The blockchain gang

by Erica Shaffer
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Wal-Mart blockchain food safety initiative
Wal-Mart chief executive officer Doug McMillon welcomes guests to the Food Safety Collaboration Center in Beijing.

BENTONVILLE, ARK. — On Oct. 19, 2016, Bentonville, Arkansas-based Wal-Mart Stores Inc. opened the Walmart Food Safety Collaboration Center in Beijing. The center’s opening signals a commitment to unite food safety experts and industry stakeholders tasked with improving food safety in China. Initiatives will focus on several areas, including analyzing root causes of foodborne illness and developing scalable solutions to implement across the food supply chain in China. Wal-Mart and the Wal-Mart Foundation plan to invest $25 million over five years to support research projects.

One of the projects employs a blockchain, which is technology that has been used mostly in the financial services industry. Pilot projects developed by Wal-Mart, IBM and Tsinghua University will use blockchain technology for the benefit of food safety in China with the goal of bringing traceability and transparency to the country’s pork supply chain logistics.

Building blocks of food safety

Computers in the blockchain are called nodes, and each node has a copy of a ledger of transactions. When a transaction is made, at least two nodes must approve it before the transaction is added to the ledger. Blockchain is best known for underpinning cryptocurrencies such as Bitcoin and Ethereum. But the use of blockchain technology for food traceability is the first major test of blockchain’s capabilities beyond the financial services industry.

Wal-Mart is running two blockchain projects — one in China, and another around produce traceability in the United States. Frank Yiannis, vice-president for food safety at Wal-Mart, said the issue of traceability became a recurring conversation as the company prepared to unveil the food safety center project.

“During the course of those conversations this issue of traceability kept coming up — traceability in China and in other parts of the food system around the world,” Mr. Yiannis said, “because regulators in China are very interested in this topic. And so, we talked to a lot of organizations that claim to have traceability solutions, but we somehow partnered up with IBM, and a conversation about blockchain technology and what they were doing as a potential traceability application. So the idea without question clearly originated from ground-level work we were doing on the Walmart Food Safety Collaboration Center.”

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Traceability and transparency

China has seen its fair share of food safety scandals. In 2013, thousands of pig carcasses were found floating in the Huangpu River, a tributary that supplies 23 million residents with drinking water in Shanghai. In 2014, a nationwide crackdown on frozen meat smuggled into mainland China revealed that some meat traders had been selling tons of beef, pork and chicken wings that in some cases had been frozen for 40 years. And in February 2016, Shanghai Jiading People’s Court fined Aurora, Ill.-based OSI Group LLC 2.4 million yuan (US$365,000) and sentenced 10 individuals to prison for producing and selling inferior food products. A general manager was sentenced to three years in prison, and nine other individuals received prison sentences ranging from 19 months to 32 months.

Following these scandals and others, China adopted more stringent food safety regulations, implemented tougher punishments for food safety violations and resolved to improve the safety of the country’s food supply. The Walmart Food Safety Collaboration Center and the blockchain pilot program are part of the food safety piece of the puzzle, and IBM is a key partner.

“What they’re doing is tracking from the breeder or the farm, through the processing plant, through the distribution center, into the retail store and ultimately to the consumer,” explained Paul Chang, Cognitive Supply Chain SME (subject matter expert) at IBM. “We’re providing the fundamental blockchain technology to all of the members of that supply chain in China. We’re also providing cloud services that are actually hosting the solutions that, whether you’re a small farmer or a large retailer or transportation company, you have easy access to technology without a significant investment in infrastructure.

“And, IBM is bringing our expertise around supply chain management and our traceability technology so that the solutions that we are deploying can be easily scaled beyond what we’re doing in China,” Mr. Chang said, “and our research team, which has a large presence in China, is doing the bulk of the work in terms of applying the technology to solve this specific problem.”

In December 2016, the IBM team was in the design and development phase of the pilot project, which is expected to last four to six months. Mr. Chang said some of the expected outcomes include authenticating all of the transactions, securing information retrieval by all parties in the supply chain, providing auditable transaction records and developing trust among trading partners.

“Tracking pork in China is about as important as it gets in terms of food safety,” Mr. Chang said. “The ability to deploy this technology in China to track pork really speaks to the scale of the technology and its ability to quickly on-board small farmers as well as large wholesalers and retailers. It’s a big problem in China — they’ve had some issues with contaminated pork. And again, because it’s the most important protein for China, it made sense for Wal-Mart and the Chinese suppliers to try to tackle this problem.”

Blockchain challenges

The benefits of blockchain include enhanced security, reduced costs and transparency. Mr. Chang said that blockchain is a highly secure database that is auditable; and once transactions have been locked down, the record is immutable.

But the consensus-driven nature of blockchain presents some challenges, such as getting participants to agree on protocols and how much information is needed to verify a transaction. Mr. Yiannis pointed out that achieving consensus has required plenty of discussions with all stakeholders in the pork segment of the food system — farmers, processors, distributors and retailers.

“We have to figure out what are those critical data attributes that are absolutely needed to be able to do traceability,” Mr. Yiannis said. “Our aspiration is to go beyond traceability, so we have to say ‘even on a paper form, these are the minimum data attributes that you need: Where was the product produced? What was the lot number? What was the production day?’

“We then have to have conversations around what are additional data attributes that we think are value-added attributes that we could tackle with blockchain traceability,” Mr. Yiannis continued. “In true traceability, you don’t know if a facility had a food safety certification or a regulatory inspection; or any time they’re making any claims — is it organic, is it sustainably produced — so we’ve agreed to some minimum value-added attributes that we think will be beneficial in a traceability solution like blockchain.”

Conversations also have addressed how to capture relevant data: Will it be digital systems, manual inputs or a combination of the two?

“If you think about it, the concept is a digitized food system,” Mr. Yiannis said. “So, a digitized food system can’t be all captured on paper. As more and more of the food system moves to digital solutions, the information would then be able to be captured from an existing database somewhere.”

Efficiencies and empowerment

China is a leading importer of pork, but it also produces about half of the world’s pork, according to the Economic Research Service (E.R.S.) of the U.S. Deptartment of Agriculture (U.S.D.A.). In a report titled, “China’s Pork Imports Rise Along with Production Costs,” E.R.S. noted that small-scale “backyard” pork producers quickly are being replaced by larger, industrialized pork production systems similar to those used in the United States. In line with this trend, government officials in China are calling for the country’s pork industry to modernize the production system from farm to fork.

“The mere fact that we’re working on this breakthrough pilot using a company like IBM, technology like blockchain technology and Wal-Mart and that this idea originated with our work in China, I think, is pretty powerful,” Mr. Yiannis noted. “The fact that government regulators there are requiring traceability, and companies are all working toward traceability, I think, is reflective that the culture there is really advancing a food safety culture that requires greater traceability.”

It also demands greater efficiencies. In addition to bringing safety, traceability and accountability to China’s pork production industry, Mr. Yiannis said Wal-Mart aspires to add value to the global food system by leveraging greater insights from data and analytics so that the food system becomes more efficient.

Mr. Chang agreed: “The real advantage of blockchain technology can be showcased when the supply chain is rather lengthy,” he said. “If you can imagine mangoes being grown in South America, being able to track that to the aggregator then to the exporter, the shipping company, the importer and then U.S. Customs to the U.S. wholesaler, distributor…I think that’s where we’re going to see the efficiency gain — not just the ability to track the movement of goods for safety purposes — but really gain efficiency by being able to perhaps cut out some middlemen who really don’t add much value other than being there as a trusted source for different parties to interact with.”

Mr. Chang said that blockchain also is a game-changer when it comes to participation by all stakeholders within the chain.

“I think that’s where blockchain is really changing the game because it is a simple and elegant solution that is hosted [and] that many of the participants could just access using mobile devices,” he said.

That really changes the game in terms of how smaller farmers who are starting the chain and need easy access to the system can provide the necessary information for their downstream customers.

Blockchain, Mr. Chang said, “has been the missing piece that’s required for everyone within the supply chain to be able to participate.”

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