Walmart, the largest retailer in the world, recently notified its leafy green suppliers that they will need to use blockchain by the end of next year. Walmart is banking on its relationship with IBM to put pressure on the entire sector to comply with what consumers want from the food industry: more transparency.
But others are wondering if Walmart’s investment is worth it. Consumers tend to want many things from the food industry without paying for them.
Walmart has been piloting blockchain projects for about 18 months in partnership with IBM. Carrefour in Europe is also contemplating the use of the concept and launched a few vertical markets recently. The idea is to better manage food recalls, farm to fork and back, and to tackle the intricate issue of food fraud, which is receiving an increasing amount of attention.
Blockchain is about data and accountability, using enhanced digitized transparency. With blockchain, everyone knows what’s happening at once. Think of blockchain as a hockey rink. The blockchain users are in the stands and can all see the ice, where all the data is located. Boards protect the data so it can’t be altered. On the ice, you can see who is buying from whom, when, at what price and what volumes.
A recalled product can be traced back in seconds instead of days. The romaine lettuce incident a few months ago would have been managed quite differently with blockchain. Instead, it took investigators time to look through documents to trace the source and the potential issues up the food chain.
Food fraud appears to be really accelerating the blockchain agenda.
Blockchain technologies have been used for decades in certain sectors, but only recently in the food sector.
Food safety was never going to drive blockchain technologies in the industry, despite the obvious benefits. Consumers expect safety without wanting to pay for it. So food safety never had market currency.
On the other hand, food authenticity does have currency. Fraudulent products can compromise brands and the viability of a company in a heartbeat. We’ve seen many cases around the world.
Food fraud is obviously difficult to measure but it keeps food prices lower, which allows some companies to cut costs and offer lower price points. Economically motivated adulteration is a growth killer, something Walmart and Carrefour both know. To increase sales, fraudulent food products need to be stopped and blockchain technologies can provide the perfect antidote.
How better to deal with food fraud than to make the whole system more transparent?
However, transparency in the context of blockchain is neither absolute nor unconditional. Different solutions will offer various levels of transparency depending on how the system is set up. This is likely why grocers are jumping on the blockchain bandwagon: to exercise their power with the supply chain and generate their own rules of engagement. This likely makes everyone else less comfortable, including processors and producers.
But it remains unclear if consumers will pay more for food authenticity. Consumers have repeatedly been reluctant to pay for something they inherently expect from all food products. With food safety, it has always been about costs.
But if food fraud is properly addressed, food sector growth can be heightened.
However, we shouldn’t be surprised if the disruptive nature of blockchain technologies generates tensions among food producers as they try, once again, to cope with grocers’ wrath.
But necessity dictates that the use of blockchain in the food industry is here to stay. That means other grocers will likely join the movement, even if it’s blockchain by another name, since blockchain is really just a word.
Using blockchain meets fundamental consumer expectations that the food industry catch up to other sectors where items have been traced through a varied of operations for decades. We can trace drugs, car parts, minerals and so forth back to their sources in seconds. Consumers know the technology exists, so the pressure is on and grocers know it.
Sylvain Charlebois is senior fellow with the Atlantic Institute for Market Studies, dean of the faculty of management and a professor in the faculty of agriculture at Dalhousie University.