Blockchain for dummies

In recent years, there has been an explosion of enthusiasm for blockchain technology. It seems that every industry has or wants a blockchain – but why? Brett Wiskar from Wiley talks to Food & Beverage Industry about the intricacies of this technology that is rising in popularity and how it can be utilised in the food industry.

Blockchain has been spoken and written about across industry press and the broader media for the past two years. This innovation is painted as some sort of future technology set to change the way industry manages itself, transacts and tracks product. If the general coverage is to be believed, blockchain is a panacea for anything we choose to apply it to. Like most things touted as a solution, the truth is less promising – so where does the value of blockchain lie? In this article, we explore what blockchain really is and how it can be used to best advantage in the food industry.

What is blockchain?
Blockchain is a technology that in one sense is not unlike a conventional database from a more traditional system. It stores information. This information is what all parties in the system agree it to store. The difference is, blockchain stores its data and records in a solution that is distributed and encrypted securely and provides transparency to all participants in the blockchain.

It’s perhaps easiest to think of blockchain as a way of keeping track of a transaction. This transaction may be financial, but it could just as easily be a transaction involving data point, product shipments, services, emails or other communications, documents, certificates, accreditations or just about anything that could be stored as data.
As is typically the case when the media develops an infatuation with a new piece of technology, blockchain is generally poorly understood. Often described as a distributed ledger, blockchain uses multiple redundant copies of the ledger, each hosted by a participant in the network or supply chain to ensure security. If a copy of the data with one of the participants is compromised (hacked/manipulated), that copy of the ledger is overruled by its peers (the other copies). In this way the system remains secure and can be trusted by all.

Trust through transparency
Frequently blockchain is described as a “trust-based” system. In truth, when digging a little deeper, it is clear the technology’s successes originate where the blockchain can generate value in markets where there is a lack of trust. When implemented well, blockchain allows people to trust other parties by providing visibility into the actions of the other party. This means participants don’t have to trust what each other say they’re doing, or have done, but can trust when the outcomes can be seen in the system.

Unfamiliarity and deceptive behaviour in transactions or interactions in businesses breeds distrust. If, however a business can see that other parties are performing as required, then distrust is mitigated and supply chains can move quickly as decisions can be made with confidence.

A true blockchain system ensures all participants in the system have the same data. This data is a snapshot in real-time of the status of the system (goods, finances, approvals etc.). Not only is there a snapshot, but everyone in the system has a copy of the truth and knows it is valid and has not been compromised by someone in the system attempting to deceive the other parties.

This means a party in the supply chain who is responsible for a step knows when they perform their action (e.g. approve the goods for export) and update the system, every other party in the system knows this has been completed and by who. Visibility through the system places the onus on the next party to perform their own subsequent responsibilities and this sequential visibility drives the behaviours in the supply chain all parties want to see.

A lot of the examples held up as case studies for how blockchain will change industry often lack some of the characteristics that make blockchain valuable. These are more likely technical proofs of concept for blockchain and not true examples. A little online research shows it’s clear that for blockchain to really create value it needs to be applied to the right kind of problem. A helpful checklist can be used to determine if blockchain could be an appropriate solution.

Do the requirements of the ecosystem considering blockchain have each of these?
● Is there a need for shared common database?
● Are there multiple parties involved (usually from different entities)?
● Do the parties involved have conflicting incentives and/or are not trusted?
● Are the rules governing participants uniform?
● Is there a need for an objective immutable log?
● Do the rules governing transactions change infrequently?

There are many examples, around the globe of industries or value chains adopting or trialling the use of a blockchain solution. When we look at these it is clear that they do not always meet the threshold of the list above. Whether the use of blockchain was essential for a system or not, often the adoption is being driven by technology players like Oracle, SAP and IBM.

Who is using it?
One of the most high profile and relevant blockchain projects is from Walmart. Walmart and IBM have partnered on a food safety blockchain solution. Walmart announced in September 2018 that it will require all suppliers of leafy green vegetables to upload their data to the blockchain solution by September 2019.

Walmart mandating that its suppliers comply with Global Food Safety Initiative (GFSI), and that this data be stored in a blockchain system, does not improve food traceability beyond that of a conventional database-backed solution.

Blockchain is not omnipresent and cannot magically watch product from the farm to the plate. Like any data storage system, blockchain needs inputs. It needs humans to interact with the platform. In this case, Walmart is introducing an onboarding system that allows people to interact with the blockchain solution. This onboarding unifies the ways in which people keep track of product in the supply chain. This unified data input is the real challenge Walmart’s blockchain implementation is overcoming. The way it tracks the data once it gets into the system is irrelevant, its achievement is putting the information onto a computer. In truth, Walmart’s market force enabled the company to make compliance with its systems and the collection and input of data mandatory, but this could have been supported through a traditional database system.

Why blockchain?
Walmart is driving early adoption of a technology that will drive better performance across its supply chains. It starts with food safety, but through the partnership with IBM, and its learnings from this program, it will drive compliance and visibility across thousands of supply chains in the years ahead. These supply chain tools based on the blockchain will be the sort of supply chain that Walmart believe will be the future of its business.

What does it mean for industry?
The amount of hype around blockchain is yet to be matched by the scale of investment or the proliferation of systems. Although this means blockchain is not ready for wide adoption yet, there are enough indicators to show that its right around the corner. The biggest technology names are on board and working with government, finance, defence and the large corporations to bring about massive change to how we track, transact and manage our supply chains and monetary systems. There may be another 10 years of time to maturity of industry blockchain systems, or maybe only another two years, but it seems the value blockchain creates will make a significant contribution to the markets that adopt it. This means blockchain running part of our value systems is only a matter of time.

Alibaba Group pilots product trial on blockchain traceability system

Alibaba (Australia) and a group of founding partners have launched pilot orders through its new Food Trust Framework, a Tmall Global initiative that uses blockchain technology to improve supply chain traceability.

Taking place in Auckland, New Zealand, and hosted by CEO of Alibaba Group, Daniel Zhang, the pilot follows Alibaba’s announcement last year that it would engage PwC in Australia, New Zealand and China as a service provider to advise the company on the set up of a framework to protect product authenticity and provide a safe and trusted marketplace for consumers. Alibaba also signed a Memorandum of Understanding last year partnering with Blackmores, Australia Post, Fonterra and New Zealand Post in the Framework.

Blackmores and Fonterra are the first companies to trial the Food Trust Framework, shipping products from Australia and New Zealand to China. Blackmores is shipping Odorless Fish Oil while Fonterra is shipping Anchor dairy products to consumers who purchase them on Alibaba’s Tmall Global platform. Once the pilot is complete and if successful, the Framework could form the basis of a global supply chain model applied across all of Alibaba Group’s e-commerce markets.

The Framework aims to achieve end-to-end supply chain traceability and transparency to enhance consumer confidence and build a trusted environment for cross-border trade across Alibaba’s Tmall Global platform by incorporating a range of standards and controls to manage the supply chain process, including blockchain technology and product tagging with unique QR codes. These technologies are designed to authenticate, verify, record and provide ongoing reporting of the transfer of ownership and provision of products and goods.

Recognisng the significance and importance of an independent view as to the operation and application of the Framework, PwC plans to provide services to the participants. An independent assessment of the Framework aims to provide the visibility and transparency of the level of adherence to the Framework by participants in the supply chain, including consideration of existing reporting and practices.

The Framework represents the next step in Alibaba’s vision to build the future infrastructure of commerce and will help give confidence to producers, merchants, logistics providers and consumers alike.

Speaking at the launch in Auckland, Alibaba Group’s Alvin Liu, General Manager of Tmall Import & Export said: “Food fraud is a significant global challenge, particularly with the growing complexity of supply chains. In response, we have created a coordinated, world-leading and robust framework that involves stakeholders from across the supply chain to improve visibility and enhance the confidence of both end consumers and merchants.”

Food fraud costs the global food industry an estimated US$40bn each year, according to research from the Michigan State University. PwC has also estimated that 40 per cent of food companies find food fraud difficult to detect with current methods, and 39 per cent think their products are easy to counterfeit.

“Blackmores goes to extraordinary lengths to have visibility over our supply chain and each of our products passes 30 tests and checks before it is released for sale.  So we’re exploring ways to leverage the technology and data that can provide our consumers with assurance that their trust in our products is well-placed,” said Richard Henfrey, Blackmores Chief Executive Officer.  “Our commitment to quality doesn’t end in our distribution centre and we need to give consumers confidence in the products they purchase on e-commerce platforms.”

Fonterra President Greater China, Christina Zhu, said: “Fonterra delivers global best practice supply chain traceability through our existing technology. Given the potential of emerging tech, including blockchain, we want to be at the forefront of developing food quality and safety standards across the supply chain. In China and many other markets, we know consumers want to be able to trace the products they purchase online, so we welcome being a part of creating a globally respected framework that protects the reputation of food companies and gives greater value and consumer confidence.”

 

Beef and the impact of trade agreements and blockchain technology

A number of trade agreements, such as the Trans-Pacific Partnership (TPP) and a proposed Mercosur/EU trade agreement, look set to start having an impact on global beef trade in 2018. At the same time, applications of blockchain technology are now being widely developed in the food industry, with opportunities to realise benefits further up the supply chain growing, according to the RaboResearch Beef Quarterly Q1 2018.

Food and tech companies are developing blockchain as a solution in response to changing consumer preferences, and the beef sector is no exception. “While many of the early applications have been driven by the desire to increase traceability and transparency, with a focus on food safety, opportunities do exist further up the supply chain,” said Angus Gidley-Baird, Senior Analyst – Animal Protein (pictured).

Blockchain is superior to current solutions when it comes to sharing genetic traits, making it simpler to track productive performance. A chain including, among others, the producer, feedlot, farmer, and genetic organisation would be able to share performance and verify breeding values, which is all transferred in real-time in the transaction.

The shared-ledger approach of blockchain dramatically simplifies back-office processes such as transaction reconciliation and reporting: a benefit for both beef processors/packers and farmers. Previously, where reconciliation required collating and cross-checking paperwork from multiple sources, the technology now instantly reconciles the transaction between all parties.

Global highlights

Comprehensive and Progressive Agreement for Trans-Pacific Partnership

The 11-member version of the Trans-Pacific Partnership (TPP) looks set for formal signing in March (although respective governments need to sign off on the details before implementation). Gains are expected for beef-exporting countries Australia, New Zealand, Mexico, and Canada—through reduced tariffs into key global beef importer Japan, plus reduced tariffs into smaller importing countries Chile, Vietnam, and Peru.

China further opens beef market to the world

China is allowing more beef imports and importing countries, intensifying competition in the market. Chilled beef access has been granted for Argentina—the fourth country behind Australia, the US, and New Zealand to be granted such access. In frozen beef, Belarus has obtained approval, and two facilities were officially accredited in January. China has also signed a protocol for importing beef from France and the UK, and will likely begin shipments in the coming months. In addition, the first boatload of live cattle exports from northern Australia—the main live-cattle export region—arrived in January. This boatload is the strongest indication that a live-cattle trade may become more permanent.

Mercosur and EU trade agreement

A new proposal to allow Mercosur countries to send 99,000 tonnes of beef to the EU at a lower tariff level has been tabled as part of this long-running trade discussion. This is a significant volume, given total EU beef imports over the last couple of years have been between 204,000 tonnes and 270,000 tonnes. Brazil, Argentina, and Uruguay are already the EU’s main suppliers (together accounting for 63 per cent of total EU imports)—Brazil alone accounted for 107,000 tonnes in 2017. Mercosur negotiators are apparently seeking an increase, to 150,000 tonnes. This standoff may further prolong the discussions, which already run the risk of delay due to the Brazilian elections.

2018 US production looking even stronger

Predictions at the end of 2017 had US beef production growing by more than 3 per cent, or an additional 360,000 tonnes. At the start of 2018, with updated cattle numbers, favourable market conditions, and given that large areas of the US are in drought, production increases have been revised by up to about 5 per cent, or some 700,000 tonnes.

Blockchain technology and the food supply chain

Though food supply chains are sometimes complex, if we are to keep on top of issues like fraud and food safety, it is important that we know where our food comes from. Blockchain technology can help us do this.

In 2008, one or more programmers operating under the pseudonym Satoshi Nakamoto invented Bitcoin, an international currency that operates without any need for an intermediary or regulation.

The technology behind the currency, called blockchain, allows users in a network to share information without it first passing through a server. In other words, even though there is no master copy, updates made on one node are independently updated on all other nodes within the network.

In turns out that Bitcoin is not the only application for blockchain technology. It may prove useful in a number of other areas such as financial services, personalised health and food provenance.

Food & Beverage Industry News caught up with Mark Staples, group leader software and systems at the data innovation group, CSIRO’s Data61 to learn about blockchain technology and the food supply chain.

“Blockchain technology can help because it provides integrity for shared data across different organisations,” said Staples. “The food industry is highly fragmented, and needs data integrity for fraud prevention, food safety, and financial transactions.”

The latest statistics emphasise Staples’ point. According to the CSIRO, food fraud costs the global economy an estimated $40 billion a year. Along with financial security and safety, it is now a major area of concern for the industry.

Staples explained that blockchain technology could provide evidence for the history of the production and handling of food, from the farm to the consumer. “Each of the events in a supply chain could be recorded in a logically-centralised blockchain ledger,” he said.

In cases of food poisoning outbreaks, blockchain would make it easier to track and identify the origins of, say, contaminated vegetables or meats. Similarly, in a food fraud context, it would make it harder to pass off a cheap red wine as a well-known product.

Financial services in the food supply chain also stand to benefit from the new technology.

“Evidence about supply chain performance can support greater access to trade finance, and to better price insurance premiums. Blockchain smart contracts might also enable new kinds of payment mechanisms, for example automated escrow payments tied to independent quality assessments,” said Staples.

Food supply chains can be complex. Will this make it difficult to implement blockchain technology in this context?

“Yes, but the complex and dynamic nature of business in food supply chains can be naturally mirrored by the kind of ad-hoc participation in transactions supported by blockchains,” said Staples.

He conceded that when implementing blockchain, it will be a challenge to directly support commercial confidentiality; and that the technology has some performance limitations.

Blockchain has potential as a tool to combat food fraud.
Blockchain has potential as a tool to combat food fraud.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

“These issues need to be overcome by combining blockchains with other technologies such as encryption and traditional web services, and by making sure that blockchain solutions are used to address appropriate problems,” he said.

In June this year, CSIRO’s Data61 delivered a comprehensive review of how blockchain technology could be adopted across government and industries, including the food sector, to deliver productivity benefits and drive local innovation.

The group has engaged extensively with industry and government to deliver two reports on the regulatory, technical and societal implications of using blockchain-based systems across various industries. It says that Australia is in a good position to be at the forefront of the technology.

“Australia has active blockchain ecosystems, with activity across research bodies, startups, large enterprise, government, and standardisation,” said Staples.

Examples include the work of the Australian Securities Exchange in collaboration with Digital Asset Holdings, to examine the use of the technology in its clearing and settlement system for the Australian equity market.

Agridigital

Then there is Agridigital, an Australian software provider which has been experimenting with blockchain and distributed ledger technologies across agri-supply chains.

“Primarily we have been using our agri-blockchains in pilots and proof of concepts targeting either the transactional or provenance space,” Bridie Ohlsson, Agridigital’s external relations manager told Food & Beverage Industry News.

In December 2016, the company ran a pilot in which it successfully executed the world’s first settlement of a physical commodity on a blockchain. Using a private ethereum blockchain and a pilot customer, they settled the delivery of a load of wheat on the blockchain, simultaneously reserving any levies and royalties applicable and paying the  grower.

“While the pilot simulated payment to the grower’s digital wallet in real time on the blockchain, for the purpose of the pilot the grower was paid using traditional banking methods in a parallel transaction,” said Ohlsson.

According to Ohlsson, the company’s vision is to continuously work on developing agri-blockchains as part of its goal to digitise agricultural supply chains.

“This year we are conducting a number of blockchain pilots with some of Australia’s most significant participants in the grains industry,” she said. “We are expanding on our pilot work from last year, as well as directly working with blockchain technologies to provide end to end supply chain provenance in the grains industry.”

MEGATRANS2018

Given its supply chain potential, blockchain technology will feature prominently at MEGATRANS2018, an exciting new international trade event that will bridge the gaps between supply chain industries that have previously been operating in isolation.

The show makes its debut 10 to 12 May, 2018 at the Melbourne Convention and Exhibition Centre, based in the heart of the one of Australia’s major logistics hubs and one of the world’s most liveable cities – Melbourne.

Connecting the Australian and international supply chain, the three-day expo, delivered in partnership with the Victorian Government, will bring together those who plan, implement and control the efficient and effective forward flow and storage of goods, services and related information between the point of origin and point of consumption.

A number of main sections comprise the show’s 30,000 square metres of space – Logistics & Materials Handling / Warehousing & Storage; Road Transport, Air, Sea & Rail; and Infrastructure; with a strong emphasis on technology right throughout.

Other features of MEGATRANS2018 include the Global Shippers Forum, the Logistics & Materials Handling Mercury Awards, a Ministerial Breakfast delivered in partnership with the Victorian Government and Transport Certification Australia’s (TCA) Technology Hub.

The Port of Melbourne is a Supporting Sponsor of the show, with Enirgi Group and Linde Material Handling backing the event as Sponsors and DB Schenker as Logistics Partner.

MEGATRANS2018 is also supported by a range of Association Partners, including: the Australian Logistics Council (ALC); Victorian Transport Association (VTA); the Australian Peak Shippers Association (APSA) and the Freight & Trade Alliance (FTA); the National Transport Commission (NTC); the International Cargo Handling Coordination Association (ISHCA); and TCA.