Jenny Chan 陳詠欣
Nov 15, 2017

Food retailing’s chain reactions: Trust via blockchain

As food safety becomes increasingly important, especially in China, blockchain technology is set to play a larger part in the marketing of F&B brands.

Unbreakable chain? Digital identities are encrypted within transaction blocks across the entire distribution network.
Unbreakable chain? Digital identities are encrypted within transaction blocks across the entire distribution network.

It’s not a stretch to say the Chinese are rather ingenious and inventive when it comes to counterfeiting food products. Fake lamb shish kebabs manufactured from cheap duck meat and spiced pork, or fake beef made from pork treated with paraffin wax and industrial salts—could you have come up with that idea?

Blockchain has received a lot of attention largely because it is potentially the technical means to solve the problem of trust in the food industry. In China, this is especially critical following countless scandals tarnishing the reputation of major food brands. Numerous cases prove that many food safety crises that have ensnared the likes of McDonald’s and KFC are due to supply chain issues. “When you can ensure that all parts of your supply chain is safe and reliable, brand credibility will be improved, Sunny Lu, CEO of blockchain startup VeChain, said.

Traditionally, certification in a typical food supply chain is performed manually, so the data can easily be modified by human intervention. How does blockchain make it possible to verify every milestone in the food supply chain with certainty? Here’s a simple technical rundown: It is done by storing metadata of images, documents directly on the blockchain itself. These digital identities are encrypted or ‘hashed’ within transaction blocks, which are distributed across the entire network of users of that blockchain. The series of untampered records pertain to the provenance, procurement, processing, and storage of a food item.

"Setting up production practices for traceability from early on gives customers the assurance that the products are what they are advertised to be."
—Josh Gartner, VP of international corporate affairs, JD.com

China’s overall blockchain market started in 2011 when BTC China (BTCC), the country’s first Bitcoin exchange platform, went live in Shanghai. 90% of blockchain start-ups in China focus on finance brands, but Lu thinks finance is “difficult to disrupt”, requiring much more regulation than other industries. Outside of cryptocurrency and fintech, we now see retailers and food brands starting to harness the power of blockchain to nurture consumer trust.

Walmart, for instance, is collaborating with IBM to use blockchain to digitally track the movement of food products in order to better manage the in-store shelf life and further strengthen food quality safeguards.

JD.com’s pilot blockchain project allows consumers to get information about the freshness of groceries and fresh food by simply scanning QR codes. One of the most high-profile examples is Kerchin, an Inner Mongolia-based beef manufacturer, in which buyers can check out minute details like the cow’s diet, weight, breed, or even the name of its veterinarian.

Wyeth Illuminate China, also leveraging JD’s blockchain model, implemented an end-to-end tracking system for its milk powder produced in Ireland. It makes sense to Wyeth since JD is now the largest online retail platform for maternal and baby products. Hopes for the partnership with JD are threefold: protection of product safety, enhancement of the user’s shopping experience, and maintenance of brand reputation, said Wyeth Nutrition Greater China president, Qu Feng.

Buyers of Kerchin beef on JD.com’s blockchain pilot project can check out the cow’s diet, weight, breed or veterinarian’s name.

While working on this article, this reporter tried to purchase some Kerchin steak on JD but was told there is no stock anywhere from Beijing to Shenzhen. The explanation given by Josh Gartner, VP of international corporate affairs of JD, was that “as fresh beef doesn’t hold, we are selling out the beef and restocking sequentially”.

By the end of October, Gartner said JD will be already be working with over 10 suppliers on using blockchain for better traceability. “Chinese consumers are now able to access information we jointly collect with our partners that traces products, like beef, to their origin. Setting up production practices for traceability from early on gives customers the assurance that the products are what they are advertised to be.”

Roadblocks for blockchain?

Chinese regulators put their foot down on initial coin offerings and exchanges trading bitcoin this September, which made companies wary of speaking in favour of blockchain (the underlying technology of the cryptocurrency). There’s no sight of China’s bitcoin ban being lifted soon, but blockchain will live another day. Many more days, in fact. Regulators are not against blockchain; they just oppose using it for scamming, said Lu. After all, several senior government officials have spoke approvingly about blockchain in public, and in the 12th five-year national development plan, both blockchain and AI were singled out to be part of key initiatives to help upgrade domestic industries.

Maotai, Blackmores and Fonterra rolled out blockchain applications with Alibaba between March and September this year. The process isn’t without difficulty, either.

"Most of the time [blockchain is] ‘invisible’ and has to work with other technologies to build solutions”
Sunny Lu, CEO, VeChain

Blackmores claims that its products pass through more than 30 steps of checking before being released for sale. Be it vitamins, liquor or milk powder, it is challenging to track every node of production from the other side of the world to China.

Why? Taking a step back, blockchaining relies on the Internet of things to collect information on raw material sources and production environments. “Blockchain is actually a kind of digital infrastructure. Most of the time it’s ‘invisible’ and has to work with other technologies to build solutions for enterprises and users,” said Lu. For example, coffee brands need to install a large number of physical sensors in each step of the supply chain: coffee plantation, processor, warehouser, distributor, and retailer.

Blockchain technology is like a human’s “heart”, explained Lu, while supporting technologies like IoT are like the “eyes and hands collecting data from the real world”, while AI is almost like “blood flow” in the body responsible for processing the data through algorithms.

The data collection process can go awry. During the food transportation and distribution processes, contamination via toxins and insects, or spoilage due to unplanned-for temperature and humidity changes can happen offline.

See the complete China Innovation 2017 report

Vulnerability of the process is compounded by data acquisition methods. Clearly, data input still must be improved. All the devices and chipsets that feed data via IoT to the blockchain must use the same language/protocol to be able to ‘talk’ to one another, pointed out Lu. The mBIoT (Microchip Bluetooth Internet of Things) language, for instance, is only one such protocol. With the sheer number of manufacturers involved in a food brand’s supply chain and their varying IT capabilities for storing and transferring data, this is no piece of cake.

The internet of trust

If something falls through the cracks when the product changes hands, the food brand is back to square one. JD has an advantage over Alibaba in this sense, as it controls its own supply chain, while Alibaba depends on an army of third-party logistics firms.

Still, Alibaba’s desire is to “develop a framework to address food fraud risk and provide the basis for improvement in food trust practices and integrity”, Maggie Zhou, managing director of Alibaba Group Australia and New Zealand said in a statement.

Research conducted by Michigan State University shows fraud costs the global food industry an estimated US$40billion each year. Furthermore, PwC statistics show 39% of food brands say it is easy to fake their food products and 42% believe there is no irrefutable method for detecting fraud, beyond standard food checks.

"Trust is rapidly becoming the defining issue of our time."
—Luke Sayers, PwC Australia CEO

Alibaba vice chairman Joe Tsai, speaking at The Information’s Hong Kong subscriber summit last month, said he saw value in blockchain technology, often referred to as the ‘internet of trust’, in determining the history of ownership and providence of food products.

“Trust is rapidly becoming the defining issue of our time,” PwC Australia CEO Luke Sayers agreed as the Alibaba framework launched down under. “Building trust in our food supply chain is important at a time when public confidence in food producers, processes, vendors and even government regulators has been rocked…”.

Evidently, food brands are aware, showing signs that safety invest is worth the investment. In time, blockchain may become the bread and butter behind all food brands, not just Chinese ones, predicted Lu.

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