If the only thing that comes to mind when you think of blockchain is cryptocurrency and Bitcoin, don't worry — you are in good company. At the two sessions dedicated to blockchain at this year's International Production & Processing Expo (IPPE), only a few hands went up when the presenters asked the audience if they were comfortable explaining blockchain.
But that doesn't mean it isn't crucial to understand at least the basics of this new technology that has the potential to completely revolutionize the food industry by significantly increasing efficiency, traceability, visibility, transparency, and collaboration throughout the entire food supply chain from farm to table.
Today, I want to kick off a Blockchain 101 blog post series by showing why this is so important to every member of the food supply chain — whether you are the VP of Food Safety at a meat processor, the Senior Buying Manager of a major retail chain, the Chief Sustainability Officer, or part of a distribution or transportation company.
In the next weeks, we will dive deeper into what blockchain actually is, how it is different from other blockchain technologies out there, e.g., in the financial context, and how it exactly works.
1) Today's Food Supply Chains Are Increasingly Complex
Let's face it: today's food supply chains are incredibly complex. There are more steps and parties involved from the harvest to consumption than just 20 years ago.
On average, it involves about 15-20 different hand-offs (between harvesting, chilling, processing, packaging, loading, distribution, transporting, re-palletting, unpacking, stocking, purchasing, and consuming) between 5-7 responsible parties (sometimes even more depending on the product):
- Produce grower or egg/meat manufacturer,
- Processor and/or refining facilities,
- Packaging company,
- Integrator, distribution, and transportation company,
- Wholesale retailer and retailer (incl. local distribution or packaging centers), and
- End consumer (customer).
Almost all hand-offs between steps and parties require some sort of paper work that most of the time gets filled in half-haphazardly after the fact (if at all) and thrown in the bin. The data doesn't get shared between parties, gets buried, and is forgotten. In addition, re-palletting and braking shipments down from pallets to cases or even individual items blurs any possible trace.
2) Traceability, The Chain Of Custody & Liability
While some supplier are already contractually obligated to provide access to data relevant to ensure food safety data or even have moved to a single blockchain system, much still needs to be done to link this data to financial and legal trails (chain-of-custody) as well as sustainability accountability (e.g., carbon credits).
By doing so, the responsibility and liability during food recall situations changes irreversibly. If you can trace where a product came from, how it was transported, when it was put on the shelf, etc. into blockchain distributed ledger systems, you can now calculate food safety and spoilage risk levels and make the execution of smart contracts dependent on that. This also allows you to quickly track recalled products back to their origins and tie legal liabilities to that.
3) Blockchain Shortens Research To Investigate Food Safety Incidents From Days To Seconds
It isn't a question of whether there will be any major food-borne illness outbreaks this year, but how many and how severe. Food safety incidents already cost businesses $7 billion every year — a sliver of the estimated $55 billion overall economic damage.
After the E. coli outbreaks in romaine lettuce in 2018, Walmart has asked all their leafy green suppliers to trace their products all the way from the farm to the store using blockchain. By doing so, Walmart will be able to eliminate labor-intensive paper trails and cut down the time spent identifying the source of contaminated food from 7 days to 2.2 seconds! But they aren't the only ones — other vendors already are running early trials and pilots.
In other words, with blockchain, your receiving bay gets instant notifications about any discrepancies during transit (e.g., the temperature in the truck was too high because the cooling unit broke mid-way). This enables them to identify any potential food safety incidents on an incoming shipment of meat, eggs, or produce and therefore decline the goods. If everything is fine, a smart contract can be kicked off.
Should a recall be announced, your produce manager can immediately identify beyond the shadow of a doubt whether or not all currently stocked romaine lettuce (or other traced products) is part of a contaminated/recalled shipment. If it is, you are able to identify the exact boxes or pallets and dispose of them within seconds.
4) Federal Food Safety Regulations Hold All Parties Accountable
Due to this increasing complexity, food producing and processing companies as well as retailers must be able to trace the product and its components back to the place of origin. They are also required to be able to document what happened between harvest and consumption to minimize food safety incidents.
This isn't only common sense, but is also federally mandated. For example, with the new Food Safety and Modernization Act (FSMA) passed in addition to the FSMA Preventive Control rules designed to establish food safety requirements throughout the food supply chain, all members of the supply chain are facing serious documentation challenges and are equally on the hook if something goes wrong — which only further cements the value proposition that blockchain brings.
Other countries — especially European countries, Canada, and Australia — have had similar or more stringent rules in place and continue to make them stricter as food safety concerns increase.
5) Consumer Demand For More Transparency
Last, but certainly not least, is the customer demand for traceability.
According to a new Nielsen study, millennials are willing to pay more for products containing environmentally-friendly or sustainable (90%) or organic / natural ingredients (86%), or products that have social responsibility claims (80%).
But since they are adept at technology, digitally engaged, and demand transparency and traceability, we are not far away from a high-end restaurant patron scanning a bar code on the menu to verify that the steak he is about to eat is, in fact, from grass-fed beef produced by Polyface Farms. Information on exactly when it was harvested, how it was transported, and more would be available as well.
Blockchain Participation: A Competitive Advantage Or A Requirement To Compete?
Many people scratched their heads last June when Walmart's CEO referred to his company as a technology company during a shareholder meeting. However, after partnering with Google and Microsoft, acquiring and investing heavily into its e-commerce platform, and investing in automation to boost operational efficiency in its thousands of stores, one can't argue that Walmart is aggressively driving its Digital Transformation agenda.
Implementing a blockchain solution and asking its suppliers to be part of it becomes a massive competitive advantage for the retailer because, as consumers' trust increases, so does the share of their wallets.
But for any supplier or supply chain partner to Walmart (or any other major player who decides to implement a similar solution), jumping on the traceability bandwagon quickly becomes a necessary condition in order to compete!
I have spent the last few days at the Meat Conference in Dallas, TX and I spoke to dozens of the largest meat producers in the US and the world. It was very validating to see how everyone "just gets it".
The value proposition is clear. The customer demand is there. The only question is this: On which side of the fence will you be? Will you be a Fast Mover to adopt this quickly and gain a sustainable competitive advantage? Or will you be a Follower who hesitates and is forced to adopt others conditions?