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Food supply chains need an economic incentive to adopt blockchain

 Photo: Shutterstock
Photo: Shutterstock

Globalization has ensured that supply chains transcend national and continental borders, with a significant chunk of all the products that we consume in our daily lives being hauled on container ships at some point in time. Supply chains come in all shapes and sizes and work differently across varied verticals – with food supply chains being some of the most vetted systems across the world, as it coincides with the health and safety of the end consumers in the value chain.

In here, visibility and transparency become paramount, especially since the means of production is diverse and there seldom exists any barrier for entry, which is a prerequisite in other verticals like the pharma or the auto industry. With various forms of adulteration and inadmissible food preservatives coming to light in recent years, understanding food provenance is critical to ensuring the quality of the produce that people consume.

“One of the biggest problems that faces international food supply chains is the extractive practices of the intermediaries that finance the food supply chain,” said Scott Nelson, CEO and Chairman of Sweetbridge, a system for financial and economic activity.

“The obvious things that people are talking about are transparency and provenance of goods, and where they are coming from, for health and safety reasons,” said Nelson. “But I think the much more fundamental one that is far more transformative is reducing the overall cost of general commodity food – the things that the bulk of the world depends on to feed itself.”

While blockchain is commonly brought up in the food supply chain ecosystem as a solution to traceability, Nelson argued that there were more significant issues at stake which need to be addressed to make businesses look at blockchain in a favorable light.

For one, companies lack the financial incentive to implement tracking traceability. “I’ve talked to a lot of corporations who have spent millions of dollars on blockchain PoCs. What you hear quite regularly, is that they were technically successful, but not terribly compelling from a financial perspective to roll out,” he said. The problem associated with investing heavily in traceability is the time associated with getting a RoI, which Nelson contends might take quite a while.

Another issue is the inordinate weight being put behind the possibilities of blockchain, especially in the food logistics industry. Nelson believed that before a blockchain infrastructure is set in place, the industry would require a proper audit that helps in validating information before it is embedded in a blockchain platform.

“There is a time-honored concept in the validation of anything. If we have two entirely independent timekeeping mechanisms, it can help us figure out what time it is. But the trouble is when we use just one watch, because we know what time it is even when we are wrong,” said Nelson. “Blockchain is not this one source of truth, and we need to audit what’s on the blockchain to match reality. We need to have both – a compelling financial case and an audit mechanism in order to inject food safety into the blockchain, and really deliver on its promise.”

However, this has not stopped businesses from experimenting with blockchain. Walmart (NYSE: WMT) has been working on it for over a year, testing out successful PoCs in provenance track-and-trace of the products that land on their shelves. Europe’s largest retailer Carrefour recently announced its adoption of blockchain to track-and-trace chicken, eggs, and tomatoes from farms to their stores, and also made clear its intent of furthering the use case to suit all its fresh produce lines in the future.

Nelson spoke of how Sweetbridge is providing a solution to companies to help realize a commercial use case out of implementing technology like blockchain. Their solution, Nelson remarked, would typically decrease costs or increase revenue by around 8-10%. The numbers are exceptional, and the RoI is swift, with businesses seeing returns within their first quarter. “It pays for the parties to adopt and invest in the technologies, not only to be able to track stuff and write it on blockchain, but also to put audit mechanisms in place that can actually validate if the transactions are real,” he said.

It is time that companies understand the actual value behind blockchain, rather than marvel at the possibilities that it could entail. The technology cannot be fancied for the sole reason of being a distributed ledger, but because it holds a specific economic incentive, which could prompt supply chains to adopt them en masse. “This is just like the early days of the internet, when nobody realized that online shopping was going to be a big business,” said Nelson. “I think in blockchain, people have not realized where the big business is going to be in yet. This is a massive change, and it will take some time for it to be well understood.”