The price of Bitcoin dramatically spiked in late 2017, making blockchain, the system behind it, a trending topic of 2018. Blockchain affects banking as well as the food system. From tracking farming processes to bringing more transparency to the food chain, this series of articles will take you through the blockchain systems in food.
As the first article of this series explored, blockchain technology provides a secure and trusted way for multiple parties to conduct business together, removing silos and red tape. According to Richie Etwaru, Adjunct Professor of Blockchain Management at Syracuse University, blockchain technology “solves for trust in commerce.”
In banking, blockchain has primarily been used for financial technology, or fintech. Cross-border payments (or payments in a foreign currency) take multiple steps and third parties to verify before completing the transfer, which can take from two to seven days to settle. In addition, the third parties charge fees for their services, and these fees fall on the customer. Ultimately, the customer has to wait a long time and pay for it. With blockchain, money transfers can occur directly between parties, instantly and without intermediaries. For banks, blockchain technology has allowed payments to settle peer-to-peer, in a shorter time frame, and at a fraction of the cost.
In the supply chain industry, back-and-forth communication across a web of actors has historically slowed down processes. In an effort to digitize the supply chain with blockchain technology, shipping company MAERSK partnered with IBM Hyperledger. Global trade currently runs on paper-based processes and information about goods is stored in organizational silos. According to IBM, “IBM and MAERSK are employing blockchain technology to create a global, tamper-proof system that digitizes trade workflow and tracks shipments end-to-end, eliminating frictions including costly point-to-point communications.” They aim to integrate more trust, security, “transparency, and simplicity in the movement of goods across trading zones.”
In the food industry, blockchain technology has the potential to reduce inefficiencies in a similar way, providing more transparency in food safety and strengthening brand value.
Food imports and exports require these cross-border payments, paying actors along the entire food supply chain. It’s also typical for large companies to delay payment to their suppliers in order maintain cash flow. Since blockchain technology enables direct peer-to-peer transactions and eliminates the need for third-party validation, saving time and cost, it could facilitate shorter payment times to ensure every actor in the food chain is compensated in a timely manner.
This digitized supply chain has the potential to prevent food supplier fines by reducing delays, as well as prevent spoilage and reducing the outbreak of food-borne illnesses. The 2006 spinach E.coli outbreak in the U.S. led to not only food illness related deaths, but also revenue loss, stock plummet, decline in sales, and high costs for crisis management. These are all symptoms of poor supply chain management and food safety issues.
Blockchain’s shared ledger characteristic could allow producers to include their supply chain partners in the same system to better visualize and manage the process. Once digitized data is amassed, companies may be able to apply artificial intelligence to improve the quality of products.
“Blockchain technology will help the food industry share assets and information easily, cheaply, and safely,” says Alessandro Voto, West Coast Regional Director at ConsenSys. “Food transportation companies will automate trade finance and exchange digital tokens to simplify payments, especially across borders.” And on the farm, digital smart contracts—or digital legal terms that execute automatically when conditions are met—could reduce the legal burden of forming cooperatives.
Trusted supply chain data can also be used to engage customers with where their food is coming from. Blockchain has the potential to preserve privacy while not placing overbearing constraints on information exchange. For instance, food science organizations could share sensitive research data without decrypting it, preserving personal and institutional privacy.
However, many are concerned about the scalability and the integrity of the data that gets stored on the blockchain.
“Enterprise developers are already working on new standards to improve data privacy, user permission, and scalability on blockchain systems. The food industry needs to establish best practices around tracking hardware and reporting processes to realize the full benefits of a shared blockchain database,” Voto says.
Just as blockchain technology removed the middle man in banking and brought transparency and efficiency to the supply chain, it can be applied to the food industry. Next steps for blockchain in the food industry could include investing in software-hardware integration, increasing trust in traceability, and sharing awareness and education around the technology.