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Is 'Blockchain' a panacea for frictionless agribusiness trade?

This article is powered by Agra Europe

Blockchain technology is set to take the agribusiness sector by storm, according to some enthusiastic advocates. Aiming to enhance traceability and transparency across the world food chain, blockchain could also significantly enhance safety and shelf-life, while tackling fraud and preventing agro-terrorism.

Food companies and retailers in the US and China increasingly see blockchain as a way to simplify their supply chains with automatic tracking of crucial information, such as the temperature and quality of goods, shipment and delivery dates, and safety certifications for production facilities. 

Blockchain or distributed electronic ledgers are groupings of data shared across multiple locations without the need for central administration, which can then be aggregated. The original blockchain was built to serve as the distributed ledger for bitcoin or online transactions, but is now being applied in pilot projects to a multiplicity of foodstuffs, ranging from pork, poultry, bananas, mangoes, cocoa and cotton.

IBM, for example, recently announced it would partner with food giants like Dole, Nestle, Tyson and Unilever, and use blockchain technology to trace the movements of food and tackle contamination faster.

US hypermarket chain Walmart has said that blockchain trials helped it reduce the time it took to trace the movement of mangoes to 2.2 seconds, from about seven days currently.

A single product recall could potentially cost between US$10 million and $1 billion in lost sales and reputation, as with restaurant-chain Chipotle when a listeria outbreak occurred last year, hence the need for speedy interception of produce.

China

The future use of blockchain is seen as particularly pivotal in China, where food scandals such as contamination of formula milk by an industrial compound called melamine caused infant deaths back in 2008.

Although most companies have since cleaned up their act, particularly since a stronger food safety law was passed in 2015, problems persist along the chain.

A Bloomberg investigation into the global shrimp trade in 2017 for instance showed how false documentation had facilitated an illegal transshipment scam involving Chinese aquaculture exporters.

Walmart is emulating its US trials in China, where it has 400 stores, by deploying blockchain to track pork shipments.

Australian and New Zealand firms, which are huge suppliers to middle-class Chinese consumers, are also adopting blockchain via Alibaba, which now accounts for over 75% of all China’s online retail sales.

EU applications

In contrast to the US and South-east Asia, across the EU blockchain technology has yet to gain similar traction, but the European Commission has already announced an EU Blockchain Observatory under its Digital Single Market umbrella. This pilot aims to build up the regulatory capacity and technical expertise related to blockchain technology.

The observatory will include a forum for the blockchain community to interact and share up-to-date information on relevant initiatives around the world. Regulatory and legal challenges, as well as interoperability issues, will also fall within its scope.

The purpose of the observatory will also be to assess the added value of potential applications of innovations that it will identify, including the food sector. 

The European Union has to date invested almost €5.5 million in startups that are working on various projects involving blockchain. So far, six startups developing or researching applications of the tech have received funding through the Horizon 2020 innovation initiative, according to publicly available data.

‘Borderless Brexit’

Blockchain is also being mooted as a potential solution to achieving post-Brexit ‘frictionless trade’ across the Irish border and in Gibraltar, but the regulatory framework for this is still in its infancy.

However, it might be sufficiently well developed by the time Britain is scheduled to leave the EU post-March 2019, or during the two-year mooted ‘transition’ period to 2021.

But while some blockchain proponents were eyeing London as a potential centre for their operations within the EU, due to the predominance of its financial operations, post-Brexit referendum other European capitals are now taking the lead.    

In order to deliver a borderless solution, Britain would need to be able to track the final destination of imported goods, and apply the appropriate EU or British tariff, if it is to pursue the ‘New Customs Partnership’ model proposed in a recent UK government paper.

For this reason, even minimal increases in the cost of moving individual parts back and forth across the EU-UK border could accumulate into significant overall increases in the cost of finished products. A 2016 study by Oxera found that some 8% of the cost of importing goods by sea arises from customs clearance.

However, estimates of cost increases vary significantly between industries and the option the UK Government pursues post-Brexit.

The Agriculture & Horticulture Development Board (AHDB) has estimated that the additional transactional costs would be “in the region of 8% to 10%, and perhaps a bit more than that”. Meanwhile, the Food & Drink Federation (FDF) has estimated these costs at “a further eight per cent”, and added that the increase in transactional costs for ‘composite products’ is “likely to be higher” still.

Indeed, the EU’s chief negotiator, Michel Barnier, is highly skeptical on the potential for “frictionless trade” outside the EU customs union. He said: “I have heard some people in the UK argue that one can leave the single market and build a customs union to build frictionless trade. That is not possible. The decision to leave the EU has consequences.”

Even so, the UK government’s Northern Ireland-Ireland border arrangements paper discusses the potential to avoid technical checks at customs in relation to SPS (Sanitary and Phytosanitary) measures for agri-food products, which are of particular significance for Irish cross-border trade. In this regard, it proposes a system of regulatory equivalence for agri-food measures, based on regulatory cooperation and dispute resolutions mechanisms designed to achieve the same regulatory outcomes, while leaving scope for flexibility as to the method of achieving this, which could be construed as ‘creative ambiguity’.

‘Smart contracts’

Matthew Lesh, a research fellow at the Institute of Public Affairs, an Australian free-market think tank, contends that blockchain technology could be used to store information about, for example, a new package of goods imported into Britain but destined for transhipment to the EU.

The data can be accessed immediately by all authorised parties, and include information such as the dimensions and weight of the package, and the origin and destination. This could all be clearly linked to the producer and transporter.

The record could then be used by the government to determine the appropriate tariff. If the destination of the goods were to change, this would be automatically updated on the blockchain, updating the payable tariff.

There would be no need to require businesses to inefficiently pre-pay maximal tariffs and receive a refund, he argues. The process of calculating duties could even be automated within the blockchain through what are dubbed ‘smart contracts’, thereby reducing administrative costs.

“In practice, every ship and vehicle carrying goods across the border into the EU would register the information of the consignments they are carrying on the new blockchain. This would allow for secure cross-checking and tracing. You would know the exact location of goods, be it in the dock, on the ship, or at the destination, the contents of each consignment, and the payable tariff. The EU could even track this process on the blockchain, ensuring they are receiving the appropriate tariffs,” Lesh concludes.

Organics

Consumers are also increasingly demanding information on the food they purchase, and whether it is organic, or free from genetic modification and antibiotics, which can also be communicated by blockchain.

For example, the Soil Association, a leading UK-based organics certifier, is piloting technology which tracks the journey of organic food, which frequently comes from emerging and developing countries, from farm to shop shelf. This should help to further verify its origin.     

In its first project launched in September, Soil Association Certification has teamed up with start-up tech firm Provenance, where shoppers will be able to tap their smartphones on packets of Eversfield Organics bacon on sale in selected As Nature Intended stores, and instantly retrieve the product’s complete supply chain journey.

The pilot uses Near Field Communications (NFC) technology, the same as is used to tap public transit passes like the ‘Oyster’ card used in London. This means the information of a product’s journey and exactly what it means to be certified organic is now instantaneously accessible to shoppers with NFC-enabled smart phones, with no app required.

Consumers are able to see information including the certification’s validity, the organic criteria met by the product, a map of its journey, and also photographs from the farm.

Supporting this scheme, a Soil Association spokesperson said that 70% of respondents in a recent Morrison’s supermarket survey objected to fake farm labels, while eight out of ten respondents to a QA Research study expressed their desire to know which farm system had been used to produce their meat and dairy products. 

Investment bank Goldman Sachs backs this up. “Blockchain has the potential to change the way we buy and sell, interact with government and verify the authenticity of everything from property titles to organic vegetables,” it said recently in a briefing paper. “It combines the openness of the internet with the security of cryptography to give everyone a faster, safer way to verify key information and establish trust.”

Elsewhere in Europe, a Switzerland-based start-up Food.Blockchain.XYZ is launching its own token called Foodcoin. This will be used between farmers and food manufacturers to ensure compliance with quality and safety standards.

Food.Blockchain.XYZ will build sensors in order to collect data throughout the supply chain. The system will provide an overview of the financial and socio-environmental costs and benefits of sourcing food from different suppliers.

By using ID tags, users will be given the opportunity to trace food items along the whole supply chain and help prevent fraudulent practice.

So while blockchain is still in its infancy, and may be susceptible to hype, its exponential growth over the next decade or so looks like a game-changer for the global and EU food and agricultural sectors.          

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