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Companies are starting to implement blockchains in high-risk supply chains such as palm oil. Keystone / Dedi Sinuhaji
If you want to know where your favorite snack ingredients come from, you can get the whole story by scanning a code on the back of the package with your phone. This is the idea behind a new blockchain-based supply chain tracking system used by multinational companies. But it is far from a silver bullet.
This content was published on November 19, 2020 – 11:00 am
It is a hot day in rural Mexico. A truck stops near a palm oil plantation to pick up a bunch of palm fruits that have recently been harvested. The vehicle will transport the fruit to a mill 20km away which will turn it into palm oil. The oil will end up in food products sold by the Swiss multinational Nestlé. But there is more to this simple operation than meets the eye.
Each bunch of palm fruits has an RFID chip built into it. When the cluster is loaded onto the truck, an on-board sensor records it and follows its journey from the plantation to the mill using sophisticated satellite technology. All data generated and collected at each stage is sent to the Nestlé headquarters via a blockchain-based supply chain management system called OpenSC.
“This technology ensures that the truck did not stop on the way to pick the fruit from another farm. It ensures that the fruit that reaches the mill actually comes from the indicated farm, ”says Benjamin Dubois, head of blockchain implementation at Nestlé.
Bet on technology
Over the past decade, Nestlé has been trying to ensure it doesn’t use palm oil linked to deforestation after being criticized by activist groups like Greenpeace. The Swiss-based multinational has begun sourcing “clean” oil certified by the Round Table on Sustainable Palm Oil (RSPO) and has also begun to monitor its suppliers via satellite. Despite these attempts, Nestlé will not achieve its goal of having a zero deforestation supply chain by 2020. So far, just over 70% of its palm oil is certified as deforestation-free, with 62% attributable to the plantation and 93% % to the mill.
The palm oil blockchain experiment in Mexico is Nestlé’s latest attempt to gain oversight over its supply chain. The company’s flirtation with the technology behind Bitcoin began in 2017, when it leapt aboard IBM’s Food Trust blockchain ecosystem, a ready-made solution popular with businesses. In 2019, the company was able to offer consumers data recorded on blockchain for its mix of Mousline mashed potatoes and Guigoz infant formula in France, followed a year later by Zoégas coffee in Sweden. With the help of a smartphone, consumers can access data such as farmer information, harvest times, storage in warehouses or shipping routes.
The Swiss firm is now expanding the technology to more demanding commodities like palm oil and more open blockchain options like OpenSC, a jointly developed platform with WWF Australia. OpenSC is based on automation that uses Internet of Things (IoT) technology such as RFID tags, QR codes and sensors to monitor the temperature of a product, for example.
This will allow anyone to access blockchain-based supply chain information for a product. Nestlé is currently testing OpenSC for palm oil in the Americas and milk produced in New Zealand.
“It’s still not as advanced as the IBM Food Trust. It is also much more complex and requires the creation of new data sources, ”says Dubois.
How safe is it?
Christoph Schmidt, a logistics management specialist at the Swiss Federal Institute of Technology in Zurich (ETHZ), is in favor of more open blockchain systems such as OpenSC even though they require a lot more work for companies to implement. But it questions their safety.
“I think OpenSC is a step in the right direction as it is a consortium and is not led by a small number of companies. However, it still poses a risk to businesses in terms of data security, ”he says.
“The biggest problem with blockchain in supply chains is that we have this interface with the real physical world. There are various data entry points along a supply chain that are weak points.”
The quality of the information provided by a system such as OpenSC depends on the accuracy of the data entered. Schmidt explains that this is problematic in complex supply chains as multiple data entry points increase the risk of errors, especially when poorly trained farmers or workers under pressure are involved. You can automate some aspects of data entry using sensors or RFID chips, but each interface still creates opportunities for errors or even manipulation.
Schmidt estimates that the risk of such manipulation increases in “countries where people are poor and in dire need of making money.”
One solution, he says, is to obtain third-party certifiers such as Fair Trade or Rainforest Alliance to check whether the information entered into the blockchain can be trusted.
Power imbalance
The use of the blockchain system also risks the exclusion of suppliers who do not get on board. Those who do can become tied to a single company.
“Smaller vendors are often pushed to adopt IT systems they wouldn’t normally use to facilitate communications with large buyers,” says Schmidt. “Those who work for many large companies will have to join different blockchain systems which can complicate things for them.”
Even when suppliers come on board, companies hold power over what data on the blockchain is shared with them. This is especially true of closed blockchain ecosystems like IBM’s Food Trust which gives companies more control over who can see what.
“Users can set permissions that govern what data can be viewed and by whom – determined solely by the data owner. Data uploaded by a third party is owned by the original owner, “says IBM Food Trust in its data ownership FAQ. In this example, the” original owner “would be the company, such as Nestlé, paying for the service .
Schmidt believes this goes against the original idea behind the blockchain, intended to provide full transparency and sharing of data and information among all participants.
“Then you are moving to other database configurations. You are using the blockchain in a way that was not meant to be used,” says the researcher.
More level playing field?
Zurich-based digital strategist Kamales Lardi, whose BloomBloc company has been working on blockchain-based traceability solutions for the Malaysian palm oil industry, has another idea. He thinks that regulators, rather than companies, should take on the task of developing and implementing blockchain for specific sectors.
“There has to be a democratized solution and not one in the hands of a few companies,” he says.
Lardi has partnered with the Malaysian Palm Oil Council (MPOC) to develop a pilot project that allows palm oil growers of all sizes to easily adopt the blockchain solution. According to her, between 30% and 40% of palm oil growers in Malaysia are small growers, and most don’t even own a smartphone. They risk being excluded from corporate-developed blockchain solutions as large palm oil growers reap the benefits through better infrastructure and resources.
“Some palm oil plantations have drones to monitor the crop, while others don’t even have a 2G phone connection. This is why we have focused on working with regulators, ”says Lardi.
Schmidt sees potential in his approach for a more inclusive implementation of the blockchain.
“I think it’s a step in the right direction for industry regulators. It will also solve the problem of involving multiple companies and suppliers if it is not managed by a competitor, “he says.
Everyone, including Nestlé, agrees that blockchain alone cannot guarantee sustainable supply chains. A combination of different technologies, certification agencies and a willingness to be transparent about procurement are required. And when it comes to making sure a product doesn’t contribute to deforestation or other illegal activities, the fundamentals still matter.
“Blockchain helps to trust the data provided by the suppliers but not to trust the supplier,” says Schmidt. “For that, you still have to build good relationships with them.”
