Perspective Chapter: Blockchain Adoption in Food Supply Chain

Abstract

Modern food supply chain involves numerous stakeholders that are geographically dispersed. This scattered and complex structure impedes the free flow of information throughout the supply chain. Low transparency lays the groundwork for food fraud and delays the implementation of necessary countermeasures when a food contamination incident occurs. Moreover, customers nowadays are increasing demanding in terms of product provenance and sustainability. Under this circumstance, it is urgent to identify effective solutions that can mitigate the concerns of food safety, quality, and fraud. Blockchain has been identified as a promising technology for enabling end-to-end supply chain traceability. This study investigates the main challenges of agri-food supply chain and how blockchain attributes can address these challenges. We also propose an integrative framework of key factors that influence blockchain adoption in the food industry.

1. Introduction

Global agri-food supply chain involves a myriad of functionally and geographically diverse stakeholders. This fragmented structure limits the free flow of information among supply chain participants. Due to the low information transparency, modern food supply chain often confronts challenges in production, processing, storage, distribution, and raises concerns about food safety and fraud. As a matter of fact, nearly 10% of the world population (600 million people) have suffered foodborne illness every year, and 110 billion USD is lost each year in productivity and medical expenses resulting from unsafe food in low- and middle-income countries [1]. According to European Commission on food fraud [2], olive oil, milk, honey, saffron, orange juice, apple juice, grape wine, vanilla extract, and fish are on the list of the most common sources of food fraud. Scandals such as the milk adulterated with melamine in China, horse meat in beef products and sold in Europe, fipronil in eggs, and the slaughter of sick cows for meat in Poland have drawn attention worldwide.

Under these circumstances, consumers around the globe are demanding detailed information in terms of product provenance and what parties are involved in each stage of the food supply chain. However, the lack of supply chain transparency severely inhibits the capacity of food supply chain stakeholders to provide such information. Moreover, when food contamination incidents occur, low transparency also delays the effective implementation of countermeasures. In this context, academics and practitioners have begun to investigate the potential of technological innovations (e.g. artificial intelligence, big data analytics, and internet of things) to improve food supply chain transparency. In this paper, we examine how blockchain technology can be used to address food supply chain challenges and the factors that influence its effective implementation in food supply chain. Our analysis is based on a critical synthesis of a wide range of sources in the recent years from major businesses who are leading the digitalization efforts in agri-food industry, world leading supply chain consulting firms, global international organizations, trade magazines, and research articles. The contributions of this paper are twofold. First, it provides a holistic overview of the merits of blockchain adoption in the food supply chain. Second, we propose an integrative framework of factors that affect blockchain adoption in this specific context.

2. Agri-food supply chain challenges

Traditional agri-food supply chains encompass diverse actors from the raw material suppliers, processors, wholesalers, and retailers to end customers. Over time, modern agri-food supply chains have transitioned from autonomous, independent, and local actors to globally interconnected systems of multiple actors that affect the way food is produced, sourced, processed, transported, and delivered to the final consumer. Complexities emerge due to the need of real-time information sharing, mutual scheduling, product quality guarantee, and timely fulfillment of delivery promises. Current supply chain transactions are based on complex, paper-based settlement process. Not only do these transactions lack transparency and efficiency, but they are also vulnerable to fraud.

Most of the food supply chain participants still adopt the “one-up-one-down approach” that is laid out by CAC/GL 60-2006: participants can identify at any given stage of the food chain (from production to distribution) where the food comes from (one step back) and where it goes (one step further). By doing so, the visibility of focal firms in the movement of agricultural products is limited to the level of their direct suppliers and customers. This tracking method is largely inadequate, especially for multi-ingredient foods that include elements from different sources in different countries. In case of suspected contamination, the entire shipment will be discarded as a precautionary measure in accordance with the one-up-one-down approach, resulting in heavy economic losses. In addition, the currently deployed food traceability systems are neither integrated with each other nor linked among all participants in the supply chain. This disconnection generates information asymmetry between supply chain parties, resulting in poor supply chain visibility.

Nowadays, consumers are increasingly demanding in terms of product provenance and sustainability. They need to know where and how their food is produced and delivered. The current traceability and provenance systems for food supply chain can no longer fulfill such demands. In addition to the pressure on the demand side, regulations such as the food safety modernization act and general food law regulation profoundly impact the global food supply chain by mandating hazard analysis and end-to-end traceability. Unpredictable incidences of food safety or health hazards can significantly reduce a company’s brand value, erode consumer trust, and lead to lawsuits and product recalls.

There are some technological innovations that are applied for agri-product traceability purposes, such as radio-frequency identification tags, electronic data interchange, and internet of things. However, current food traceability systems are built on top of centralized infrastructures, which leave room for unresolved issues, including data integrity, tampering, and single points of failure [3]. To address these issues and enable end-to-end traceability, supply chain professionals envision the use of blockchain technology.

3. Blockchain technology

Blockchain is a distributed database that allows the storage and transmission of information in a transparent and secure manner. It operates without a centralized control body because it is managed by a network of computers/users, also called nodes, on a peer-to-peer basis. This database is constituted by a growing list of digital records of validated transactions, known as blocks, which are chained to each other in chronological order through hashing function [4]. The validation of a new block of transactions involves all the relevant nodes. They execute algorithms to evaluate and verify the authenticity and accuracy of the transactions. If the majority of nodes agree that these transactions are valid, then the new block of transactions is accepted into the database. Each block is attributed with a unique hash number – a digital fingerprint of data, and it also carries the hash of the previous block. Once these blocks are chained to each other, they become immutable. Figure 1 illustrates the main properties and operations mode of a blockchain.

Figure 1.

The key properties of blockchain. Source: Queiroz & Wamba [5].

Blockchain contains the following key features: immutability, automation, and security [6, 7]. First, transaction information stored on the blockchain can be seen by all participants and cannot be altered by any single node, as each node possesses a complete record of all the information within the blockchain. Data immutability ensures data accuracy, increases trust, and reduces fraud. This feature enables the tracking of the provenance of assets, which means that for any asset it is possible to tell where it is, where it has been, and what has happened throughout its lifetime [8]. Second, blockchain technology enables smart contracts, which is a consensus agreement based on a specific computer protocol [9]. The smart contract is executed automatically when conditions are proven to have been met [10]. In this way, digital assets could be operated without the need for third-party interventions, but by a program executing automatically certain rules defined by users [11, 12]. The trust issue in the network is resolved as everyone is playing by the rules and operation could be done more efficiently. Third, the distributed and encrypted nature of blockchain technology makes it resilient to different kinds of cyberattacks [13].

Blockchain has broadly been used according to one of the two models: public and private. Based on peer-to-peer network and consensus mechanisms, a public blockchain is a decentralized or distributed network that uses individual node to record transactions and distribute the data directly to each connected node. All the data and clusters of transactions are organized in a group, or “block.” By adding a set of new blocks, the chain is hence formed. Every block is generated by a specific consensus algorithm to assure that all the participants involving in the chain agree upon a specific state of the system as its true state [14, 15, 16]. A public blockchain network is totally open to every creator of a block, which suggests that anyone can access to the blockchain and allow them to read its contents. The network typically has an encouraging mechanism to encourage more participants to join the network. Bitcoin is a typical public blockchain networks today [17, 18].

A private blockchain is similar as a public blockchain. They are both decentralized network connected by different blocks generated by a specific consensus mechanism. The only distinction between public and private blockchain is related to who is allowed to participate within the network, execute the consensus protocol, and maintain the shared ledger [18]. A private blockchain calls for invitation proof that should be validated by either the network starter or by a group of rules. Private blockchain is usually operated by one organization, which defines limited visibility rights to chosen participants within a permissioned network [13]. In another word, participants must obtain a permission to join the blockchain. The access control mechanism could vary according to organization’s choice: existing participants could decide future entrants; a regulatory agency could issue licenses for participation or a consortium could make the choices instead [19].

4. Why blockchains are important for agri-food supply chain

Currently, food supply chain actors still struggle to find a reliable and effective way to verify the origin and details of products and services. More than 70,000 consumers recently signed a petition urging major companies and brands, including Walmart, to enhance their supply chain transparency [20]. Blockchain has the potential to improve such transparency by providing a complete audit trail of transaction data collected at various stages of the supply chain. By doing so, this technology offers customers and other stakeholders with undisputed proof of the origin and authenticity of products to fight food fraud and improve food safety.

Blockchain has the possibility to make complex and costly dispute settlement a thing of the past. It is not uncommon for suppliers fail to deliver agricultural products on time or in the correct quantity and quality. Under these circumstances, relevant parties need to identify the source of the problem and resolve the dispute, usually through fines or compensation. However, supply chain disputes are often tedious and costly to handle and manage. Blockchain’s ability to record ownership transfers and legal and security requirements in real time can help to reduce the likelihood of disputes. Smart contracts enabled by blockchain technology can automatically trigger compensation or fines at low cost if predetermined terms are violated.

There are many requirements to monitor and comply with in the agri-food industry, including product safety and integrity, ethical sourcing, technical regulations, and social and environmental responsibility of suppliers [21]. Failing to comply with these requirements can lead to potential regulatory scrutiny and have a negative impact on firm’s reputation. Blockchain can address agri-food supply chain compliance issues. By providing real-time visibility and data auditability into the supply chain, blockchain ensures that all contractual terms are met and compels supply chain participants to work with each other within regulatory requirements. In case of the violation of the required environmental conditions detected by sensors in a container, smart contracts can help avoid agricultural product degradation by sending real-time warnings for inspection. Data immutability enabled by blockchain provides a reliable means for supply chain actors to protect the interests of final customers.

There are many interesting use cases of blockchain in the following area: agri-food distribution, food origin and sourcing, and food safety and quality [22]. For instance, Walmart, the world’s largest retailer, uses IBM blockchain service to quickly pinpoint the culprit in future food safety scares. In 2016, it partnered with BLU-82 to form IBM Food Trust. The main objective is to increase the supply chain transparency in responding to the increasing customer demand in terms of food provenance and safety. Walmart has cooperated with IBM to develop a blockchain-based food traceability system and completed two tests: trace pork sold in China and mangoes in the Americas [18]. For pork sold in its Chinese stores, this food traceability system allowed uploading certificates of authenticity to the blockchain, bringing more trust to a system where that used to be a serious issue. For mangoes in the US, the time needed to trace their provenance went from 7 days to 2.2 seconds [23]. In September 2018, Walmart required all its lettuce and spinach suppliers to log their shipments on the blockchain. Today, Walmart can now track the origins of 25 products (e.g. strawberries, yogurt, and chicken) using the aforementioned system.

Another example of blockchain-enabled transparency in food origin and sourcing is the export of beef from Australia to China. China’s growing demand for beef and the difficulty of meeting domestic demand have led to the import of beef mainly from Australia. BeefLedger, an Australian blockchain company, has developed a token-driven platform for food sourcing and monitoring, where beef supply chain members take part in the network by purchasing beef tokens. Importers, wholesalers, and retailers can use these tokens as payment for beef shipments. BeefLedger stores all information associated with cattle (cow feeding and health history), meat processing, transportation, and storage conditions. Chinese consumers can thus easily access to the information about the origins of the beef, how was it sourced, and how authentic the claims on the label are.

Blockchain is also used in combination with other digital technologies, such as internet of things, to address fraudulent practices that lead to food safety and quality issues. Downstream Beer is a pioneer in the beer industry to jointly use blockchain technology and internet of things to provide full transparency of beer ingredients and brewing techniques. By using sensors, every aspect of the beer-making process (e.g. location, temperature, and humidity monitoring) is recorded safely on the blockchain. Consumers can use their smartphones to scan the QR codes marked on the bottles where they can access information related to the ingredients, processing methods, bottling process, storage, temperature conditions, etc.

Blockchain along with big data analytics, automation, internet of things, and artificial intelligence are rapidly becoming pillars of supply chain digitalization. The adoption of blockchain helps to foster a paperless agri-food supply chain [24]. It will help break down bureaucracy, radically reduce transaction times and administrative costs, and speed up the flow of goods by eliminating tedious paperwork and using automated data storage process.

5. Factors influencing blockchain adoption in agri-food supply chain

The application of blockchain in agri-food supply chain is still in its infancy. While some use cases can be found, the scope of most blockchain pilots in agri-food industry is still quite limited. Therefore, it is urgent to carefully examine the factors that affect the implementation of blockchain in this specific industry. In this paper, we adopt Technology-Organization-Environment (TOE) framework [25] to comprehensively analyze blockchain adoption from the technological, organizational, and environmental perspective. TOE framework is widely used by previous studies to investigate the adoption of technological innovations, such as social commerce [26], customer relationship management systems [27], and software as a service [28]. We believe that this integrative framework is also suitable to understand blockchain adoption in agri-food industry. Figure 2 shows the integrative adoption model proposed in this paper.

Figure 2.

An integrative framework for blockchain adoption in food supply chain.

5.1 Technological considerations

5.1.1 Scalability

Each node within the blockchain network has a complete copy of all the information stored on the blockchain. When a new block is added, the system needs to update the copy at each node so that a single version of truth is ensured among all participants. As the network expands with more members and data, this update process slows down accordingly, and latency becomes an important issue. Agri-food supply chain involves many actors and generates a very large amount of information every day. In the pilot stage, the latency issue described before may not be pronounced, but this issue will be exacerbated when a blockchain initiative scales up beyond the pilot stage. This is the reason why many supply chain blockchain initiatives remain proof of concept for years [24].

5.1.2 Technology access

Internet access and IT infrastructure are prerequisites for the implementation of blockchain in agri-food supply chain. However, most of the food chain actors are farmers and small- and medium-sized enterprises, and they are not likely to have the adequate IT infrastructure to adopt blockchain. Thus, incapacity to access supply chain information in a timely manner due to technology access limitations could be a barrier for blockchain adoption.

5.1.3 Compatibility

The traceability systems developed by different blockchain pilots in the agri-food industry are not based on the same standard. They are designed and operated with different governance rules and consensus models. The question of how one blockchain will be used alongside other blockchains or other available systems remains unanswered [13]. Lack of interoperability can make large-scale blockchain adoption a nearly impossible mission. Recently, there are increasing number of interoperability projects that aim to connect various private blockchain with common rules and understanding. This is the only way to ensure smooth data transfer between different blockchain systems.

5.1.4 Data manipulation and privacy

Data integrity issue is one of the major technological hurdles for blockchain adoption. Data may be manipulated or compromised before it is recorded into blockchain. To address this issue, authenticated data entry system needs to be developed to automatically convert physical events to digital inputs for the blockchain. By doing so, the information inconsistency between physical reality and data stored on blockchain can be eliminated. The transparency enabled by blockchain technology also raises concerns in terms of data privacy, especially some participants may be competitors. Therefore, participants may be reluctant to use blockchain to avoid the leakage of their proprietary information.

5.1.5 Security challenge

Blockchain is usually viewed as a reliable technology with characteristics, such as encryption, data immutability, and decentralization. However, this does not mean that blockchain is not vulnerable to cyberattacks and security fraud. People with malicious intent can exploit blockchain security vulnerabilities for their own benefit. There are already many cybersecurity incidents related to blockchain usage. For example, a cyberattack on Bithumb, a major cryptocurrency exchanges for bitcoin, and Ethereum caused an economic loss of 870,000 USD and the exposure of more than 30,000 users’ information. The potential security threats could discourage firms willingness to use blockchain.

5.2 Organizational considerations

5.2.1 Top management support

Top management support and commitment play a pivotal role in the successful implementation of any technological innovations. The higher the support and commitment, the more likely the firm will develop new organizational policies to clarify the usage of blockchain and reduce the resistance from employees to embrace the new system. Lack of technology awareness and involvement from upper management would impede the allocation of adequate human, financial, and technological resources for technology adoption projects.

5.2.2 Cost

The adoption of blockchain incurs diverse costs, such as recruiting blockchain expert, investment in additional equipment (e.g. sensors and radio-frequency identification tags). In addition, adopters need to spend a lot of time and resources to master the complexity of blockchain. The cost may be justifiable for the leading firms that initiate blockchain implementation projects, because they are usually large firms with bountiful resources. It is financially viable for them to invest in costly project that promises long-term returns. However, this is not the case for small- and medium-sized food supply chain actors with low margins. Therefore, high implementation cost may hinder the adoption intention of these actors.

5.2.3 Return on investment (ROI)

According to [21] global blockchain survey, more than 33% of the respondents claims that their current ROI in blockchain technology remains uncertain. The lack of clear ROI is recognized as the top barrier for blockchain adoption [29]. With the increasingly usage of blockchain in agri-food industry, it is likely that the financial benefits of blockchain implementation will be clarified in the foreseeable future.

5.2.4 Lack of knowledge and expertise

Blockchain is still largely an emerging technology, and the skills required to develop and use it are in short supply. The willingness to invest in blockchain requires a certain degree of technological awareness and knowledge. The technical complexity of blockchain makes it a challenge for individual users to understand, accept, and confidently participate in it. Lack of in-house technological capabilities is a serious barrier for the wide adoption of blockchain. One of the solutions to mitigate the low in-house technological capabilities is to purchase blockchain as a service, which allows firms to access the benefits of blockchain usage without having to make a substantial investment in the technical talent behind it.

5.3 Environmental considerations

5.3.1 Trading partner readiness

If only a few nodes in the food supply chain are ready to join the network, the ability of blockchain to enable end-to-end traceability and improve transparency will be largely compromised. As a matter of fact, most of the food supply chain actors are financially constrained small- and medium-sized companies with limited technical expertise. They are unlikely to have sufficient capability to adopt blockchain alone. While large companies are able to initiate blockchain projects, the participation of smaller companies is needed to achieve fruitful results. Therefore, if the other trading partners in the food supply chain are not ready to adopt blockchain, the focal firm may also hesitate to invest in this technology.

5.3.2 Collaboration among trading partners

Blockchain implementation in food supply chain requires all relevant parties to have the similar level of technological awareness and maturity. The large company that initiates the blockchain project can provide necessary help to the other firms with lower digital readiness. But they first need to have the same conception about blockchain technology, and they must achieve a consensus on the benefits of blockchain-based food supply chain transformation. Mutual commitment and shared vision are the foundations of any supply chain collaboration. If the other firms share the same vision with the focal firm and they are willing to engage in collaboration to facilitate the co-adoption of blockchain, then this paves the way for the focal firm to adopt blockchain.

5.3.3 Competitive pressure

Modern food supply chain actors can leverage technological innovations to gain a competitive advantage over competitors. By adopting innovative technologies, firms may change the rules of competition and exploit new ways to outperform competitors, thus changing the competitive structure of the industry. Blockchain technology has promising applications in the field of agri-food distribution, food origin and sourcing, and food safety and quality. Many firms are looking to reap such benefits in an increasingly competitive marketplace. Therefore, it can be assumed that companies will adopt blockchain if their competitors are also considering it.

5.3.4 Legal and regulatory concerns

The distributed nature of blockchains gives rise to some unique legal concerns. Since different nodes of the distributed ledger may be located in different regions of the world, it is a complex and even conflicting task to decide which laws should be complied with and which courts have the authority to decide what matters in blockchain-related issues [29]. The blockchain pilot initiators should collaborate with legal professionals to define rules and a detailed set of contingencies to anticipate potential legal issues [13].

6. Conclusion

In this paper, we attempt to provide answers to the following questions: how blockchain technology can be used to address food supply chain challenges and what are the factors that influence its effective implementation in food supply chain? Based on a critical synthesis of the state of the art, we first identify the main challenges of food supply chain, such as food fraud, food safety, customer, and regulatory pressure to ensure transparency and responsiveness in case of product contamination. We then demonstrate how the key attributes of blockchain technology, such as immutability, traceability, transparency, automation, and security, can address the identified challenges. Finally, we propose an integrative framework to help scholars and practitioners better understand the critical success factors of blockchain adoption in the agri-food industry.