How Blockchain will Transform the Food Supply Chain
Blockchain's capability of tracking ownership records and tamper-resistance can be used to solve urgent issues such as food fraud, safety recalls, supply chain inefficiency and food traceability in the current food system. In this article, we are going to take a closer look to address these concerns and how blockchain could make a positive impact on the food ecosystem.
Food traceability has been at the center of recent food safety discussions, particularly with new advancements in blockchain applications. Due to the nature of perishable food, the food industry at whole is extremely vulnerable to making mistakes that would ultimately affect human lives. When foodborne diseases threaten public health, the first step to root-cause analysis is to track down the source of contamination and there is no tolerance for uncertainty.
Consequently, traceability is critical for the food supply chain. The current communication framework within the food ecosystem makes traceability a time-consuming task since some involved parties are still tracking information on paper. The structure of blockchain ensures that each player along the food value chain would generate and securely share data points to create an accountable and traceable system. Vast data points with labels that clarify ownership can be recorded promptly without any alteration. As a result, the record of a food item’s journey, from farm to table, is available to monitor in real-time.
Balancing market access
The use cases of blockchain in food go beyond ensuring food safety. It also adds value to the current market by establishing a ledger in the network and balancing market pricing. The traditional price mechanism for buying and selling relies on judgments of the involved players, rather than the information provided by the entire value chain. Giving access to data would create a holistic picture of the supply and demand. The blockchain application for trades might revolutionize traditional commodity trading and hedging as well. Blockchain enables verified transactions to be securely shared with every player in the food supply chain, creating a marketplace with immense transparency.
Despite many promising perspectives of the blockchain for food, several concerns and doubts still remain, making it hard to implement the technology in the food supply chain.
The first challenge for entrepreneurs entering the space starts with the question of how to overcome the complexity of the food ecosystem. For a typical agricultural production site, implementing blockchain technology requires a customized system and streamlined practices for data entry. Agricultural products have various forms, storage methods, handling processes, and a variety of data recording methods.
We often see challenges in adapting to the food system caused by multiple platforms and non-synchronized terminologies. The food ecosystem involves many players (i.e., distributors, buyers, wholesalers) and many layers of structures such as terminal markets, distribution networks, and trading platforms. Implementing blockchain in scale requires a great effort of customization at the granular level - from farm operations to working around the existing ERP system and modifying the data collection process.
Advocates against blockchain for food also raise concerns about data transparency. On one hand, the disclosure of data would provide accountability for trading transactions and farming practices, which supports claims like organic, freshness, and superior quality. On the other hand, detailed information might get scrutinized and cause a backlash against businesses if things go wrong. It's difficult to request voluntary disclosure of information, primarily when the critical data might affect businesses. In the case of agricultural production, if a pesticide is used during production for combating plant disease, consumers might diminish the value of a product or reject it entirely. Farmers might be reluctant to participate in blockchain implementation if their rivals are creating a competitive edge by hiding specific products or processing information.
Another concern is the capacity issue of blockchain being able to handle large quantities of data, particularly trading data. The blockchain application in trades, where more significant economic impacts might happen, has been paid the least amount of attention so far. First, we are seeing interests of deploying blockchain mainly from large organizations because they have the infrastructure - both technical systems and data already in place - to support the automation of processing data at a farm level. In addition, as one of the constraints of the blockchain, the structure and scales have to be carefully planned out as each transaction added to the blockchain would increase the size of the database. Either a smaller ledger (not every node can carry a full copy of the blockchain) or a more centralized control should be built in the network. As a result, large pilots are demanded by corporations to test the limits of blockchain before it even establishes.
Over the past few years, we have seen blockchain technology evolve and become readily available to transform different industries, especially for food sectors. The space of blockchain is crowded with innovators. Bext360 utilizes a combination of IoT, blockchain, machine learning, and artificial intelligence to build a fully-transparent food supply chain. They provide the SaaS platform to growers and different players along the value chain for sharing data and tracking progress.
Other notable innovators in the space include IBM Food Trust, ChainTrade, Farm2Kitchen, Ripe.io, Arc-net, Avenues-GT, Owlchain, and TE-Food. They are untangling the aforementioned challenges and working on building the next phase of blockchain application from different angles, with examples of ChainTrade and Avenues-GT building a decentralized trading platform for tokenized commodities, and Arc-Net focusing on brand protection and validation.
Overall, we see a missing piece for overcoming challenges and concerns: monetized incentives. The initial efforts and commitments for implementing blockchain are often barriers for many participants in the food ecosystem. In order to make economic sense, the technology should either improve prices or lower cost. Even though more consumers are advocating for transparency and food safety, there is little motivation for industry players to participate if the price does not justify the cost.
A great case study is the recent transformation of the organic industry. It has come a long way for both consumers and producers to embrace the concept of organic food. However, once the premium price is justified and backed by certification, the incentives for switching to organic quickly became visible for food companies and producers.
With that being said, pressure from the consumer side is often not enough to motivate systematic changes unless there is a clear monetization opportunity. Blockchain’s unique decentralized structure ensures verified products and practices to create a market for premium products with transparency. Thus, commanding a premium price would provide a monetary incentive. In the meantime, the incentive problem could be solved by different financing structures. Companies such as Skuchain are building blockchain-based inventory financing models, which allow businesses to get a revolving line of credit using inventory as collateral. A tracking system empowered by the blockchain technology would enhance the ability to obtain such lending and lower supply chain cost on a bigger scale. So the asset-based financing also provides a critical and fast monetary incentive for suppliers to adopt blockchain.
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