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New Food Monopoly or Why Walmart and Carrefour Connect To The Blockchain

19 October 2018 20:13, UTC
Anna Zhygalina

The volume of the food retail market is constantly growing, and according to experts, it should reach $8.5 trillion by 2020. At this scale, the market has remained conservative since the end of the 19th century, which creates certain problems for it nowadays. For example, the path of goods from the manufacturer to the store in the USA averages 2.4 thousand km due to inefficient logistics chain, which increases the added value as a result.

The problem of illiquid products is no less global. According to the director of the program for the study of counterfeiting in the food sector at the University of Michigan John SPINK, the annually fraud costs about $40 billion for the food industry. But in addition to money, the food market giants risk by the most important thing - their reputation. The desire to increase the level of consumer confidence pushes them into the arms of the blockchain.

The IBM Food Trust based on the Hyperledger Fabric protocol suggested the global solution for food retailers. It is expected that thanks to it, the market giants will be able to provide quality food for a lower price, while reducing logistics costs and accelerating the process of tracking deliveries from a few weeks to 2.2 seconds. The platform has already been joined by Nestle, Dole Food, Tyson Foods, Kroger, Unilever and Walmart. And they were followed by the leading European retailer Carrefour which announced that it is going to connect 12,000 stores in 33 countries to the platform until 2022. But what are the real motives of these companies, and how do they plan to change the global food market using the blockchain platform? Let's start with a little background to make some of these issues clear.

Contagious greens and organic pork

In 2012 Walmart started to sell the meat of diseased pigs in the Chinese province of Sichuan, but the retailer took measures only in 6 months. A year earlier, the Chinese authorities penalized the retail giant with a fine of $422,000 for illegal income: ordinary pork was being presented and sold as an organic product for 2 years in the stores. A huge retailer with more than 400 stores in China regularly receives fines from the local government for inaccurate information about price tags and misleading labels. In order not to lose its position, back in 2015 the Walmart China chain decided to switch to track the pork supply with the help of blockchain, shifting all responsibility to products suppliers.

However, the scandals did not end there. In 2018 there was a spread of E.coli through Romano leaves from Arizona. An outbreak of infection was found in April, but until September infected salad stayed on the counters. Walmart claimed that the producers supplied products under a single agricultural cooperative brand, without specifying the place of growth. The chain stopped working with the majority of the salad suppliers, making emphasis on the fact that “consumers have lost trust,” regardless of the production region. Moreover, it reported a decisive transition to the IBM Food Trust platform to get its customers back. The retail giant used an interesting wording: “The current one-step model is outdated for the 21st century, and only by working together industry companies can improve the supply tracking process to protect the market from epidemics".

Meanwhile, Walmart has already obliged its suppliers of greens to provide all data on deliveries by September 2019 and to get ready to work on the new platform. It is obvious that farmers do not have many options, because in case of the system abandonment they will simply be excluded from the supply chain.

Input error - output problem

In theory, the idea of using blockchain may lead to positive changes throughout the industry, gaining many supporters. For example, David PROENZA, the founder of the blockchain company, told us: “The efficiency and transparency of the blockchain will avoid bottlenecks, double and triple handling of the food product, which is a major problem today”. The other blockchain evangelist, Vipin BHARATHAN, the founder of the consulting blockchain company in New York, told us that technology will solve the problem of tracking supplies simplifying of the data collection process and use of IoT devices. However, in his words there was a disclaimer: “Thanks to the blockchain, it is much more difficult to cheat the system for the suppliers. And making multiple correlations with several IoT devices will definitely strengthen the truth of the data. However, It is always going to be a fuzzy truth”.

But what if this “untrue” part will play a decisive role? And how many people will suffer from such negligence or fraud committed even in one section of the chain, and how will retailers explain this mistake then?

Mitchell WEINBERG, the head of an international company that conducts analysis for the food industry, who himself experienced the most complex food poisoning in China, claims that fraud is detected in about 70% of cases according to statistics. After having studied all the methods used by fraudsters and analyzed a whole variety of counterfeit, from synthetic eggs to fake shrimps, Mitchell WEINBERG came to the following conclusion: "In the majority of production chains there are one or two unreliable sections, and if you can not control all the input data, the blockchain will not help you."

To clarify how this complex system will work in practice and how reliable it is, we have addressed these questions to the Hyperledger Ambassador. Harpreet SINGH MAAN believes that it is better to rely on automated systems, replacing the operator where there is such a possibility. Thus, IoT devices and trackers reduce the probability of fraud and increase the efficiency of the entire system. However, part of the data can be input in the system solely by a human, which already makes the system not 100% reliable. Hyperledger expert believes: "The blockchain is only covering the data that is inputted into the system is not being tempered or changed to do fraud. But if a merchant is adding false data in it, the system will have all false data. It's not just about the blockchain the whole solution need to have good trust engineering and the data entry points have to be modelled well”.

How will the system work

Harpreet SINGH MAAN described the general scenario of how Hyperledger Fabric will work: "Let's say, I made an apple tracking system. I tagged every apple with its ID, quality, where it was grown and which farmer produced it. Then I recorded it in the system and now sell it to a distributor. The distributor record that he has received this apple and the apple was of good quality and the information was accurate. Later he ships the apples to Malaysia. The new consignee adds its tags to the container of IoT devices: storage temperature, duration of the shipment, weather conditions. And later AI system determines the might have been the freshest and have might be rotten due to the analysis of environmental conditions and markers of transportation time. Then, on the basis of these parameters, it is determined which goods will arrive on the store shelves, and which will be considered illiquid. Also, thanks to the collected data, you can automatically adjust prices. But much more systems are  in play here: blockchain - for tamper proof ID system, IoT - for container tagging, AI and Big data - for analytics. The combination of these technologies can make a truly efficient and transparent supply chain”.

But what looks perfect in theory, can face many difficulties in practice. An expert from IBM, who wished to remain anonymous, said for Bitnewstoday.com that the future of a blockchain system of such complexity level and scale is not yet clear: “Food safety also represents a significant challenges in the future. What happens as the ledger continues to grow? Although IBM is working on an archival solution, but how will something of that scale be upgraded?”

In addition, an expert from IBM reports that so far the company has the ability to do rolling upgrades, but there is no telling how Hyperledger Fabric will evolve.

Blockchain or a corporate registry?

IBM Food Trust have positioned their blockchain platform as a decentralized model with a single rules for every member. Companies will register data of all transactions directly on the blockchain, recording information about the origin, expiration dates and different food products markers. The level of reliability is guaranteed by the fact that transactions will be certified by several parties at once.

However, the promising system has been heavily criticized by economist Nouriel ROUBINI, who is well-known as Dr. DOOM. He believes: “This corporate distributed ledger cannot be considered as a blockchain”. But the criticism did not end there. Our source at IBM expressed his opinion that the platform, originally declared as a purely democratic, is unlikely to remain so, as the market giants occupy leading roles in it: "It was originally formed Food Trust as a founder-directed model where the other participants are equal. Walmart is big enough to force their suppliers to get on the blockchain. With Carrefour joining, I'm not sure if it adheres to that model or morphs into a consortium model”.

Large grocery stores, that joined this platform, position the blockchain as a guarantee of the quality of their products. However, even experts suggest that not all the data will be registered on the blockchain. “Blockchain is orchestrating food trust processes but it won't store all data. In fact, some data may not even be on the IBM Cloud, and much less on the ledger" - said our expert.

As a result, it seems that the global food market giants enter into the new blockchain consortium not much to solve the problems of the global food market, but to cover their spoiled reputation with the power of blockchain. Moreover, it can be assumed that the key players of this new consortium will simply oust competitors, which have not joined the supposedly universal and decentralized blockchain ecosystem, from the market. And will this platform turn into a new monopoly, which will completely deprive the buyer of the opportunity to choose where and at what price to buy products?