Sharing the truth – The promise of blockchains: more transparent production chains

illustration Geert-Jan Bruins

Fazenda Norrinhos in Brazil is one of 15 plantations producing the oranges for the juice in bottle L1750024 at Albert Heijn. The orange concentrate used to make the juice in the bottle was shipped in bulk on 13 July from Santos and arrived in Ghent on 3 August. After bottling by Refresco in Bodegraven on 14 September, the bottle was received by an Albert Heijn distribution centre on 20 September. The plantations have the Rainforest Alliance certificate. Other parties in this supply chain meet the SQF, SMETA, SGF and IFS standards, if you’re interested.

It recently became possible for consumers to retrieve all this information by typing in the code on the bottle in an Albert Heijn website. The supermarket is using blockchains (see inset) in this application in an effort to satisfy the demand for information about where products come from. Were the oranges produced sustainably, were the farmers and labourers paid a fair price and was the food transported and processed safely?

Trouw newspaper looked at the information on the Albert Heijn website and discovered that working conditions on one of the orange plantations were substandard, or at least had been in the past. The Rainforest Alliance corrected this impression: the fazenda in question has met the certificate standards since 2015. Which is a nice example of what you can achieve with transparency.

Information about a product is saved in unchangeable ‘blocks’

Transparency in the supply chain

Blockchains are a technique that holds out real promise for numerous sectors, including the agrifood industry. The prevention of fraud is another use that is often mentioned in addition to promoting transparency. The scandals with toxic milk powder in China and horsemeat sold as beef in the Netherlands are still fresh in people’s minds. Such affairs are often the result of fiddling with information. Blockchains would make that tampering a lot more difficult. A third benefit that is often cited is that blockchains could reduce transaction costs in production chains. Those are the costs of arranging a transaction, such as the administration, payment transfer, certification, etc.

The assumption made by the proponents of blockchains is that the technology will encourage information sharing. Blockchain technology is software that creates a kind of ledger in which production and supply chain partners can all store information and view it at the same time. This could be information about payments, certificates, quality stamps, contracts, rights of use or ownership. In the orange juice example, Albert Heijn says information about an identifiable batch is added to the blockchain application at every stage in the process, such as certificates for the quality and production method, and the harvesting, processing and transport data.

The information is stored in blocks that are copied across various decentralized nodes in a network. The blocks can’t be changed retrospectively. What you get is a kind of shared truth. The assumption is that this lets you quickly and easily see the route that a product takes from the farmer via the processor, trader, transport company and wholesaler to the retailer.

Grapes

WUR is heading the public-private partnership project ‘Blockchain for Agrifood’, which was commissioned by the ministry of Agriculture, Nature and Food Quality. Other participants include TNO, RVO, NVWA, Ahold, Fairfood, Oxfam Novib and SMEs such as Moyee Coffee, VAA and VDH. The project builds upon a WUR pilot study on the impact of blockchains on the certification chain for grapes from South Africa.

In the traditional distribution chain for South African grapes, documentation for certificates is often still stored in hardcopy form or in databases that are not accessible to all other parties in the distribution chain. That is inefficient, expensive and susceptible to fraud and errors. It means that products are often not accompanied by reliable information about that specific product. That can result in risks to food safety and quality.

In 2017, Wageningen Economic Research and TNO built a blockchain application to enable certificates for grapes to be shared in this distribution chain. They proved that it was possible to store information on certificates in blocks that could not be changed and to share this with various distribution chain partners. But they also discovered a number of limitations. It was not always clear what benefit blockchains had over existing IT applications. Doubts also arose about the scale on which the technology could be applied as only a limited amount of information could be tested in the pilot.

Trust

Lan Ge, senior researcher in Risk and Resilience at Wageningen Economic Research, heads the Blockchain for Agrifood project. She sees the technology as a potential tool for enhancing trust among participants in production chains. ‘In the past, people could see and feel products before buying them. That changes when transactions are digital. In larger distribution chains, you need different methods to organize trust. Such a shared truth can help here. The strength of blockchains is that they can bridge company and sector boundaries. In theory, supply chains become supply communities and they no longer function so linearly.’

But despite the enthusiasm among many parties for the experiments, it has turned out to be difficult to get agrifood players properly on board for the whole process, according to Ge. ‘Setting up a blockchain application requires a lot of changes and organizational work. Organizations have to be prepared to share their data and to work in a transparent manner. That’s still a step too far for many. On top of that, a lot of processes have to be redesigned and turned into codes. You might need less certification or a different kind of certification. The edge in terms of knowledge that intermediaries such as controllers, inspectors and auditors have may change. So the distribution chain roles will have to be filled in differently.’

That is where the opportunities lie for WUR, thinks Ge. ‘As an independent science institute, we can safeguard the quality of blockchain applications and advise companies and governments. We can provide the underlying data semantics and standards for data exchange based on our knowledge of the agrifood sector.’

Sharing data is a step too far for many organizations

Myths

There is a huge hype around blockchains. But as so often when everyone is raving about a new technology, an awful lot still needs doing before the technique can easily be applied in a financially viable manner. Ge: ‘The technique is more complex than a lot of people realize. One of the blockchain myths is that a “smart contract” is totally secure. Of course, that only applies if the code has been programmed well: all software can contain bugs. You can’t prevent the wrong information being entered and GIGO still applies – garbage in means garbage out. You can agree to record the identity of the person inputting the information, using a pseudonym if necessary, and you can log the document history to help you track down any incorrect information.’

The blockchain gurus are crying out that the technology is potentially disruptive — ‘What do we still need banks for?’ — but that won’t happen any day soon, thinks Ge. ‘At present, it is still being used to make existing supply chains more trustworthy. You shouldn’t see blockchains as an isolated phenomenon anyway but as something linked to big data, precision farming and the internet of things. All that digitization and automation is creating a rich basis for new developments and new applications that we may not be able to imagine at the moment.’

One possible new direction could be more direct contact between producers and consumers. There are already blockchain experiments running in which consumers can pay or donate to coffee farmers directly, for example through Moyee Coffee.

Not yet mature

Jaclyn Bolt, business innovator at Wageningen Environmental Research, agrees that the blockchain technology is not yet mature: ‘We are still at the stage of asking whether it is worthwhile implementing blockchains.’ Bolt studies best practices in the use of blockchains in various countries and sectors. She sees the main potential advantage to blockchains as the fact that they are distributed information systems in which small businesses can take part, not just the big companies. Bolt: ‘In the Netherlands we have a lot of laws, rules and clear communication structures aimed at guaranteeing mutual trust. In such a situation, blockchains don’t offer much of an advantage. But in other countries the market is often less controlled and regulated. Precisely because of that, blockchains could offer solutions for improving trust among distribution chain partners.’

Equal rights

Sceptics are now asking whether blockchains are really necessary to facilitate tracking and tracing in supply chains, for instance. It is claimed that many problems could be solved with existing IT systems. There is also the question of definition: what counts as a blockchain? Bolt, for example, has doubts about what is known as a ‘permissioned blockchain’, a variant in which access is restricted and one body or company decides who can be involved and who can’t. Albert Heijn’s juice chain could be classed as a permissioned blockchain. Bolt thinks that permissioned systems don’t really deserve the label ‘blockchain’. ‘A blockchain is fundamentally different to a central database. It is a system without an owner where everyone has equal rights. If you have a permissioned system, you still have one party that’s the boss.’

Market research company Gartner is predicting that after a period of grand promises followed by disappointment, blockchain technology will have matured by around 2025. Perhaps the technological terminology will have faded from view by then and the focus will be on the real issue, namely how to ensure transparency, predictability and trust in production and distribution chains.

What are blockhains?