Fragmented Food Supply Chain

By Raja Ramachandran CEO, ripe.io

The global food and agriculture sector have an estimated value of USD $8 trillion with global food retail sales at $4 trillion (World Bank, USDA). The food, beverage and agricultural business are incredibly fragmented with no concentration in any single or group of players. This means there is a vast, decentralized network of growers/farmers (one estimate is 450MM worldwide small farmers), distributors, packers, processors, third parties, brokers, and retailers (food and dining services, grocers, restaurants, home delivery). This condition has created a very challenging, fragmented food supply chain with many negative impacts, including:

Increases in food waste, costing the world nearly USD$200B and using 25 percent of the world’s waterLack of visibility of food origin and authenticity costing the industry 30-40BRises in third party food certification, a $14B business, to create trustLack of monitoring tools for food sustainability, major goal of the industryFood traceability recall costs estimated at $55B in the US alone

The amalgamation of increased globalisation, new standards for regulatory policy, and information transparency has engendered demands for an efficient, connected, and trusted global food system. With these new demands comes an imminent need to bridge the gaps between both public and private agriculture and food stakeholders and create a more quality food system for all its consumers.

Impact on Meat 

In 2016, Australian red meat exports exceeded one million metric tons valued at AUD 7.4 billion. With trends in meat consumption continuing to rise over 262M metric tons, and regulatory policy demanding more information, having an efficient system to track, trace, and authenticate meat with confidence is a priority. Food safety concerns and consumer demand for transparent food has pressured governments to evolve standards and create labeling and reporting requirements. The U.S, Australia’s largest beef import client, has mandated food and stakeholders to comply with the Food Safety and Modernisation Act, a monumental overhaul of current standards to prevent foodborne illness. The seven rule guidelines include the Foreign Supplier Verification Programs (FSVP), requires importers perform certain risk-based activities to verify food imported into the U.S has met safety standards (FDA, 2016). Current processes for documenting and aggregating data and information are outdated and unsustainable for generating on-demand reports for product certification, driving the need for a food quality and verification network.  

The key project goals for this project is to:

Bring together a comprehensive set of stakeholders in the red meats businessIdentify the scope of a pilot project that solves key problems in the red meats business and delivers new and long-term value for the same using technologies such as blockchain, IOT/sensor, cloud connectivity and other connected capabilitiesThe government and B2B participants evaluate and inform the ripe.io platform to provide improved transparency, automated regulatory compliance, increased supply chain efficiency.

Problem Statement

In the Australian red meats market, of which this project will focus only on beef, there are several key issues that face participants in the market place:

Fragmented supply chain: The product is perishable and unpredictable. Buyers and retailers work with a lot of numbers and assumptions to get product when they need it. How to reduce the volatility associated with complicated purchasing and fulfillment requirements for customers and regulators.Lack of transparency along the supply chain: Is this a way to encourage better performance by creating more knowns than unknowns? B2B Transparency is as important as B2C.Lack of “digital” dialogue amongst supply chain.Lack of consumer visibility. Currently there few to no ways for consumers to report back to supply chain: Is there a way for consumer at home or in a restaurant to feed back into the blockchain? Is this an opportunity to build a bi-directional dialogue? Possibly in a later phaseAre we touching consumers digitally or analog? Will customers pay more for transparency and confidence in food products.There are a lot of drivers that have nothing to do with the taste or feel of product. This is important for pricing management and quality determination.Regulatory compliance: Food safety traceability compliance and transparency is a requirement for the project.We are excited to be the platform provider to improve the transparency, quality and competitiveness of the supply chain from farm to fork!

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ripe.io CEO sits down with Colorado University to talk Blockchain & Food

  1. Describe the journey of how blockchain has been developed and utilized by your company.

    1. Founders come from the financial trading industry. We both worked at companies that explored blockchains and distributed ledgers in 2014. Wanting to expand beyond financial, we examined a number of non-financial vertical industries and sort of stumbled into food. We were introduced to Analog Devices who created and managed the “internet of tomatoes” project. We worked with them to understand and vet whether a blockchain/DLT system would work for the food supply chain, in this case fresh food for tomatoes. Seeing that the key three criteria were met – highly disparate data sets and actors, low level/lack of trust in relationships and data reliance and need for non centralized systems to preserve data ownership/rights of use management/data privacy, we felt that blockchains would be a good tool for traceability, insight into food supply chain activity, intelligence and insight, food quality assessment, sustainability metrics tracking and ultimately data automation. With that said, we build our platform with blockchain and DLT serving as the recording layer of trust.

  2. What are the supply chain challenges you see blockchain helping with?

    1. Better data ownership attribution. If adopted by independent players on the food supply chain, it will help with data ownership, data rights of use and data privacy. Farmers often just get asked for data without monetization nor attribution. This drives the more dominant player in the supply chain – retailers, large commodity house – to force their contribution of data or potentially lose business. With DLT, this allows all parties to manage their information and relationships. This is the long run which is to reduce centralization or entities that use centralization to exert commercial power.

    2. Revenue improvements for sellers. A second challenge that blockchains can help with is whether transparency and trust creates more sales or increases sales channel opportunities. With improved intelligence from seed to pre harvest/harvest, packing/processing, distribution to retail, the theorized effect is that newer or different segments will emerge based on matching their needs that were unmet prior to the lack of sharing this data and or takers at improved or premium prices levels. This is to be tested as there are so few examples today but we have seen some of this effect in our pilots.

    3. Better Trust. This is the basic idea behind blockchains which is if you can create a single, shared trusted record of an item – invoice, assertion about harvest data, veterinary record, etc – then you reduce reconciliations and reliance on information technology solutions on focus on this “consensus record” of the transaction or record.

    4. What role do you see blockchain playing in the broader supply chain 5 years from now?

      1. Trusted, industry, or federated food supply chains, shared system of record. You “de-silo” the food industry and ultimately tackle, food safety, food waste, food quality, food yield, water management, and so on with these trusted systems that allow for the distributed and decentralized nature of the food supply chain to operate as one.

  3. What are the transaction costs that you face by using blockchain? (with transaction costs being defined as the time, financial, emotional, etc. costs incurred to you by choosing to use Blockchain)

    1. The biggest one is adoption. There is very little financial or cost evidence of permissioned ledgers. For public style blockchains, ie Bitcoin, alt coins, etc – the costs are well known in terms of actual dollars, investment necessary, errors, ease of participant entrants, cost of alternatives etc. But in permissioned ledgers, that cost is still being formed. There is a pure technology cost of cloud, tech staff, G&A, etc. And there is also the investment in build costs. That aside, the “other cost” mentioned are very difficult to place quantitatively. But the key “transaction cost” are really the time frame, scope of investment, buy in from existing and future human resources, converting the difficult and skeptical customer base and readiness of the industry for such a thing. Not sure what that adds up to but its significant!

  4. What are the key elements that will predict blockchain adoption? What are the adoption costs that you face by using blockchain?

    1. The number one factor, in my opinion, for blockchain adoption is not about the technology but rather the critical mass associated with creating a new ecosystem of trust. In other words, is there enough value via content, # of players on the system, regulations what have you, to make it worthwhile to participate. There has to be a strong many to many network effect of relationships and transactions to make this network work. Secondly, it has to be easy and convenient. That is probably THE hardest part of this early phase of many blockchain companies in the food supply chain space. If one farmer or one participants doesn’t join or delays, then the geometric failure effect hits the adoption curve.

  5. What other ledger systems are you familiar with? Are there advantages / disadvantages to other ledger systems? What are the “cutoff points” where you would, wouldn’t, and might use blockchain?

    1. We are familiar with over 20 – 30 different platforms of which the predominant ones include Hyperledger, Ethereum, R3/Corda, Ripple, EOS, Tendermint, Bloq and many more. Each has its own advantages and disadvantages. We selected and built on R3/Corda as it has fully focused and delivers enterprise scalability, data privacy and data sharing security, and its smart contracting capability is growing rapidly due to their over 120 financial and insurance institutions using it. Thus the platform will scale. As for cutoff points, etc, the blockchain once used, will have its natural definition of functionality and useful placement within a technology architecture. The correct implementations of blockchain should make it permanent and so it is totally dependent on the proper design based on the need for trust, distributed, non centralized transactions and system governance and shared consensus records. If those needs exist, then blockchain solves for it, putting it in good use for a long time.

  6. Have the respondent comment on:

    1. How do you see blockchain obfuscating transactions? Are people using it to hide their identity? Also, of those hiding their identity, what percentage do they think are hiding illegal and/or questionable activities?

    2. There are several methodologies being explored and used regarding data privance. R3’s Corda platform was designed and built for this in mind as they serve the 100 or so financial trading institutions that require partial data exposure of a trade of bonds or foreign exchange in order to confirm and settle properly but also can keep private very sensitive information that only party will want to keep. It is largely around the notion that every transaction record on the Corda Network is treated like an individual contract which is then notarized (given certification and consensus) for each part of the data that is meant to exposed to a counterparty. This is incredibly effective and scalable and insures that data is private but can be exposed to multi parties that “need to know” ie regulators, asset warehouses and so on. There are several other methodologies for public style blockchains that are exploring zero-knowledge, Succinct, Non-Interactive Argument of Knowledge or zk Snarks where the proof construction enables proof of possession of certain information without revealing the entirety of the data transaction. This has a long way to go but it is an interesting potential powerful data privacy solution for public blockchains

    3. How does blockchain efficiently use / squander resources?

    4. Is blockchain being used to force more volatility into the financial arena?

      1. Theoretically distributed ledgers should decrease volatility due to transparency. But things Libra where private ecosystems want to compete with the existing payment and financial systems could create underlying fiat currency volatility if there is sufficient volume and liquidity in the alternate ecosystem particularly if it is pegged to G10 currencies. In effect, they could experience disruption and dislocation such as experienced with the Gold Standard before Bretton Woods.

    5. What is the superset of extant / traditional track and trace (e.g., digital signing by each sender / receiver pair)? This requires a very lengthy explanation that I wont be able to get into here.