Why are retailers putting blockchain in the food supply?

Retailers are taking a closer look at implementing blockchain for their supply chains, particularly for food – that’s potentially great news for small farmers in emerging markets, but challenges abound.

food supply
Image courtesy of Elaine Casap

The distributed ledger technology known as blockchain is typically associated with cryptocurrencies like Bitcoin, but in fact blockchain can potentially be used to track just about any asset, from diamonds and healthcare records to land registries and food supply chains.

The latter is of increasingly growing interest to retailers because the technology promises transparency in the supply chain, customer loyalty management and operational efficiencies. It could also serve as a revenue generator for retailers in its own right – Alibaba and JD.com are launching their own BaaS (Blockchain-as-a-Service) platforms, while others are partnering with specialists like IBM, NEM and Digital Asset.

Famously, Walmart is diving into blockchain asset tracking via a partnership with IBM as part of an ongoing program to digitize its food supply chain process. Specifically, Walmart is using IBM’s Food Trust Solution, which specifically developed for food supply chain applications. For example, the blockchain-based solution claims to be able to reduce the time it would take to track produce from the farm to the produce aisle – to determine the source of E.coli contamination, for example – from six weeks to around two seconds.

That’s just one example of what blockchain can do for food supply chains – and that’s just on the retailer end. Blockchain also has the potential to help farmers in emerging markets sell more of their produce, deliver it to the right markets, help them raise money for better farming equipment, and ensure they’re paid fairly for their efforts.

Blockchaining farmers

A perennial issue of the global food supply chain is that small farmers in emerging markets struggle to connect to that chain because of the cost of farming and getting their produce to market – and those that do make a pittance.

According to Genevieve Leveille, CEO of AgriLedger and co-chair of techUK’s Distributed Technologies Working Group, a farmer in Haiti typically only earns 2% of the sale of a $3 mango after all the middlemen take their cut.

That’s discouraging for the farmers, of course, but it’s also bad news for the food supply chain because small farmers are growing all this food that isn’t getting to the retailers and the places that need it, Leveille told delegates at a recent blockchain conference in Hong Kong.

“We are doing a project in Heilongjiang, China, where we’re working with a rice producer. The idea is to distribute the rice so that their customers know that it’s coming from where it says it is,” she said. “What we have found is that there’s about 5,000 farmers producing about 12,000 tons of rice, but only 55% of the production actually makes it to market. So how do we get that further into market and fix those things?”

Leveille’s company AgriLedger aims to fix that with a blockchain-powered mobile app that helps small farmers in emerging markets in the areas of production, delivery/logistics and sales.

For production, the AgriLedger app enables small farmers to raise the capital they need to get the right equipment and labor to start planting in two ways: (1) they can use blockchain to create a trusted digital identity that can be used to access financial services, and (2) they can tokenize their assets.

“With distributed ledger technology, you can start looking at ways of creating liquidity and advance payment which is paid back at the time of harvest,” Leveille said.

AgriLedger also aims to help farmers keep better records (which enables better collaboration with suppliers, buyers and other farmers) and give them the ability to trace produce through the supply chain, to ensure it gets to where it can be sold, and to make sure it arrives in saleable condition. It also could help farmers get access to markets further down the supply chain, which would enable them to sell more of their harvest in new markets (rather than the usual practice of selling as much as they can locally for quick cash, often at rip-off prices).

Challenges and limitations

Getting small farmers on the blockchain is key in part because one of the challenges of blockchain as a supply-chain solution is getting everyone on that supply chain to adopt blockchain – often because they don’t really know what blockchain is, let alone how it works or how it benefits them as an asset-tracking tool, according to a recent study from Juniper Research.

Another limitation of blockchain, according to the Juniper report, is scale – which is to say, it can only process so many transactions in a certain amount of time and still maintain its reputed level of reliability and security.

The problem is mainly a matter of data storage – as volumes of data stored on the blockchain grow larger, the more bogged down the data storage engine gets.

While the open-source Hyperledger Fabric (which is what IBM uses for its Food Trust blockchain service) has made improvements along these lines, in general blockchain could potentially be easily overwhelmed once data volumes reach a certain level, says Juniper.

At a recent blockchain conference, GoChain CEO Jason Dekker described the scalability issue as “a time bomb” for many of the blockchain protocols out in the market now because their developers haven’t paid attention to this issue.

Juniper also notes that there are regulatory challenges beyond the current dithering over cryptocurrency ICOs and token sales: “For blockchain-tracked assets to meet regulation standards, constant collaboration between all key players (regulators, technology providers, financial institutions, governments, among others) is paramount.”

One more challenge for blockchaining the supply chain, ironically, is trust. That’s partly to do with headlines revealing that blockchain is starting to attract hackers who are demonstrating that the technology isn’t as secure as the hype-mongers make out, although those particular security issues are more of a problem for public blockchains rather than private ones.

But even private blockchains can have trust issues, as IBM and Maersk have reportedly found out the hard way. Their TradeLens blockchain for shipping logistics companies is struggling to get companies to sign on – not because they’re worried it might get hacked, but because one of their competitors (Maersk) is running it.

Presumably these challenges will eventually be overcome – they haven’t dampened the enthusiasm of analyst firms like Gartner, which estimates blockchain will create $3.1 trillion in business value by 2030. Or Juniper, which forecasts blockchain retail asset tracking alone to generate annual revenues of $4.5 billion by 2023. In any case, it’s still early days for blockchain, and it will take time for retailers and suppliers alike to realize the benefits of blockchaining their supply chains.