Food-borne illnesses make over 48 million people sick every year in the US, and kill over 3,000. With only fragmented supply chain data, the process is slower than it needs to be, and it costs lives. The first food poisoning cases of the latest national story—the romaine lettuce—came to light in mid March. Eight patrons of fast-food restaurants in New Jersey suffered bloody diarrhea and cramps that sent them rushing to hospitals.
By late April, FreightWaves covered the outbreak update considering the issue through the lens of how blockchain technology could help tackle the complex “farm to table,” supply chain issue. Turns out, of blockchain’s many potential (and developing) applications, few could be as game-changing as what it would mean for the food industry.
Currently, most farmers use brokers as middlemen to sell their produce. As intermediaries, brokers meet their retailers' demand and provide the necessary transportation to get produce to and from market. Though middlemen provide much of the needed infrastructure, they take a heavy profit margin. While meeting with friends in Central California in 2012, founder of eHarvestHub, Alvaro Ramirez, learned that farmers grossed, on average, a measly 4% margins. Within the current system, the prices in supermarkets are marked up many times over as a result.
After the produce is sold, the farmers are also responsible for traceability. In order to keep bad produce from spreading, laws mandate some sort of system to trace the produce's origin. If consumers get sick from a specific fruit, the store can find the farm it's from, and remove produce with similar origins off the shelves. Traceability, however, is a time-consuming process and an imperfect science.
eHarvestHub offers a data-driven, automated integration to alleviate traceability concerns. By offering free formatted and ready-to-print tags, the company provides a much-needed service for farmers. Ramirez also wants to integrate the trucking sector to alleviate concerns of transportation. eHarvestHub is providing a useful service for farmers that can lead to a thriving new marketplace for produce.
According to Fast Company, different producers use different tagging systems and different sensors to track different things. Piecing together the details of what comes from seed to table has never really been done successfully before. If it could be, the implications for both public health, corporate transparency, and anti-counterfeiting efforts would be huge. Between food and pharmaceuticals, the market for tracking technologies is expected to grow to an expected revenue of $14.1 billion by 2020, according to a report by Allied Market Research in 2014.
Ramirez, a graduate from Colorado Technical University, created his eHarvestHub app to help small farmers increase their profits by connecting them directly with retailers and truckers. His company was awarded $10,000 from Salesforce Ventures in 2012. Now the low-tech world of farmers has a footprint in the digital supply chain.
eHarvestHub reached out to FreightWaves. We spoke with Ramirez about where the company is now, and about their efforts in beginning to develop a blockchain-related solution as well. We caught up with Ramirez in Nicaragua.
FW: Is eHarvest built on a public or a private blockchain?
Ramirez: We built the original technology without blockchain technology. Early last year I was working on how fast farmers get paid. Can they get paid as soon as the load is done? There’s no reason why not. So I looked into the Smart Contract side of things, and obviously the blockchain for every piece of data, putting funds in an escrow, etc, is where we want to be. We asked ourselves should it be public or private, and we realized it needed to be a little bit of both. We’ve looked at solutions that focus on decentralization. The decentralization of the whole food chain is what we’re aiming for. It has to be equipped with the right business model.
FW: How scalable is your blockchain solution currently? What are the potential solutions for your blockchain to scale if not?
Ramirez: We’re implementing it, and fundraising $15 million to get the technology right. This is where the rubber meets the road. You can’t make all the businesses accessible on the public blockchain like that. They don’t always want to disclose the data. The private blockchains aren’t super great either. We’ve come across a few of them, but yes we’re still in the development stage. We need the right business model. It has to solve the problems first.
FW: When did you decide to go ICO? Why did you decide this was a necessary step? Why create your own coin rather than use a coin that’s already established with a fiat currency like Bitcoin correlates to the U.S. dollar?
Ramirez: The reason was very simple. I looked at blockchain last. We already had our technology built, but it’s always about improving, right? Most farmers always borrow money from banks at a high interest rate. The idea of the ICO is that they’re a contributor to our fundraising—we’re also functioning as a lender, but at a cheaper rate.
Why our own currency? It’s really for our farmers. The idea of going to another exchange is too complex. It’s too much for them. Even the implementation of our technology is done in baby steps. We might start with traceability.
But yes the idea is to have everyone working within our ecosystem. Farmers can get invoiced with tokens. My community understands all this, but this just adds another layer to how they can pay and get paid. It’s a utility token tied into their revenue.
Also, they can make peer-to-peer payments in a cross-border method. They don’t always have access to cash our banks, but for them to do something on their iPhones and get paid, this appeals to them. All of this is down the road. We will not offer the lending platform until our cryptocurrency until it’s tied to securities. But it does make sense for our customers.
FW: The farm to table supply chain industry is exceedingly complicated, and there are many parties involved, often with competing agendas, making it potentially impossible to ever truly have full compliance and cooperation across all the necessary data points. How true is this? What challenges have you come across?
Ramirez: It really is a very complex system. I’m not a farmer, so I spent a year between 2011 and 2012 and several months talking to truckers, and the layers of middlemen are like 7 times more than almost any other industry I’ve seen. It can get as crazy as buyers who end up buying stuff they’ve already bought before. It’s crazy.
So, I boiled it down to as simple as I could get. Who is the farmer, who is the trucker, and where do we need to get it? Farmers get 4% profit margin in a lucky year when they do well, which is crazy. You can’t run a business off that.
FW: Is the business model actually as simple as you taking out the middle man—the broker? Is that what you all are doing? Effectively acting as a 3PL for a lower margin of cost?
Ramirez: What we do is provide a platform. We don’t get involved in any of the pricing and negotiations between the buyer and farmer. The trucker does the same thing: here’s my cost per mile. We charge along the same line as the farmer: a flat fee for whatever the transaction. It’s more about volume here. The idea of removing the middlemen is about profitability.
Brokers don’t know when and where to connect the right product. Our system manages the kinds of loads and the quality. Just $100 for every load, straight up, regardless of distance. The platform manages the LTLs and the routes that the trucker likes.
In terms of seasonality, the produce keeps moving up north, so you can have food production year round. There’s always business. The challenge for the trucker is they’re always on the road and not able to market themselves. So, the platform helps them determine whether he’s available or not. Also, there’s lots of food that’s imported as well, and coming in from all kinds of ports. We’ve kind of figured out you can have 300 days a year.
The grocer is really loving this as much as anything. They love bringing the cost down and keeping the supply regular.
For the trucker, the technology lets you just manage your business by phone. Our transportation app keeps up with everything—cleaning up your truck and meeting your regulations. It makes it easy for a trucker to manage his (or her) business.
My very first customer is always the farmer because he’s the one who generates the orders. For example, the farmers we have in CA will generate 150,000 next year. So, I have hundreds of truckers who can tap into the data and get his electronic bill of lading.
For the blockchain right now you also need the IoT solution. Because we want to make sure it’s cost effective for our truckers. Truckers love not having to deal with brokers who take these big rates. At first, it was all about removing the complexity of the food chain.
It’s not easy, but it’s simple. The sourcing piece of things is where the chain got so complicated. I think that’s where distributors, wholesalers, brokers got involved and made the complexity so complicated. Now technology can solve that and bring it back to the way things used to be.
Even if you have to go a long distance, however, you can still know everything you need to about where and who you’re getting the food from.
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