Like many people around the world, I’ve been catching up (i.e., bingeing) on Netflix during Covid-19 lockdown periods. I recently dug into Rotten- a docu-series that takes a long, hard look at our global food supply chains and unveils unpleasant truths about how some of my favorite foods, from chocolate to avocados, are produced.
The fact that our food system is rife with environmental, social, and ethical challenges of course isn’t news to me or to many consumers today. In fact, the very reason I tuned into Rotten in the first place is reflective of a broader shift in consumer markets: we are increasingly demanding sustainable goods and we want to know how and where our food is produced.
In recent years, blockchain has been touted as the answer for food and agribusiness companies to respond to consumer demands and enable sustainable supply chains. While companies across industries, from IBM to Nestle, to Bumble Bee Seafoods, are starting to use the oft-hyped technology in their supply chains, blockchain on its own won’t solve the problem. Before jumping on the blockchain bandwagon, there are 4 things companies should consider.
Blockchain is a record-keeping technology: it provides a growing list of records (‘blocks’) that are interlinked and capture timestamped transaction data. Blockchain is touted for three distinct capabilities within supply chains:
However, while it’s true that blockchain can help consumers know the exact origin of the coffee in their morning brew, it doesn’t ensure that the coffee has been sustainably grown. It sounds obvious, but to use blockchain to demonstrate sustainability, companies must first define what it means to be sustainable.
This is no easy task. Terms such as “sustainable”, “green”, “natural” and “ethical” are highly subjective and riddled with grey areas and complexities. The ongoing debate over regenerative agriculture, for example, highlights the issue: the food and agriculture industry lacks an agreed upon definition of what it means to sustainably produce food.
This opens the door for ‘blockchain washing’ as the latest evolution of “greenwashing,” with companies implementing blockchain merely for marketing benefits rather than to demonstrate underlying commitments to well-researched practices. To guard against this, businesses first need to do the difficult work of defining a sustainability strategy: they need to understand the impacts of their supply chain as it operates today, their desired outcomes in the future, and specific, measurable actions to bridge the gap.
Blockchain provides an immutable ledger, meaning that once documented, data cannot be changed. But, blockchain itself doesn’t guarantee anything about the quality or accuracy of information that is recorded: the proverbial ‘garbage-in, garbage-out’ problem persists.
Traditionally, manual audits have been used to verify compliance with sustainable and ethical sourcing standards. For example, certification schemes such as the Marine Stewardship Council (MSC) and the Forest Stewardship Council (FSC) largely rely on third-party spot-audits to verify compliance and issue accreditations. These physical audits have often been criticized as inadequate- reliant on weak audit methodologies- or easily gamed- it’s a problem when the auditors are paid by the companies seeking accreditation.
Blockchain cannot solve these underlying challenges. Businesses need to think about how to ensure the data they are recording on the blockchain is relevant and authentic. Automated, continuous data collection powered by remote or IoT sensing capabilities is one way to address this problem, but there are still feasibility challenges in deploying these solutions today, including connectivity and cost. Unfortunately, there are no easy answers here; but whatever the data collection approach, companies and brands need to be aware and honest about the limitations of the data being used to support marketing claims, or risk losing consumer trust.
Implementing blockchain solutions in complex, multi-layer supply chains at scale is a mammoth task, requiring coordination of processes, procedures and capabilities across hundreds, if not thousands, of actors from producer to retailer. Indeed, to date, most blockchain projects for sustainability have focused on simple and short supply chains (e.g., coffee, seafood) involving a primary producer, processor, distributor, and retailer.
As the number of ingredients and fragmentation within a supply chain increases, so too does the complexity of the blockchain implementation. This challenge is especially acute for products sourced from smallholder farmers in areas of the world with limited connectivity -the same products that are often associated with the most dire environmental and labor practices.
Even if these complexities are solved, businesses still need to address a fundamental question for their supply chain partners: what’s in it for them? Effective models to distribute premiums found on supermarket shelves back through the farm gate are needed to bring partners on board. Incentive options range from direct payments to long term contracts, to enhanced market access or support for implementing practices that lead to productivity and efficiency gains.
Humans can be cognitively lazy and easily paralyzed by information and choice overload. So while we may demand assurance that our food is sustainably produced, there’s a balance to be struck between earning trust and avoiding information overload.
Consumers might find it easy to respond to sustainability claims relating to single-ingredient items. For example, Austral Fisheries has partnered with blockchain solution provider OpenSC to demonstrate that their Patagonian Toothfish are sourced from legal fishing zones. In this instance, consumers may not find it too difficult to compare and assign value to a fillet that has been verifiably sourced from sanctioned waters versus one that has not.
However, it is more complicated when consumers have to weigh up multiple sustainability claims on a single product. Can we expect consumers to decide between a fish sourced from legal waters and a different fillet that was caught by a slave labor-free ship?
The challenge is even harder, for both consumers and businesses, when products have multiple ingredients. Take the humble chocolate bar, for instance. If blockchain is used to provide precise information about how and where the sugar, cocoa, and milk in each item is produced, consumers would no doubt be paralyzed. Is it better to have deforestation-free cocoa from Madagascar and carbon-neutral milk from New Zealand or to have fair-wage sugar from Brazil and child labor-free cocoa from Côte d’Ivoire?
At some point, consumers might begin to ignore or discount the information that is available to them because it’s just too much to process, so businesses need to carefully consider how and what they intend to communicate.
The concerns and questions laid out here make one thing clear: food and agribusiness companies need to think about the long-game before they jump into investing in blockchain for sustainable supply chains. They first need to work out what ‘sustainability’ means in the context of their business and operations, how their strategies will work at scale, and crucially, how consumers will actually respond to and use any information to which they have access.
Tenacious Ventures Management Pty Ltd (CAR 001275760), Tenacious Ventures Management Partnership, LP (CAR 001298484), Tenacious Ventures Fund II Management Partnership, LP (CAR 001298483), and Tenacious Ventures Fund II Staple Co Pty Ltd (CAR 001298487) are Corporate Authorised Representatives of Sandford Capital Pty Ltd (ABN 82 600 590 887), Australian Financial Services Licence No 461981, and are authorised to provide advisory and dealing in connection with investments to wholesale clients only.