Blockchain in The Real World

IMG_777413-MAR-18   Using blockchain to trace coffee is different from using blockchain as a currency like Bitcoin.   Unlike crypto-currency, coffee is real.

With Bitcoin, there is no physical coin—the blockchain ledger is the coin.  With coffee, blockchain transactions represent real physical beans.

And while the blockchain itself is “immutable”—one of its endearing features—physical coffee is highly mutable.

In reality, as soon as there’s a price difference between Coffee A and Coffee B, the stack with higher value will begin to grow.  In one extreme case, we encountered an entire coffee-producing region of an origin country where the ledger showed NO COFFEE SOLD—zero.  The entire production of this lower-valued region “migrated” to higher-valued origins.

No ledger records nocturnal migration.

The net result: “ledger-based” and “mass balance” traceability are useful tools, but with significant limitations.

They have the advantage of being easier to implement, since they track paper documents and “the hands don’t get dirty.”  But the entire system rests on an assumption that these paper documents create an accurate picture of reality.

In coffee, the group with the longest experience in ledger-based traceability is the certification agency UTZ Certified—one of the success stories in coffee certification, and recently merged with Rainforest Alliance (as of January, 2018).

UTZ has offered ledger-based traceability for years as part of its certification program.  The company emphasizes its ability to support both “segregated” supply chains (where certified crops are stored and processed separately from non-certified) and “mass balance” supply chains (where the certified and non-certified are mixed but total input matches total output).

UTZ has clearly grappled with the central issues of traceability—the limitations of ledger-based traceability and the high cost of using segregated supply chains as a mitigating strategy.  Their explanation below summarizes these points with regard to cocoa supply chains, but applies equally to coffee:

“Cocoa is shipped and processed in large quantities, which means it is usually very costly to keep certified cocoa separate from non-certified cocoa.  UTZ’s sophisticated traceability system means you can be sure the certified cocoa that enters the supply chain does come from UTZ certified farms, even though it gets mixed with not-UTZ cocoa later on.  For farmers, what’s important is that they sold their cocoa as UTZ certified.  It doesn’t matter to them whether the cocoa ends up in one chocolate bar or another.” (https://utz.org/better-business-hub/sourcing-sustainable-products/6567/)

In essence, it becomes difficult to assert credible traceability for blended products like coffee and cocoa when the product is blended.  In fact it may be necessary to back-pedal to a highly diminished claim.  This may be acceptable to the farmers if they have been paid, and presumably acceptable to consumers where identity is not of particular interest.  But this is about as far as claims can be pressed.  The segregated supply chain mitigates the problem somewhat, but as noted in the quote above, the cost may be prohibitive.

For specialty markets, if traceability cannot be presented confidently to consumers, then it can’t build brand value and convert the expense of traceability into an asset.

At GeoCertify, we have explored “unit-level traceability” as an alternative to the segregated supply chain.

Unit-level traceability adds another dimension to ledger-based and mass-balance, since each physical unit of the product is tagged and traced as it moves through the supply chain.  This is how airlines track baggage; it’s how USPS and FedEx track packages.  GeoCertify tags individual bags of coffee and scans them as they move through the supply chain.  We can record GPS coordinates at key points of transit.

Substitution may still take place, but unit-level traceability alters the economics, since at minimum, everything has to be unloaded and repackaged.  Large-scale fraud becomes much more discoverable and unsustainable.

So let’s get back to blockchain—how does blockchain technology affect all this?

Adding blockchain authentication to a ledger-based or mass balance traceability system doesn’t alter the underlying weakness—in fact it may throw a false veil of credibility over what may be a fundamentally weak foundation.

In a word, recording information in a blockchain makes it immutable, but it doesn’t make it true.

At GeoCertify, we deal with high-value specialty products where identity has value.

We’ve taken the time to make unit-level traceability feasible on a large scale.  Now we’re adding blockchain to authenticate this data—but our aim is to start with something credible and not pretend that blockchain will make it so.

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