By SYLVAIN CHARLEBOIS (AIMS Senior Fellow)
There has been a lot of noise on cryptocurrencies and Bitcoin of late. While some suggest cryptocurrencies are a fraud, others believe them to be the next economic revolution the world has seen since the internet. Bitcoin has brought to light the interesting concept of blockchain technology which offers great potential for the agrifood sector. Yet it is far from being the panacea for diverse issues affecting the industry, at least not yet.
Simply put, blockchain technology is a way of storing and sharing information across a network of users in an open virtual space. Blockchain technology allows for users to look at all transactions simultaneously and in real-time. In food, for example, a retailer would know with whom his supplier has dealt with. Additionally, since transactions are not stored in any single location the information is almost impossible to be hacked.
For consumers, blockchain technology can make a difference. By reading a simple QR code with a smart phone, data such as an animal’s date of birth, use of antibiotics, vaccinations, and location where the livestock was harvested can easily be conveyed to the consumer.
Blockchain makes a supply chain more transparent at an all new level. It also empowers the entire chain to be more responsive to any food safety disasters. Massive organizations such as Nestle and Unilever are considering blockchain technologies for that reason. Walmart, which sells 20% of all food in the U.S., has just completed two blockchain pilot projects. Prior to using blockchain, Walmart conducted a traceback test on mangoes in one of its stores. It took 6 days, 18 hours, and 26 minutes to trace mangoes back to its original farm. By using blockchain, Walmart can provide all the information the consumer wants in 2.2 seconds. During an outbreak, 6 days is an eternity. A company can save lives by using blockchain technologies. Blockchain also allows specific products to be traced at any given time, which would help in the reduction of food waste. For instance, contaminated products can be traced easily and quickly, while safe foods would remain on the shelves and not in landfills.
Blockchain will allow everyone to be paid more quickly, from farm to plate. Farmers could sell more quickly, and be properly compensated as market data would be readily available and validated. Blockchain technology could represent a legitimate option for farmers who feel compelled to rely on marketing boards to sell their commodities. The use of blockchain could prevent price coercion and retroactive payments, both of which we have seen across the food supply chain. Blockchain technologies could “uberize” the agrifood sector by eliminating middlemen and lowering transaction fees. This can lead to fairer pricing and even help smaller outfits desperate to get more market attention.
However, it will work only if the data at the source is accurate, as current practices in the industry are much more open to human error. Much of the compliance data is audited by trusted third parties and stored either on paper or in a centralised database. These databases are highly vulnerable to informational inaccuracies, hacking, high operating costs, and intentional errors motived by corruption and fraudulent behaviour. Blockchain operates anonymously, so mistakes would be traceable to individual culprits. Considering recent food fraud scandals, which we have seen in Canada and elsewhere, this feature is not trivial. Blockchain technology provides a method with which records are kept permanently. Most importantly though, it facilitates data sharing between disparate actors in a food value chain. Many retailers have sold fraudulent food products unknowingly. With the use of blockchain these days could come to and end.
Our current traceability systems need work, and blockchain technologies could be the evolution it needs. Given its architecture, blockchain technology offers an affordable solution to both SMEs and large organizations. However, there are noteworthy limitations. The amount of information which can be processed is limited. Since everything is out there, several contracts between organizations would need to be secured for some level of confidentiality to be retained. Balancing confidentiality with transparency would need to be worked out. The agrifood arena is filled with secrets. How blockchain technology is currently being deployed would be problematic for many food companies. For many, blockchain is just a solution looking for a problem.
Secondly, blockchain is really in its infancy and most are uncertain about its potential. Also, the innovation in blockchain architectures, applications and business concepts is happening rapidly. It’s a decentralised, open-source organism which is challenging to grasp for many, including governments. In food, innovation is always desirable until it becomes real. Once it manifests itself, guards go up. Some organizations are moving ahead while others wait to see what happens. The marketplace is currently fueled with confusion due to the Bitcoin phenomena, which is labelled by many as being irrational and ridiculous. Cryptocurrencies allow for transactions to occur while using blockchain technology, but it remains just an option.
Nevertheless, the most important challenge for blockchain technology remains participation. All parties must adopt the technology in order for it to work. In food distribution not all companies are equal, and some can exercise their power more than others. A successful integration of the blockchain requires the engagement of all participating organizations. Walmart’s blockchain will likely be successful because it’s Walmart. But thousands of companies have the same clout.
Regardless, blockchain technology in agrifood has potential but it needs work. Industry public leaders should embrace blockchain as an opportunity and should be added to a digitalisation strategy currently affecting the entire food industry. As such, transparency, productivity, competitiveness and sustainability of the agrifood sector could be enhanced. Nonetheless, research should look at how to generate evidence-based blockchain solutions to democratize data for the entire system before we get too excited.
SYLVAIN CHARLEBOIS, Professor in Food Distribution and Policy, Dean of the Faculty of Management, Dalhousie University.