The global food supply chain is missing an essential ingredient: trust. This is due to factors like increasingly demanding consumers, supply chain hiccups, the growing regulatory burden and food fraud. Only transparency and traceability can bring trust back. This is precisely where blockchain proves its worth.
The global food supply chain is missing an essential ingredient: trust. Countless factors have contributed to the loss of trust. Increasingly demanding consumers, for example. Supply chain hiccups cause disruption and economic damage. The growing regulatory burden. And, to top it off, criminals commit food fraud and trash the reputation of the entire food industry along the way. It will take a completely new approach, based on transparency and traceability, to bring trust back and make value chains futureproof. An approach, we believe, that contains one essential ingredient: blockchain technology.
Before we step into solving the supply chain problem, we need to understand the terms transparency and traceability. While these are often used interchangeably, they represent different concepts within the context of supply chains. Supply chain transparency, according to MIT’s Tam Herbert, consists of two elements: visibility & disclosure. Data from all supply chain participants must be accurately identified and communicated at the level of detail desired. Transparency, therefore, is about exchanging information throughout the entire supply chain and providing all supply chain participants with the required information. Traceability, on the other hand, focuses not on the supply chain as a whole, but on the product itself. The information captured could, for example, consist of batch data or ingredient sources. As we will show, tamperproof recording of such information could prove highly useful for ESG reporting and for spotting product contamination or food falsification. Transparency and traceability have an important element in common: the required exchange of information between different stakeholders. And that is where blockchain technology proves its worth.
A blockchain (to put it simply) allows users to create a digital ledger of transactions and share that ledger among participants in the value chain. It creates a single source of truth of information. Blockchain is a unique way to share information in processes involving multiple parties, because it can create a real-time unified view of the entire supply chain, without the uncertainty of having to question the truthfulness of the information that is registered through the chain. We see at least three food ecosystem issues where blockchain technology can make a vast contribution: ascertaining the origin of products, tracking ingredients, and improving sustainability (reporting). In all these cases, blockchain increases transparency or traceability.
Do you know where your food comes from? And how to verify claims about its origin? Data on the origin of products can easily be recorded on a blockchain. For example, by adding RFID tags during the packaging of harvested crops, a farmer can record information on the environment, crop conditions, or any pesticides used. Objective information from external sources – such as weather conditions during a growing season – can be automatically recorded through so-called oracles. RFID tags enable products to be tracked throughout production and transport, up until they reach the consumer.
Supply chain participants recording the information are rewarded in various ways. Blockchain generally offers increased efficiencies that can result in cost savings. For farmers, disintermediation of the supply chain can lead to better prices for their products. And with processes largely automated through the use of smart contracts, participants may benefit from shorter payment cycles and a lighter administrative burden.
In addition, recording data on an immutable blockchain provides a failproof audit trail for companies that need to prove sustainability claims. The recorded data can be a unique selling point to your customers: by scanning a QR code on the packaging, they can verify the origin of products. This way, your investments in a sustainable value chain will be visible to consumers, giving you an edge over competitors.
In addition to tracking products to the source, blockchain technology can be used to go a layer deeper: tracking individual ingredients within a product. This has multiple benefits. For example, in the event of food contamination, companies spend huge sums to prevent customers from consuming contaminated products. In these situations, time is precious and you don’t want to spend it chasing paper trails. With blockchain, locating the contaminated ingredients and tracing the affected batches can be done in seconds, making the recall process much faster and easier. Consumers can verify whether their product is part of a contaminated batch, simply by scanning a code on the packaging. One multinational retailer that uses blockchain for this purpose stated that the time needed to track contaminated foods went from 7 days to 2.2 seconds.
Another use case for tracking individual ingredients is in the fight against food fraud and falsification. Consumers have no option but to rely on claims made by food manufacturers or sellers. Some parties make fraudulent claims, for example by mislabelling food products, using improper ingredients, or presenting products as halal or kosher that do not qualify as such. Cases of food fraud are so common that the European Commission publishes a monthly summary of them. Food fraud causes severe economic damage and erodes consumer trust. By making the individual ingredients traceable and ensuring that the information is tamperproof, stakeholders can make it much harder for criminals to commit food fraud. Blockchain technology provides a powerful tool to check the history of a product throughout the value chain. Using the information to offer transparency to consumers will do much to restore their trust in the food they buy.
Globalisation has led to increasingly complex value chains with many different stakeholders and a major impact on the environment. While these complex value chains are already difficult enough to manage, there is therefore also an urgent need to make them more sustainable. The increased visibility across the value chain provided by blockchain can help. The data that has already been gathered and stored on the blockchain for tracking purposes is a goldmine for companies looking to produce, source, ship and distribute their products more sustainably.
In recent years, moreover, governments and investors have introduced ESG reporting requirements to incentivise more sustainable business practices. Companies in scope are required to gather and disclose information on the social and environmental impact of their activities. To meet the ESG reporting requirements, parties must cooperate in making their value chains transparent. They must be confident in using other parties’ raw data, raising issues on who is accountable for what information. Blockchain solves this problem by not only recording the required information, but also ensuring that this information is secure and immutable.
Blockchain and value chains are a match made in heaven. The transparency and traceability required for a future-proof value chain are key elements of blockchain technology. This article discusses a few potential use cases, but the technology has much more to offer. The real beauty is that, once you record data on the blockchain for one use case, there are sure to be many more ways of applying it for the benefit of your company – and society. From either perspective, introducing blockchain could turn out to be your best-ever investment in the future.
Curious to know more about what we can do for your value chain? At Deloitte, we have a tailored approach that we’d be more than happy to discuss with you.