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How blockchain drills into data

From the July 2018 issue.

Blockchain technology promises traceability throughout a supply chain, from the producer of a commodity to the final consumer. Global Coffee Report talks to those bringing such traceability to the coffee sector.

Dan Jones is frustrated and disappointed.

“You go to the website of any cool coffee company and you will find a page with a map of Nicaragua, say, with a pin of a cool spot and the picture of a farmer but you can’t click on anything to find out more,” says the CEO and Founder of blockchain startup bext360. 

“You can’t drill down into what actually happens. There is no real proof that can assure you of the impact your purchase is having and assure you the product is authentic.”

The promise of blockchain technology is to supply that kind of underlying data to a café, retailer, or other coffee seller who wants to tell their customers more about their cup of coffee than they know today, such as who grew the beans, under what conditions and, crucially, what was paid for them. In short, it is about the provenance of a cup.

“This could be an information revolution in the consumer goods space in terms of how people understand products,” says Scott Tupper, founder of Onda Origins, a US coffee roaster, and CEO of Yave.io, another blockchain startup.

Supporters back blockchain because of the traceability it promises across coffee’s supply chain as the crop is washed, milled, exported, roasted, and sold to consumers, either in a cafe or store.
What makes blockchain suited for such a role is its distributed nature. Blockchain data is hosted on millions of computers simultaneously. Having information not stored in any single location makes it less hackable and also more public and transparent. Effectively, blockchain acts like a shared accounting ledger. Originally designed for Bitcoin, it is now being explored for other uses, including greater traceability in the supply chain for commodities such as coffee.

“Blockchain is a secure, immutable chain of events and the ability to have confidence in it and look at transactions to verify and transcribe them into the chain is not dependent on one single character but instead an ecosystem,” says Michael Kovacocy, a capital markets expert and adviser who has taken a close interest in blockchain.

Right now, it appears to be gaining traction in the coffee sector, with a spate of announcements since the turn of the year by companies either deploying or trialling it as an alternative to the enterprise resource planning software commonly used today.

In mid-April 2018, bext360 from the US said it had enabled the world’s first blockchain-traced coffee from farm to a consumer’s cup. The coffee was produced through a pilot program with Ugandan exporter Great Lakes Coffee and Coda Coffee, a US roaster. Coffee from Africa was logged in the supply chain as it travelled to Colorado where it was roasted and sold.

A unique QR code on each bag of coffee sold by Coda can be scanned by consumers to read about its particular provenance, quality, and payments made on its journey.

This announcement was on the heels of US giant Starbucks saying it was launching a pilot  program with farmers in Costa Rica, Colombia, and Rwanda to develop “next-level data technology” to log and share real-time information about coffee beans as they move within its supply chain.

“This could be a seismic change in an industry that hasn’t had much innovation in the way coffee moves across borders and oceans,” says Arthur Karuletwa, the company’s Director of Traceability.

“At the same time, I have met farmers who have very little by way of possessions but they have a mobile phone. Digital has become the economic engine of this century, and traceability preserves the most valuable assets we have as human beings – our identity.”

No-one from Starbucks was available for interview, although the company did confirm that blockchain was among the technologies under consideration for its project.

Meanwhile, Onda Origins aims to start offering blockchain-traced coffee this summer at department store Nordstrom, and on corporate campuses as a pilot program.

Kovacocy says it’s understandable that systems offering traceability have a particular appeal for the coffee sector. “There is more interest in coffee from a social perspective, in the sense of how much various participants in the value chain get paid, than other commodities, for instance US wheat.”

The promise of blockchain is not just to provide greater visibility to consumers but to offer a better deal to farmers. Backers talk about how it will “decommoditise” coffee, particularly in the speciality market.

Jones from bext360 says his firm’s service can do three things for producers: instant feedback on the quality of their product and on-the-spot payment via cellphone, reduce certification costs, and make it easier for farmers to take out loans by giving a bank access to their inventory, which helps secure a working capital loan. The firm plans to develop the latter service with Rabobank in Colombia.

Onda Origins’ Tupper says farmers have downstream knowledge of the value of their product. “The vision is to decommoditise speciality coffee,” he says. “Rather than trading on a differential above the C-market [commodity market] price, flip the script and connect the pricing model at the first purchase to a committed or algorithimically decided demand-based model,” he said.

Kovacocy says that before, the farmer gave coffee to the market and it disappeared. “Now they can go and check where it is being sold and how much for,” he says. “That’s a totally different thing. It is flipping the supply chain on its head and is a totally different way of looking at things. The farmer’s ability to have leverage in transactions is very different, that changes a lot of things. Potentially, it moves ownership I would say from intermediaries to originators.”

The promise for supporters is that blockchain will shake up the coffee industry’s supply chain. 

However, choosing blockchain is not a simple either/or proposition. It is also not the only way to measure traceability. Available technology is on a continuum from a centralised database through so-called distributed ledger technology to private or public blockchains, with the latter being the most open and decentralised model.

In mid-April, agricultural giant and leading coffee trader Olam launched AtSource, a new system designed to offer environmental and social insights into the company’s agricultural products on their journey from farm to customers. It is not based on blockchain.

The company has 4.7 million farmers in its supply chain across a range of crops, including coffee. Most of the farmers are smallholders. Olam is initially introducing AtSource across five supply chains, two being coffee from Brazil and Vietnam.

The internet-based portal is fed with data gathered from Olam’s farmers and suppliers. While blockchain is decentralised and open to others outside an organisation, the AtSource platform includes an internal system to Olam.

The data gathered is from the company’s own suppliers, although individual customers will be able to access information relevant to their own supply chains through the internet portal using a password. 

AtSource is not replacing an existing system but is a new development, explains Juan Antonio Rivas, Olam’s Senior Vice-President and Head Central America and Andean Region.

“We have been at the forefront in the last years of work with smallholder farmers across the developing world where most of our commodities are sourced. That work has been quite fragmented and diverse, as it involves going into a specific supply chain and asking ‘What are its needs? Who can I partner with to help?’” he says.

“A few years ago, we developed a programme called Olam Livelihood Charter, which is our guide of how to work with smallholder farmers but the initiatives under the OLC were somewhat separate from our business. What we tried to answer with AtSource is how to link all our initiatives on sustainability with communities and smallholder farmers to our commercial activities, to the products that we deliver to our customers.”

The world is hungrier for information about sustainability, transparency, and traceability so that’s what Olam is trying to offer through its platform, Rivas says.

One of the benefits that bext360’s Jones argues for blockchain is its ability to provide connection from producers directly to roasters.

“I think all the traders, and the commodities folk and importers and exporters don’t like to hear that, but that’s the uber of the whole thing,” he says. “If you have access to your customers, if they are roasters or even consumers, then a lot of your transaction costs go away and that fundamentally changes the economics of the supply chain.”

So does Olam, as one of the world’s leading coffee traders, feel threatened by blockchain?

“I’m from Colombia where we have 550,000 farmers and the average farm is 1.5 hectares and each hectare produces 18 bags of coffee on average,” responds Rivas. “The effort to aggregate from all of these farmers, who normally sell their product through intermediaries, to take a significant volume to a large customer in the US, UK, or France is a significant one.

“If you do not have traders, does that mean a roaster will be able to engage with 550,000 farmers just in Colombia, never mind the other producing countries?”

The likes of Olam have a role in aggregation and also financing by distributing funds that support supply chains, so for instance if a farmer needs to invest in fertiliser during the year they can pay back the company later when it buys their crops. 

“So do I feel threatened by blockchain? No,” says Rivas.

No traceability system, blockchain or not, will achieve its goals unless it has a reliable means of data gathering, of which the most testing part is the furthest end of the supply chain, where a smallholder might be selling a single sack of coffee. Being able to add that kind of information in an accurate time-efficient manner is a significant thing.

One approach is bext360’s creation of its own bextmachine, weighing scales that capture an image of the coffee cherries to better gauge their quality in terms of colour, weight, and size before making an offer to the farmer. The producer can get immediate feedback and be paid on the spot via an electronic transfer to their mobile phone. The machine is the firm’s own creation. So far they have built 12. 

Less elaborately, the likes of bext360, Onda and Olam enable data about the coffee bean to be recorded via an app on a standard cellphone or tablet. Typically, this data is uploaded in real time if there is mobile network coverage. Otherwise, it is held until the device is next within range of a network.

In Laos, Onda Origins is working with a local partner who developed a text-message based system for traceability. Tupper is looking at a way in which text messages can talk to Onda’s blockchain.
This type of local connectivity is vital, he says. “The first mile is critical otherwise this all falls apart or is no better than the previous attempt to talk about provenance of coffee.

“So we’ve had certification schemes, direct relationships, we’ve had all types of attempts to talk about where did this come from,” Tupper says. “If you can’t log the first mile, then you can forget about it as far as assessing performance at the bottom of the pyramid.” GCR

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