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Blockchain's future in food and beverage companies is now

How food and beverage companies can prepare

INSIGHT ARTICLE  | 

Blockchain has the potential of making a significant impact in the food and beverage industry and smart businesses are taking note; however, many are still on the sidelines wondering how to capitalize on this burgeoning strategy.

According to RSM’s Digital Transformation Report, just 12 percent of middle market food and beverage chief financial officers (CFOs) indicated they are currently using blockchain; however, 95 percent said they viewed blockchain as important, with 28 percent planning to use it within the next 12 months and another 53 percent planning to deploy it within the next 13 to 36 months.

Clearly, there is heightened interest in this strategy, but where do companies start? What early considerations should middle market food and beverage businesses be thinking about now to ready their future blockchain efforts?

For many, it begins by understanding how blockchain and the food and beverage industry were made for one another: a match made in digital transformation heaven.

Changing the game

There’s a common misnomer about the term blockchain. When people hear blockchain they automatically think of cryptocurrency or bitcoin, the much bandied about digitized currency.

Actually, in terms of food and beverage businesses, blockchain refers to the system or mechanism to securely transact data across several computers and within the consensus network. So, in real terms, produce inventory and supply chain data can be submitted, stored, tracked and evaluated, from farm to table, across multiple parties and jurisdictions. Data provenance, or the origin of that data, is also securely stored. In the case of a produce ingredient, all information from original grower, processor, transporter, manufacturer and so forth is entered across the consensus network distributed ledger, all parts having submission access, but with no central authority. This decentralized approach allows for greater system utilization, increased maintenance efficiencies and faster response times, for instance, during a product recall. With blockchain, the offending source ingredient is identified quickly, often before the product reaches the retailer, stopping or lessoning the recall’s overall impact.

It’s truly a game changer for food and beverage businesses. According to a study by the Food Marketing Institute and the Grocery Manufacturers Association, food recalls cost companies an average of $10 million in direct costs, with other estimates even higher. Product recall is an ominous threat for many food and beverage companies, disrupting operations, damaging reputation and more. Mitigating this costly risk via blockchain and improving traceability across the value chain is a much welcomed revelation for businesses and their consumers.1

And, speaking of consumers, blockchain provides a variety of advantages in meeting their needs, too. Ingredient transparency is a leading consumer buying preference, so validating where food is grown and when it was harvested is important to many. Is the food truly organic or locally sourced? With blockchain, that precise information is submitted by the source and can be made available to the consumer, ensuring product integrity and marketing claims.

Likewise, many consumers want to know their brands are optimally managing inventories and eliminating food waste. Blockchain can identify surpluses and wastes in the ledger, accurately tracking ripeness and spoilage, and alerting companies of areas of excess and expiration dates. This intelligence can improve processes, which in turn eliminates waste. Companies leveraging blockchain in this way save money, but also make inroads with the mindful consumer, too, by fulfilling a brand promise of sustainability and stewardship.

There are other benefits along the value chain, as well. For instance, farmers and processors via blockchain have real-time access to commodity prices and market data, allowing them to make faster and smarter decisions and transactions, leading to improved competitiveness and profits.

Getting started

Benefits abound with blockchain, but the hurdle here is more about how to get started. For some food and beverage businesses, it begins with working with a larger partner and complying with their standards. For instance, retailer Walmart is requiring suppliers of leafy green produce to conform with their food traceability initiative for direct suppliers by Jan. 31, 2019. Through this blockchain effort, data is tracked to understand where the food comes from, including country of origin, region and potentially down to the grower’s field lot. This can validate that the food is safe to consume, and should there be any issues along that blockchain, Walmart can quickly trace it back.

In a recent pilot, Walmart tracked the source of their mangos using this technology. It took 2.2 seconds for them to trace the produce back to the source in China. Previously, this would have taken several days.2

For some food and beverage companies, compliance may be the first foray into blockchain; however, over time more organizations will understand the benefits and begin to see the real business advantages. If your company is one of them, consider the following questions to get you started:

  • What are you trying to achieve? What are your business goals? For instance, do you want to improve traceability, supply chain management, fulfill a compliance agreement with a retailer? Assessing your current status and needs, and then identifying your broad overall goals is essential before beginning any strategy optimization. It goes the same for blockchain.
  • Have you thought about ways to get closer to your consumer?  Blockchain may allow you to interact directly with the consumers of your product and provide additional branding and loyalty.
  • What blockchain solution will you use and will you require a vendor or provider to help you?
  • Have you weighed the risks associated with blockchain? Blockchain technology is quite secure, but make sure you understand the costs and risks associated with implementation.
  • How will you enter data, track it and sync it with other enterprise systems?
  • Are your current systems and technology ready to support a blockchain initiative?
  • What ongoing support and services will you require?

Sources
1. Recall: The Food Industry’s Biggest Threat to Profitability.  Food Safety Magazine. Oct. 2012. https://www.foodsafetymagazine.com/signature-series/recall-the-food-industrys-biggest-threat-to-profitability/
2. Pelberg, D. Crypto Case Study: Solving Food Waster.  Crypto Disrupt. June 19, 2018. https://cryptodisrupt.com/solving-the-food-waste-problem/


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