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April 02, 2018
Brewing a perfect cuppa with blockchain
By: Sanjay Podder and Nataraj Kuntagod

Ramanuja, a small-scale producer in the southern Indian state of Karnataka, grows 1.5 tons of arabica coffee every year. Even after producing premium quality output and following ethical cultivation practices, he doesn’t get a fair market price. The reason? A middlemen-dominated “buyers” market that’s plagued by a highly complex supply chain.

This isn’t just the case with coffee. While globalization has brought the world closer and enhanced foreign trade, it has resulted in weak regulatory institutions and reduction in trade protection barriers. As a result, unorganized small-scale producers are struggling to meet the basic costs of production, never mind make a sustainable living.

The global coffee commodity chain, specifically, is characterized by heavy price fluctuations and increased market influence at the processing and marketing stages. Moreover, with excess coffee supply, the price at the farm gate gets depressed further. To protect producers’ interest, governments are encouraging them to grow “differentiated” output that can command a premium with stable prices. In fact, a global consumer study reveals a strong demand for responsibly produced sustainable products. This means a million-dollar opportunity for brands that can effectively and transparently market their products. This approach not only lends a competitive advantage to the market players, but can also lead to better margins throughout the supply chain—if done the right way.

The challenge, however, is to track the product's journey through the supply chain to ensure authenticity and integrity. Tracking becomes more complex when multiple intermediaries are involved. For example, it’s difficult to track the number of stops coffee beans make—from the farm to the cup. This is where the blockchain technology promises a huge potential.

Blockchain’s fair tracing promise

Blockchain is increasingly being used to enable fair tracing of commodities. The technology supports a robust information system that removes the risk of single point of failure and ensures integrity of information. The distributed ledger, immutability of records and transparency with pseudonymity enable a high level of transparency, traceability, trust and lower possibility of fraud. This technology can essentially enable farmers to see where their product goes and what price it ends up selling for.

Several industry players are already using blockchain to track the product journey—from producer to consumer. Bext360, for example, is using blockchain to make it easier for small-holder famers to get a fair price and get paid instantly for their produce. The company uses artificial intelligence (AI) and machine learning to grade coffee cherries—both on quality and volume. Each grade has a market value attached to it. The farmer instantly sees the market value and accepts or declines the offer. The payment is made digitally through blockchain, removing human subjectivity and increasing trust in the process.

Missing "blocks" in efficient supply chain management

While many players are excited about blockchain's ability to verify commodities moving through the supply chain, the technology needs a supporting ecosystem to build “truly” fair trade practices. Accenture Labs recently conducted a study in the Indian coffee sector where 98 percent of the farmers are small-scale producers. The aim was to identify additional digital technologies required to supplement the blockchain backbone in a market where mobile connectivity is patchy and the use of digital technology in transportation and processing is minimal. A situation common across developing countries that produce 70–80 percent of the world’s coffee. Here are some of the missing blocks we found:

  • The “first mile problem”: How can we digitize physical goods and represent them trustfully in a blockchain-based system when agriculture commodities cannot be “tagged” individually? For example, each coffee bean cannot be recorded separately. One can only tag and track the bag in which the coffee bean is put. Moreover, the bag contents can be tampered with during transit.

  • Change in custody: Before landing in our cup, coffee beans undergo multiple steps—hulling, drying, bulking, blending, roasting, and more. During this process, their properties—size, color, weight or moisture content—obviously get altered. Is there a mechanism to track the variations due to processing or natural factors?

While blockchain provides the core mechanism of ensuring the provenance of the goods, we need a comprehensive solution powered by mobile-based edge intelligence, simple sensors, offline AI machine vision capabilities, digital tags and machine learning models to faithfully record the supply chain data.

New synergies to create the next-gen supply chain

Let’s discuss an example of how a robust mobile application (Figure 1), enabled by blockchain and several other technology innovations, can help farmers like Ramanuja clinch a fair deal on ethically produced coffee.

The app uses sensors and machine vision to create a “digital twin” of the product on the blockchain. It automatically records most of the product data, including the quality, type, region, certification, size, weight and moisture content, on a near-field communication (NFC) tag.

As the custody of the coffee changes during transit, sensors verify the product details and machine learning models verify that the physical characteristics are within the acceptable range for that region and farm. During processing, the app uses moisture sensors, machine vision and smart contracts to ensure that the data recorded on the blockchain is authentic and correctly represents the physical transformation.

Even consumers can use the app to trace the origin of the commodity with a high degree of authenticity and choose to offer a premium for the differentiation. What’s more, farmers can track the produce as it moves along the supply chain, directly connect with the end consumers to gather feedback and optimize the future yields to match consumer demands.

Though irrefutability of data and distributed ledger are the inherent characteristics of blockchain, at the end of the day, it is still just another storage system. The quality of data determines the quality of insights from that data—the well-known “garbage in, garbage out” conundrum. Therefore, it is crucial to establish the veracity of the data—feed correct and credible input to derive trusted, meaningful insights. The intelligence at the edge on mobile, sensors, machine learning models, machine vision and smart contracts not only bring robustness in the supply chain but also ensure the data that goes into blockchain is of high veracity.

We must also consider that increased transparency in the value chain will invite resistance from some intermediaries, especially those who get undue advantage from the supply chain loopholes. To address this, we must introduce new business models to incentivize all stakeholders to adopt ethical and fair trade practices. This way, we can create a win-win for all stakeholders in the value chain.

Figure 1

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