium efforts for distributed ledgers and blockchains to engage in derivatives and exchange trading on new, distributed ledger systems, connecting financial risk management in real time to crop and or proteins yield management. This will create new “alpha” trading opportunities for these trading houses based on new shared information on disparate blockchain functions (trading and settlements chains versus food chains.)

Packers

Packers could increase their value in the chain through the use of smarter containers with a blockchain identity, product labeling, and with other measurements or assertions about the food at the time of packing, packinghouse location, practices, etc. These are also valuable pieces of information for actors up the chain.

The Blockchain provides a communication channel for the packer to document their value to the supply chain, which in turn adds value to the shared data that will ultimately fulfill on transparency goals.

As with the large distributors, packers who are part of the established high volume food industry, won’t adopt until forced to or there are new innovative entrants into this market for a new, local-out blockchain implementations.

Processors

Food processors often struggle to validate the origin of their input products. Consumer trust in the quality of a processed product depends on the ability of the processor to communicate not only processing data but also origin information about the product, which implies robust traceability and transparency to the grower in virtually instances.

The economics of this requirement, today, is prohibitive let alone the ability to motivate growers to connect and provide this information to processes. Processors are rightfully very guarded when it comes to sharing their practices and methods; the Blockchain of Food allows the grower and processor to share information with another privately and securely but also have the supply chain validate this information without necessarily violating individual entity trust.

An example of this is a vegan hamburger restaurant that buys their buns from a local bakery using the Blockchain. The baker uses the Blockchain to make a public assertion that the buns are vegan. The restaurant posts a smart contract that is programmed to identify non-vegan ingredients. The baker privately exposes their list of ingredients as evidence to the restaurant’s smart contract. Seeing the list of ingredients the smart contract can certify the baker’s claims, thus reinforcing these assertions in the mind of the consumer. The smart contract continues to monitor this list of ingredients for every order placed.

Big food manufacturers and foodservice companies will likely take a portfolio approach to adopting the Blockchain by placing their bets widely, or diversify their approach. Obviously they all have major food businesses with legacy systems and processes in place and thus their entire processing network cannot accommodate that. We believe their participation comes from a mix of small pilots based on their innovations groups, small, local, sustainable and healthy brands which play by the new rule.

The other strategic action for them is to slow things down by joining consortiums, blocking rapid adoption via innovators or just piece-mealing implementations internally. In any of those cases, big food manufacturers will have to plan for a new state of workflow and technology to support a more fresh, local, sustainable food production system. Blockchain allows that transition to be done much more cost effectively than revamping enterprise systems through supply chain cost mutualization for participating in a blockchain.

Grocers

Grocers are facing increased competition from online food providers, new retail entrants (Amazon); delivery services, coops and so on. Grocers generally want to provide local options, but they struggle to coordinate a predictable supply.
Premium grocery chains are facing difficulties justifying premium prices to customers who demand more and more transparency and information about their food. Grocers would benefit from the ability to further differentiate premium food options (organic, IPM, Local, Fair Trade, etc.).
The Blockchain provides a Web-of-Trust system that allows the participants to evaluate and validate assertions made about our food. This in turn binds the information value provided by local farmers to the claims made by grocers and shared in the blockchain to effectively created new, distributed, chain wide, self-certifications of quality, transport, freshness. This is a powerful and potentially transformational activity to help solve for the low levels of consumer trust in their foods.

Restaurants

Restaurateurs have a direct relationship with the ultimate consumer. The trend to provide more information about the food they serve (local, organic, free-range) continues to increase. Online ordering and restaurant-specific phone apps further magnify the demand for food data. Consumers are willing to pay significant premiums for food they know is good for them. Smart menus could be connected in real-time with the Blockchain to provide the actual history of specific produce being used on a particular day in the store. This could lead to a potential “holy grail” of food personalization.

The high-end restaurants certainly are going the farm-to-fork route, but they are probably too small, or have enough influence to “cause” large-scale adoption. The intermediate-sized, fast-growing chains and the numerous millennial-centric chains are extracting a premium from their consumers for the quality and sustainability of their food, and sooner or later, they will be challenged in authenticating their claims that their food is better. This is what historically happened to Whole Foods.

A smart contract can reduce the number of intermediaries in the supply chain network. These smart contracts can reduce transaction costs, improve margins and increase efficiency, and as a result, transfer a large chunk of profits to the farmer/producer.

The Blockchain also provides a lexicon and ontology for describing attributes of our food as it moves through the supply chain. This common grammar provides a data structure that is used by smart contracts to automate assertions, certifications, and market operations on the Blockchain of Food.

Any organization can run a blockchain node and become a guardian of the information exchanged on the Blockchain. Indeed, we expect there will be multiple blockchains that will inter-operate with one another. These are drivers that will help the food supply chain organize into more local pods of real time functioning food generation, distribution and efficiency.