Revolutionary Transformations in Food Supply Chains with Blockchain Technology Interventions

The intervention of advanced technology into agriculture has revolutionized the global method of farming and cultivation. Technologies such as robotic monitoring and precision agriculture have reduced the manual labor needed in huge farms. The global food chain worldwide is highly multi-actor based and distributed, with numerous different actors involved, such as farmers, shipping companies, wholesalers and retailers, distributors, and groceries. The movement of food through the supply chain is based largely on complex and paper-heavy settlement processes with very poor transparency, with high risks between buyers and sellers during the exchange of value. As transactions are vulnerable to fraud, intermediaries get involved, increasing the overall costs of the transfers. It is estimated that the cost of operating supply chains makes up two-thirds of the final cost of goods. Thus, there is much space for optimization of the supply chains for food products globally.

Blockchain for agriculture is one of the most compelling use cases of blockchain that makes growing and supplying food simpler. Blockchain is an emerging digital technology enabling ubiquitous financial transactions among distributed untrusted parties without intermediaries, such as banks. According to FAO and ITU 2019, blockchain technology has evolved rapidly since its first use case, Bitcoin. Now, a blockchain can be of the following types:

  • Consortium blockchain – a consortium created and controlled by a group of members
  • Private blockchain – a centrally controlled blockchain that only permits specifically authorized members to add records to the transaction history
  • Public blockchain – the original blockchain architecture where everyone can view the blockchain, and anyone can add/verify records and join or leave the blockchain.

Country-wise food quality and safety score, 2020 (%)

Countries from the developed region, such as the US, the UK, and Germany, show a high score for food quality and safety as the consumers there are highly conscious of these factors. Countries from developing regions such as China, India, and South Africa show relatively poor food quality scores. Thus, key players from the developed countries are trying to capture larger market shares by catering to the client demands. The awareness for food security rises in the consumers of the developing nations. The governments and private players in various countries are investing into blockchain technologies for further improvement in the food supply chains which is strongly driving the overall blockchain in agriculture markets globally.  Several IT giants have made different blockchain platforms or solutions to the food industry. A few examples include IBM (Food Trust and Watson platforms), SAP (Track and Trace, and Leonardo platforms), and Oracle (Track and Trace, and Internet of Things solutions). The primary applications and solutions that blockchain offers in the food and agriculture sectors can be given as:

Food Traceability

Data from WHO suggests that an estimated 600 million fall ill after eating contaminated food every year. Of these, around 420,000 people die every year due to food-related illnesses. Food traceability is increasingly becoming an important aspect for building trust between food brands and their customers. This is especially true since most products are made up of ingredients that are sourced from all over the country and often even span across countries and continents. Food fraud incidents are further creating market opportunities for traceability. For instance, the melamine scandal in China (2008), where a chemical substance was added to milk to increase its protein content and by the time the breach was detected, the contaminated milk products had been exported to 47 countries. This form of food fraud costs the industry USD 10 to USD 15 billion a year in the US alone. Food recalls, and frauds have seen a significant increase in recent years, contributing to the rise in the importance of traceability in the food supply chain.

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Product-wise recall share data, 2012- 2020 (%)

According to the 2018 policy paper by the Food and Agriculture Organization of the United Nations (FAO), blockchain could dramatically transform India’s food supply chain. As per the policy paper, blockchain technologies can help build an immutable contract between the various players in the supply chain, enabling further transparency in the system. Some key examples where blockchain is being utilized for food traceability are:

  1. The Sustainable Shrimp Partnership (SSP) has collaborated with IBM to use its Food Trust ecosystem to provide complete SSP shrimp traceability for their consumers. The data relating to the shrimp production is uploaded onto the blockchain so that the retailers and consumers can access at every stage of the process.
  2. Nestlé collaborated with OpenSc, a blockchain platform, to trace milk from farms and producers in New Zealand to Nestlé factories and warehouses in the Middle East.
  3. Cermaq salmon and Labeyrie came together to utilize the IBM Food Trust platform to ensure traceability and transparency in their supply chain. They aim to provide information about the fish, which is Labeyrie, a leading brand of smoked salmon in France.
  4. The Malaysian Palm Oil Council (MPOC) has collaborated with BloomBloc to implement blockchain technology to enhance accountability and traceability. It has developed a blockchain mobile app and web interface to trace palm oil throughout its supply chain.

Smart Contract

A smart contract is a software program powered by blockchain that carries out a digital contract. The program enables the contract to be enforced, facilitated, and verified digitally, thereby making it smart. A smart contract is similar to the blockchain itself and enables input from a ledger that can trigger an event when necessary. For instance, if a payment has been received, the smart contract can trigger a delivery. However, if a condition has not been met, the smart contract can trigger a penalty or another action. Trazable, a Spanish startup, is applying this technology in the food industry. Trazable lists a number of advantages to using smart contracts and blockchain in the food supply chain with several successful pilot projects. ChainGo is another Spanish startup that is now selling its blockchain and smart contract software to the container shipping industry after running successful PoCs with maritime transportation companies. 

Financial Transactions

Blockchain technology in the food supply chain has the potential to free up trillions of dollars’ worth of economic value. According to the 2018 report of Food Logistics Blog farmers and distributors have little access to banking services and are often paid 60-90 days after delivering product, or have to accept a 50% to 60% price cut if they want their buyers to front them liquidity. This results in a working capital squeeze on those who can least afford it. They are then forced to take out high-interest loans to pay for the next season’s seed or feed. Stable cryptocurrencies offer alternative solutions for cost-effective, low-risk trade finance. This kind of virtual currency functions as a cash equivalent and can be easily traded and exchanged. Using this solution, farmers and other value-adding participants could lend themselves money against the value of their existing assets and then pay themselves back once their invoices are settled.

Avenews-GT provides a digital trading platform based on blockchain technology. This has enabled verified agri-businesses, farmers, cooperatives, and commercial agri-buyers to transact directly with each other locally and worldwide. This technological revolution is helping stakeholders to reduce distribution costs, create financial security, and increase supply chain transparency. IBM Blockchain showcases key factors, such as traceability and transparency, which are some of the most important logistics foundations. IBM Blockchain platform optimizes business transactions and trading relationships with robustly secure business networks on the blockchain. Lokaal Market offers their digital token LOKA, creating new opportunities for businesses within the food and agriculture industries. These facilitate the benefits of using a cryptocurrency for food and agriculture in the immediate advance of tokens during sales transactions; token advances for working capital needs; and access to tokens earmarked as carbon credit redemption, charity, or impact investing.

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The recent COVID 19 pandemic has exerted an immediate, serious, and asynchronous shock worldwide on the global agricultural industry and the food systems. These impacts are likely to remain in place for months to come, and its effects might last even longer. The stakeholders involved in the agricultural supply chain have become more strict, conscious, and aware of the facts. To manage an issue of this scale, there is a need for interventions at every touchpoint in the food industry – from farm to retail. According to the Global Food Safety Initiative (GFSI) scheme, food retailers worldwide are also increasingly demanding certifications of suppliers to ensure food safety for every stakeholder in the value chain. All of these factors are strongly driving the demands for the intervention of blockchain in agriculture.