1
Unchain Blockchain at Origin.
How can Blockchain Enhance Traceability and Sustainability Within the
Supply Chain.
Author: Mats Ravensbergen (11198699) Email: ravensbergen.mats@gmail.com Submission date: 15 August 2018
Supervisor: J. Kraaijenbrink
The Amsterdam MBA Program 2016 - 2018
Master of Business Administration Company Project
2 Executive summary
Halcyon Agri group is a global player in the rubber industry. It both functions as a
producer by owning rubber plantations and a supplier by having subsidiaries to distribute rubber to the customer. The rubber industry is under increasing scrutiny due to causing deforestation in Southeast Asia. More recently, Green Peace published a report claiming that a Cameroon based plantation owned by the Halcyon Agri Group, caused for severe deforestation of protected forests in Cameroon. In addition, more and more projects are initiated in order to enhance sustainable practices within the rubber industry. (e.g. Michelin and IKEA) The main challenge for pursuing sustainability within the rubber supply chain is the lack of transparency and therefore the difficulty in verifying
sustainable claims by the participants. The thesis focuses on Indonesia, as this is one of the main producing rubber countries in the world but also due to lack of registration of the rubber smallholders. In other producing countries, like Thailand, the smallholders are often registered with authorities. In order to verify sustainable claims, one needs to know to whom this claim belongs Without any registration this is not possible. Therefore
research is conducted to the central question of this thesis, ‘’How can Blockchain Enhance Traceability and Sustainability Within the Supply Chain’’. Through academic research, analyzing best practices from different industries and actual field research in Southeast Asia, this thesis brought forward solutions to the central question. The
conclusion of these solutions was that Blockchain is a suitable technology to be used as a traceability system. In order to facilitate a traceability system, data was suggested involving the relevant parties, smallholders, intermediaries, and factories. In order to enable traceability, these participants need to be registered. One way to solve this issue is by creating an identity by the use of peer-network, who are able to verify the claims of the individual. Once the registration of each participant is set and the data required for a traceability system, indicators were provided in order to verify the sustainable claims by each participant. Both the data to enhance traceability and sustainability, are uploaded to the Blockchain and linked to the exchange between two counter-parties. This solution makes it able for the industry to trace rubber back to its source and to verify the
sustainable claims of each participant.
3 Acknowledgments
Sustainability and innovation were always two passions of mine which in my opinion are interrelated to one another. I am therefore very happy I could write this thesis to explore the opportunities that Blockchain brings and how this could benefit sustainable practices in Indonesia. Furthermore, I hope that this thesis benefits the smallholders in the long run. It is because of this reason I would show gratitude to both Wurfbain as Halcyon to allow me to freely pick my research topic and support me in conducting field research in Southeast Asia during the summer. Furthermore, I am also thankful for their support in all means during the past two years of MBA.
It goes without saying that the last two years during the MBA have been a rollercoaster both mentally as physically. Nevertheless, the MBA brought me many things to which I am very grateful for. It not only brought me in-depth knowledge of business practices but it also brought me great personal growth which I could not have envision without
pursuing this MBA at the Amsterdam Business School. I am thankful for the school for bringing me all these international experiences over the past two years. Furthermore, the many great minds that I have become in touch with and of whom I have personally become very close friends with.
Due to the novelty of the subject and the lack of research conducted by academics, writing such a thesis is quite challenging. Therefore I am thankful for Jeroen
Kraaijenbrink for his supervision and guidance considering the difficulty of this topic. Furthermore, for always keeping an overview of the content that I have created, of which I know is not easy!
Last but certainly not least, I would like to thank my family and their never-ending support during my MBA. They have always been supporting me in good and bad times both mentally as financially. Without their support, I wouldn’t have been able to persuade the MBA and all of its adventures with it.
Amsterdam, 15 August 2018 Mats Ravensbergen
4 Introduction ... 7 Methodology ... 12 Literature review ... 19 A. Traceability ... 19 1. What is traceability ... 19 2. Requirements of a traceability system ... 21 B. Sustainability... 24 1. What is sustainability... 24 2. What are indicators of sustainability ... 24 C. The Blockchain technology ... 26 1. Blockchain application ... 26 2. Type of Blockchains ... 31 3. Blocks and the Merkle tree ... 32 4. Transaction process... 33 5. Self-sovereign identities ... 34 6. Agnostic Blockchains ... 37
Blockchain best practices ... 40
A. Blockchain in the aquaculture industry to enhance sustainability ... 40 B. Blockchain in the Food Industry ... 41 C. Blockchain to create an identity ... 45 Field research ... 48 1. Michelin ... 48 2. Halcyon ... 48 3. The Next Web 2018 learnings ... 52 4. Blockchain EXPO learnings ... 53 5. Southeast Asia trip learnings ... 53 Framework application ... 56 A. Blockchain applied to the rubber industry ... 56 1. Blockchain application ... 56 2. Type of Blockchain ... 59
5 3. Transaction line of code... 61 B. Traceability in the rubber supply chain. ... 64 C. Creating an identity for the smallholder... 72 D. Verifying sustainability claims in the rubber supply chain ... 77 E. Agnostic Blockchains... 80 Managerial recommendations ... 82 A. Blockchain as a basis to enhance traceability and sustainability ... 82 1. Suitability of Blockchain ... 83 2. What type of Blockchain to use? ... 83 3. Coding ... 84 B. Creating a traceability system for the rubber supply chain ... 85 1. Product identification ... 86 2. Product routing ... 86 3. Traceability tools ... 88 4. Data to trace ... 88 C. Identification of the smallholders ... 90 D. Agnostic Blockchains... 94 Conclusions ... 96 Limitations ... 97 Future research ... 98 Appendices ... 99 A. Reports ... 99 1. IKEA – Bangkok... 99 2. FSC ... 102 3. Michelin – Rubber way ... 107 4. Halcyon Agri Group – Mapping the supply chain ... 108 5. InterRubber ... 110 6. MMG ... 111 7. Capgemini ... 113 8. IRSG ... 115
6 9. WWF ... 116 1. TNW conference ... 117 2. Blockchain EXPO ... 119 References ... 120 Table of Figures Figure 1 Overview of the supply chain at the origin. ... 10
Figure 2 Fundamental of a traceability system – PRODUCT & Activity ... 20
Figure 3 Framework successful traceability system ... 21
Figure 4 Suitability evaluation framework... 27
Figure 5 Which type of Blockchain? (Jeppsson & Olsson, 2017) ... 31
Figure 6 Hashed transactions and the Merkle root (Jeppsson & Olsson, 2017) ... 32
Figure 7 Representation of the transaction component ... 34
Figure 8 Process of sovereign identification... 36
Figure 9 Overview of process flow ... 51
Figure 10 Merkle root hash of transactions ... 63
Figure 11 Rubber raw-material route ... 69
Figure 12 Secure hardware device for smallholder ... 74
Figure 13 Identity verification process of smallholder by peer... 76
Figure 14 Route of raw material rubber between smallholder and factory ... 86
Figure 15 Permission-based public Blockchain Halcyon supply chain ... 93
Figure 16 Agnostic Blockchains ... 95
Table of Tables Table 1 Overview sustainability indicators ... 25
Table 2 Answers to questions whether Blockchain is suitable. ... 59
Table 3 Data to trace in the rubber supply chain ... 71
Table 4 Analysis of suitability of the Blockchain technology ... 83
Table 5 Overview coding Blockchain ... 84
Table 6 Data to trace per participant in the supply chain between smallholder and factory Table 7 Sustainability indicators to verify sustainability claims by participants... 89
7 Introduction
This thesis is written to conduct both academic and practical research that examines the use of Blockchain in facilitating the traceability of the raw materials of rubber in
Indonesia in a sustainable manner. Little to none academic research is done on the implementation of the Blockchain technology in a supply chain. Therefore this thesis is based both on academic research, practical use cases of several parties that have tried to implement Blockchain technology within different supply chains, and field research conducted in Southeast Asia. Although the technology is still in its early stages, it has become increasingly popular and it is important to outline why Halcyon is looking at such technology to implement within its value chain.
To show the impact that Blockchain potentially has, Deloitte projects that 10% of global Gross Domestic Product(GDP) will be based on Blockchain technology. This is largely due to the impact that this technology possibly has and its impact on society as mankind knows it. In particularly logistics and transportation, it has many implications and having a massive impact on the 8 trillion dollar industry. This statement shows that approximate value of the technology in the world and its increasing importance in disrupting the way things are executed within industries. However, what exactly is Blockchain?
Most people know the Blockchain from the cryptocurrency Bitcoin. Instead of needing centralized intermediaries like a bank, the Blockchain technology behind Bitcoin allows two parties to exchange data directly through ledgers which are called Blockchains. The new technology makes transactions much more transparent without the need for
intermediaries. Different industries and different parties are looking into applying this technology to supply chains in order to enhance the transparency within it.
‘’Blockchain may bring supply chain transparency to a new level, but presently academic and managerial adoption of Blockchain technologies is limited by our understanding’’ (Francisco & Swanson, 2018, p. 1).
The arrival of Blockchain exactly comes together with rising demand for a more
8 for rubber increases, large consumers such as Michelin, the tire maker, but also the international community have grown aware of the non-sustainable practices within the rubber production. The International Rubber Study Group estimate that rubber is a $30 billion cash crop and consumption of rubber will increase to 19.4 million tons by 2020 (Intelligence, 2017). This growing demand shows the urgency to implement sustainable practices and make the supply chain more transparent. However, it is not the rubber itself that is problematic, it is the way how it is sourced. Due to the lack of transparency within the rubber supply chain at the origin, rubber farmers can appropriate land which contributes to large-scale deforestation. According to the World Wildlife Fund (WWF), natural rubber production is becoming a leading cause of deforestation in mainland Southeast Asia. As consumer awareness of this issue increases, there is an increasing risk to the brand reputation for those companies sourcing rubber from deforested land’’ (Intelligence, 2017).
Halcyon Agri is one of those companies within the rubber supply chain that is exposed to such a risk. The Halcyon Agri Group is headquartered in Singapore and its key
operating assets are located in Indonesia, Malaysia, Thailand, China, and Africa. The operating assets are supported by a network of logistics assets, storage and terminals, laboratories and sales offices globally. The organization both purchases the raw
materials as well as growing itself. It sources raw natural rubber from smallholders to feed its processing facilities. The raw material comes from either its plantations or Halcyon Agri Group procures from smallholder farmers.
Recently Greenpeace published a report that exposed one of Halcyon’s subsidiary in Cameroon, which is threatening the ecosystem and local and indigenous communities with its operations in Cameroon (Greenpeace, 2018). The report states: ‘’Halcyon Agri Corporation limited is responsible for by far the most devastating new forest clearance for industrial agriculture in the Congo Basin. Between 2011 and May 2018, its
Cameroonian subsidiary Sud-Cameroun Hévéa (“Sudcam”) has cleared more than 10,000 hectares of dense tropical rainforest to make way for a monoculture rubber
9 plantation, threatening the Outstanding Universal Value of an adjacent UNESCO World Heritage site’’ (Greenpeace, 2018, p. 1).
Deforestation is a serious issue which has depth and complexity. The Blockchain technology may solve a part of these issues through hard work to provide more precise records, increase transparency, and incentivize better behavior from participants in the supply chain. It is especially this issue that makes traceability difficult. For traceability to work, a supply chain needs to be able to track the product back to its source. In
Indonesia, article 24 of the land registration, articulates that in order to register for ownership of the land, farmers need to show relevant documents (The Jakarta Post, 2015). These documents are difficult to show cause in Indonesia obtaining a birth certificate is usually very challenging. It is estimated that 35 million people in Indonesia are unregistered (Lamb, 2013). If a farmer or its land is not registered, it makes it difficult to track back a product to its source. ‘’For one thing, a Blockchain is a useful tool when it comes to recording and protecting land records and documentation (Radocchia, 2018).
To understand the cause of the lack of transparency within the rubber supply chain, one must have an understanding of the supply chain itself. The rubber comes from a tree which is tapped by either a rubber plantation or a smallholder. Rubber plantations own land that covers thousands of hectares of planted rubber trees whereas smallholders are families that own on average two hectares of land that produce rubber. On average one hectare of land has 500 trees planted (Chanchaichujit & Saavedra-Rosas, 2018).
On average a smallholder produces 1000 KGs of raw-material per hectare per year. Considering that global demand has grown to 19.4 million tons by 2020, the annual input of a smallholder is nihil. On a daily basis, this amounts to 3.0 KGs per hectare.
The supply chain consists of different parties starting from the rubber tree all the way to the end consumer. An overview of the rubber supply chain is shown in figure 1.
10 Figure 1 Overview of the supply chain at the origin.
Factories process the raw-material to different rubber qualities and ship these in
containers of 20.160 KGs. A container contains 16 pallets of 1,260 KGs, with one pallet containing 36 bales of 35 KGs. Knowing that a smallholder only produces 3.0 KGs per day on average, one can imagine that many individual smallholders contribute to the production of one container. This makes it very difficult to implement traceability practices within the rubber supply chain.
The purpose of implementing a Blockchain technology within the supply chain is to create a more visible supply chain that allows all parties involved to trace the route of the raw material from origin all the way to the end consumer and vice versa. The main goal is thus to enhance transparency. In order to facilitate the traceability within the supply chain between smallholder and factory, all the participants need to be registered. This may cause difficulties since most of the smallholders are not registered. Due to the lack of registration, it is difficult for the industry to verify and confirm the sustainable claims
Factory
Receives the raw materials and processes this to rubber or latex Dealer
An intermediary who receives the payment from the factory and distributes this to sub-dealer (1)
Sub-dealer (1)
Collects the raw materials of the different village chiefs and delivers most of times directly to the factory.
Sub-dealer (2)
Chief of village that collects the raw materials of the different habitants of this village Smallholder
11 made by the smallholders, intermediaries, and factories. Therefore this thesis tries to answer the following research question:
‘’How can Blockchain Enhance Traceability and Sustainability Within the Supply Chain?’’.
This foundation of this thesis is three-fold. The first part is the literature review which makes use of academic research. The second part is the best practices in different industries which have used Blockchain for both traceability and sustainability. The third part consists of findings from the field research in Southeast Asia during the first half of July 2018. The combination of these three parts is applied to the rubber industry in the framework application. Out of the application follows a recommendation in regards to the research question of this thesis.
12 Methodology
This section explains the choice for certain methods used during the writing of this thesis. Furthermore, it explains how the research is set-up and provides a justification of the choices made during the research. As a result, this thesis tries to answer the central request question:
‘’ How can Blockchain Enhance Traceability and Sustainability Within the Supply Chain.’’
To answer this central question, the thesis is split into three parts, consisting of an academic review, best practices review and a conducted field research in Asia. Below these three parts are each separately discussed followed with three sub-questions per part.
Part 1 – Literature review
This review contains purely academic literature and consists of a focus on traceability and Blockchain. The research for relevant literature is conducted through the use of the search engine of the University of Amsterdam called the CataloguePlus engine. The database was used to search for articles with ‘’traceability’’, ‘’sustainability’’, ‘’supply chain’’, ‘’Blockchain identity’’ and ‘’Blockchain’’.
Sub-question 1: What entails a successful traceability system? Sub-question 2: What are indicators for sustainable practices?
Sub-question 3: How can Blockchain be used to enhance traceability and sustainability? Sub-question 4: What is the process for generating an identity for smallholder through the use of Blockchain?
Part 2 – Best practices
This part reviews the best practices of both the aquaculture and food industries which have applied Blockchain to enhance both traceability and sustainability in supply chains. Those were practices from industries which faced similar challenges as that in the
rubber industry. The first case is that in the salmon industry which is similar to the rubber industry as in difficulty in tracing back raw material to its source. In the salmon industry,
13 a fisherman can enter fishing areas which are protected by law and sell it as a legitimate fish. The comparison here with the rubber industry is that the smallholder or the dealer can sell the rubber to the factory claiming that the raw-material comes from an area where no deforestation has occurred. This practice can be used to enhance sustainable practices, answering the fourth question.
The second case involved best practices in the food industry. This industry is similar to the rubber industry in the sense that both industries are dealing with bulk commodities. This makes the raw-material difficult to follow within the supply chain. The food industry makes use of different methods in order to trace raw-material within the supply chain. This relates to the fifth sub-question, how to enhance traceability.
The last case refers to the use of Blockchain for refugees. Syrian refugees often cross borders without any formal document that confirms their identity. This offers problems for governments who are hosting the refugees and makes it difficult to track the refugees their movement. Furthermore, without any legal documentation, these refugees face difficulties integrating into society. Blockchain enables these refugees to build a track record in order to create an identity which makes them able to integrate easier within societies. The comparison to the rubber industry is that either the smallholder is not registered within the database of the authorities or has acquired its farming land through appropriation. In order to either verify the smallholder or its land, this practices helps to create an identity or registration of land for the smallholder and enabling him or her to connect to the Blockchain. Question 6 relates to this challenge.
Sub-question 4: How can Blockchain enhance sustainability? Sub-question 5: How can Blockchain enhance traceability?
Sub-question 6: How can Blockchain support the creation of an identity without the need for a centralized authority?
14 Part 3 – Field research:
The field research conducted, reviews the possibilities and alternatives of implementing a traceability system within the rubber supply chain. The field research provides an understanding of the possibilities in Southeast Asia, where the rubber is produced, to implement Blockchain. More importantly, what is the challenge of implementing such a technology. The findings of these interviews are to be found in the appendices of this thesis. The field research was both conducted in the Netherlands, as well as during a trip to Southeast Asia where the following countries were visited, Thailand, Malaysia, Singapore and Indonesia. The interviews were conducted qualitatively, meaning that there were no structured questions prepared. Nevertheless, the meetings were set with the intention to get a better view on certain topics. Below an overview of the people met is given plus the reason why these people were met.
In the Netherlands, the field research was focused on the Blockchain technology and what the possibilities are to implement it in a supply chain. Two conferences were visited, TNW 2018 and Blockchain EXPO both exhibited in Amsterdam. Furthermore, different meetings were held with contacts in Amsterdam to discuss the thesis and what the best approach would be.
The visit to the TNW was to get a better understanding of what blockchain is and to look for examples of the implementation of Blockchain supply chains. Therefore the following people were met:
Edward Ciggaar – Technical Enablement Specialist IBM
IBM has implemented Blockchain in the coffee and cacao industry in order to facilitate a live traceability system. This meeting was scheduled in order to get an understanding how Blockchain could benefit traceability in a supply chain.
15 Arjen Visser – Management & Investment consulting in Blockchain Eqnon
Erwin Mul – Strategist Shell
Both persons were met during a round table discussion where the subject was about Blockchain in the energy sector. Again, the purpose was here to get an understanding how to use Blockchain in a supply chain and what the benefits could be.
The next conference was at the Blockchain Expo in Amsterdam. The purpose of this visit was to create a better understanding how Blockchain could facilitate in the creation of identities for individuals. The following people were part of a panel discussion:
Ali Nazem, Vice President Business Development Shocard Alex Momot, CEO REMME
Vicken Kaprelian, Founder & CEO HedgpAY.
The purpose of this panel discussion was to discuss the challenges, possibilities of using Blockchain to create an identity. After the panel discussion, a visit was made to
Blockpass where the following person was met:
Hans Lombardo – CMO Blockpass
The reason for this visit was to get more in-depth knowledge about the possibilities of creating an identity on the Blockchain.
Outside the conferences, Cristian van der Weij, DLT and Blockchain developer was met in order to discuss the possibilities of Blockchain implementation in supply chains.
16 The trip in Southeast Asia focused on the opportunities and challenges of implementing a traceability system in the rubber supply chain between the smallholder and the factory. Furthermore, how to implement sustainable practices across the different layers in this part of the supply chain. The organizations met ranged from customers to factories, to NGO’s within the rubber supply chain. In addition, there were also companies
approached who were not dealing in the rubber supply chain but who faced similar issues in their own industry. The full reports of these meetings are found in the appendices. The learnings from these meetings are mentioned in chapter Field Research. The following people were met during this trip:
IKEA workshop:
Sudebb Taechanuruk – Vice-President Thai Latex Association Pinit Laosonthorn – Managing Director V.A. Latex., LTD.
Karaked Ruangvarunwattana – Assistant Marketing manager Tavorn Rubber Industry CO., LTD.
Mongkonchai Wongsasuthikil – Domestic marketing & Sales Manager Thai Rubber latex Group Co., LTD.
Suvasitthi Dewan – Managing Director Sales and Marketing Thai Rubber Latex Corp. PCL.
Lawrence Chen – Marketing Manager Thai Rubber Latex Corp. PCL Ligita Grigaleviciene – Sustainability Manager IKEA
John Heath – Director Wurfbain B.V.
Kobrat Swasdivorn – Project coordinator FSC Jayco Fung – FSC Market Development FSC
Purpose: IKEA is the customer of our customer and the one pushing for sustainable practices in the rubber industry. Through the workshop given, an understanding was created about what sustainability is, why IKEA requests it, and how to implement this in the rubber supply chain.
17 WWF Meeting:
Kim Stengert – Director of Communication WWF Singapore Aqeela Samat – programme Executive WWF Singapore
Daniel Thong – Global head – Strategic Development Halcyon Agri Group
Purpose: WWF is a NGO who focuses both on traceability and sustainability in supply chain. Furthermore, the organization is working with blockchain. This meeting was scheduled to look into learnings from WWF in different industries.
IRSG meeting:
Lekshmi Nair – Head of Economics
Purpose: IRSG is the study group for the rubber industry and have much data about the producing countries of rubber.
Interrubber meeting:
Pathom Chirojchotichai – Managing Director Inter Rubber Latex Co., LTD.
Purpose: To discuss the difficulties and possibilities of FSC certification at a rubber plantation.
MMG meeting:
Kelvin Chan Kai Weng – Vice President-technical MMG Polymer Chanon Wongvun – General Manager MMG Polymer
Purpose: To discuss the difficulties and possibilities of FSC certification at a rubber plantation.
Halcyon rubber plantation Indonesia:
Irwan- Factory Manager PT Pulau Bintan Djaya
Daniel Winata – Plantation Manager PT Bintan Prima Agro Inda Bakti – Factory Manager AnsonIndonesia
Purpose: Halcyon has a traceability and sustainability project in one of the Halcyon owned plantations in Indonesia. This visit was meant to take a closer look at the difficulties and possibilities of implementing Blockchain.
18 Michelin:
Edouard de Rostolan – CSR Manager Michelin
Purpose: Michelin has initiated a public traceability system, available to all rubber participants. During this meeting ideas were exchanged to facilitate a more sustainable and traceable supply chain.
Panel Plus:
Udom Panyo – VP Procurement and Administrative
Amarin Sriwattana – Director procurement and sustainability
Purpose: Panel plus works directly with rubber smallholders, not for the rubber, but for the wood. This company has set a traceability system in place.
JC Service:
Kenjiro Fujimoto – Chief representative JC Service Co., Ltd. Sod Damrithamnij – Chief Financial Officer JC Service Co., Ltd.
Purpose: JC is looking into different sustainability programs. However, the company has not decided yet what program to choose.
With the purpose of these meetings both in Southeast Asia as during the conferences in the Netherlands, this field research tries to answer the following questions.
Sub-question 7: What are the learnings of current traceability initiatives? Sub-question 8: What are the learnings of current sustainability initiatives? Sub-question 9: What are alternatives for individuals without an identity?
19 Literature review
This literature review consists of three parts. The first part analyses what traceability exactly is and what the requirements are for implementing such a system. The second part lays the focus on sustainability and what are indicators to verify the claims for sustainable practices executed by supply chain participants. The third part focuses on what Blockchain exactly is and its possibilities for a traceability system. This third part entails two frameworks where the first framework by Kuang Lo et al. analyses the suitability of implementing Blockchain in a supply chain, and the second framework by Jeppsson et al. focus on the type of ledger that is needed for different end purposes. These two parts combined are the basis for the traceability system implemented in the rubber supply chain. While understanding what a traceability system is and what the requirements are for such a system, and on the other hand has created an
understanding of how this data can be implemented in the Blockchain. These two parts combined allow for the verification and confirmation of sustainable claims by participants in the supply chain.
A. Traceability
This part takes a closer look at what traceability exactly entails and what are the
requirements to implement a traceability system in a supply chain. Transparency in the supply chain is important because this allows confirming whether sustainable practices have taken place or not. Traceability helps to safeguard sustainable practices
throughout the supply chain (Beier, 2014).
1. What is traceability
In order to understand to what purpose the technology needs to be used, it is wise to reach an agreement on what traceability exactly entails. Furthermore, what does it exactly mean to track and/or trace a raw-material back to its source. There are many definitions of traceability, while in general, it is the ability to follow the product’s
movement through the supply chain (Bosona & Gebresenbet, 2013). On the other hand, traceability is also defined as the ability to identify and verify the chronical order of the different steps that are executed within the supply chain (Skilton & Robinson, 2009).
20 For the scope of this thesis, the following definition of traceability is used: ‘’the ability to identify and trace the history, distribution, location and application of products, parts and materials, to ensure the reliability of sustainability claims, in the areas of human rights, labor (including health and safety), the environment and anti-corruption” (United Nations, 2014, p. 1)
A challenge in implementing a traceability system is to whether transparency leads to traceability and vice versa. Traceability is to be explained as to what data is available to two counter-parties in an exchange of information and on the other hand to outside observers (Awaysheh & Klassen, 2010). The Blockchain technology enables a
transparent supply chain and allows for an immutable and distributed ledger that in turn results in the application of traceability practices. ‘’The relationship between supply chain transparency and traceability is not straightforward and linear: while having more
information available (i.e., transparent) may lead to increased traceability; increased traceability may not lead to increased transparency if the supply chain is made of few participants with loose affiliations (Francisco & Swanson, 2018).
When implementing a traceability system, there are two parts that are considered the core of such a system, that is product and activity. The product part is sub-divided in type and amount. Whereas the activity part is sub-divided in type and time (Moe, 1998). This is presented in figure 2 (Jeppsson & Olsson, 2017). This core forms the basis for any traceability system. However, in the following part, a deeper dive is made into the data needed for a traceability system.
Figure 2 Fundamental of a traceability system – PRODUCT & Activity Product Type Amount Activity Type Time
21 2. Requirements of a traceability system
The requirements for a successful traceability system should be based on four core elements. These elements are; product identification, product routing, traceability tools,
and data to trace (Regattieri, Gamberi, & Manzini, 2007). This framework is illustrated in figure 3 below.
Figure 3 Framework successful traceability system
Traceability system Product routing Traceability tools Data to trace Product identification
22 Product identification:
In order to be able to trace the raw-material back to its source, its fundamental to have product identification. Each product, therefore, needs a unique identification. An
example of such concept is that of traceable resource units (Aung & Chang, 2014). Aung and Change define three types of such units: batch, trade unit, and logistics unit. A batch refers to any quantity of a raw-material going through the same process. A trade unit is a unit exchanged between two counter-parties. A logistics unit is a unit that consists of different units together.
Product routing:
A traceability system should cover the full supply chain, meaning from beginning to end (Regattieri, Gamberi, & Manzini, 2007). The scope of this thesis is on the origin part, meaning the traceability system starts from the smallholder to the factory, and all intermediate steps in between these two parties. An efficient traceability system allows for tracing the history throughout the whole chain (Folinas, Manikas, & Manos, 2006).
Traceability tools:
Different tools exist in the market that enhances traceability within a supply chain and can be used for a traceability system. Organizations are recommended to take into consideration the requirements and the compatibility of the supply chain before choosing any traceability tool (Regattieri, Gamberi, & Manzini, 2007). Some available tools are barcodes, RFID, and other electronic systems. Each of these systems has its
advantages and disadvantages and these should be taken into consideration (Lawson, 2009).
Data to trace:
This element refers to what data needs to be traceable. The decision needs to be made what kind of data the system requires to support and whether this kind of data needs to be made public or can remain confidential (Regattieri, Gamberi, & Manzini, 2007). Enabling what to trace depends on the capacities and capabilities of the participants within a supply chain (Manos & Manikas, 2010). Each entity within the rubber supply chain faces different challenges of adding data to the system. For example, smallholders
23 face issues of having devices available to enter data. In addition, most smallholders will have difficulties understanding how to enter data and what is expected of them.
The sub-question for this part of the literature review is: ‘’ What entails a successful traceability system?’’. Now an understanding has been created of what traceability exactly entails and what such a traceability system requires. It requires to identify the product through either a batch unit, trade unit and or logistic unit. The following step is to map the route of the product from beginning to end. Through the use of traceability tools like RfID, the product is followed throughout this route. In order to understand who and what parties are involved in each step of the chain, data needs to be encoded in the RfID tag. These are the prerequisites for a successful traceable system.
The next step is to understand how this knowledge can be used in combination with sustainability. Therefore the next step is creating an understanding of sustainability and what are indicators of sustainability within a supply chain.
24 B. Sustainability
Traceability within a supply chain leads to the ability to verify sustainable claims. Since traceability and sustainability are interrelated within a supply chain, it is important to create an understanding of what sustainability exactly is. In addition, indicators for sustainable practices are being analyzed.
1. What is sustainability
Customers are growing awareness of sustainable practices within the different industries. Through the growing demand, more and more parties are individually initiating sustainability projects in order to promote sustainable practices within the supply chain. Therefore it is important to create an understanding of sustainability. In the Brundtland report, sustainability refers to ‘’development that meets the needs of the present without compromising the ability of future generations to meet their own needs.’’ (Our Common Future - Brundtland Report, 1987, p. 37)
2. What are indicators of sustainability
In order to measure the effect of sustainable practices in a region, sustainability is divided into three pillars: economic, social and environmental. Each of these pillars is divided into sub-themes and indicators to measure impact. These indicators are shown in table 1 below (King, 2014). The three different pillars are measured through different indicators. These indicators can be applied to the rubber supply chain and through the use of a traceability system and the Blockchain technology, these indicators can be verified. This leads to the verification of the claims of the participants within the supply chain.
The sub-question that this part of the literature review tries to answer is: ‘’What are the indicators for sustainable practices’’. The indicators are divided into three pillars, who each are sub-divided in themes that can be used to indicate sustainable practices in a supply chain. The indicators can serve as KPI’s in order to verify the sustainable claims by participants in the supply chain.
25 Both traceability and sustainability are defined together with their indicators. The next chapter takes a look at Blockchain and how traceability and sustainability factors are applied to the technology. More importantly, how Blockchain can enhance these factors within a supply chain context.
Table 1 Overview sustainability indicators
Pillar Sub-themes Indicators
Economic Economic development Employment status
Primary jobs/green jobs Income Consumption & production Waste generation
Energy consumption
Transportation Access to public transportation Vehicle miles traveled
Travel choice
Social Social demography Atmosphere
Fresh water Land
Poverty Income inequality
Poverty rate Health coverage
Livability Affordability
Accessibility of public spaces Food deserts
Environmental Atmosphere Ambient pollutants Greenhouse gas emissions
Fresh water Water pollution
Water use
Water availability floodplain expansion
26 C. The Blockchain technology
This part discusses the Blockchain technology, how it works and what data can be encrypted in it. This will provide an insight into how the knowledge about traceability and the requirements can be implemented in the Blockchain. Furthermore, this part looks at the possibility to create an identity for participants who lack any registration. This is particularly interesting since the scope of the thesis is on Indonesia, where many smallholders are not registered.
1. Blockchain application
The first step is assessing the suitability of the technology within the supply chain. In the case of this thesis, the focus is on a particular part of the supply chain that at the origin. Lo et al. have developed a framework to assess such suitability. Fig. 4 shows the framework which the authors have put together based on best practices, academic literature, and the author’s their own experience. The framework consists of a pathway of questions which needs to be answered in order to come to the conclusion whether Blockchain technology is the appropriate technology to use or whether a conventional database is a better option (Lo, Xu, Chiam, & Lu, 2017).
27 Figure 4 Suitability evaluation framework
Is multi-party required? Is operation centralized? Is transaction history required? Is multiIs high -performance required? required? Is trusted authority required? Is transparency required? Is immutability required? Is trusted authority decentralized?
Can data be shared with encryption?
Can the mutable data off-chain?
Blockchain Can big data off-chain
C o n ve n tio nal d at abas e NO NO NO NO NO NO NO NO NO NO Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes NO NO
28 Is multi-party required?
This question tends to answer the need for a particular system. Does a system need to be accessible by different entities or different parties within a single entity? Blockchain technology allows for direct operations or transactions between two different entities without the interference of an intermediary or any other third party. Most supply chains consist of complex and dynamic environments where different parties are involved which result in logistical constraints spanning across the supply chain. ‘’It would break down the silos of information controlled by individual parties while at the same time make the process faster and cheaper’’ (Lo, Xu, Chiam, & Lu, 2017, p. 159).
Is trusted authority required?
‘’A trusted authority is an entity that is authorized to execute a certain operation or alter a policy or configuration of an operation’’ (Lo, Xu, Chiam, & Lu, 2017, p. 159). Having one or more trusted authorities within the supply chain leads to the possibility of having one single point of failure within the chain. If this trusted authority faces any issues, all parties involved within the supply chain become affected by it. The Blockchain is
applicable in supply chains without any trusted authority. However, the technology does not remove trust because the participants within the supply chain are still exposed to risk for the use of Blockchain within the supply chain (Lo, Xu, Chiam, & Lu, 2017). This allows the supply chain to put trust at one single entity to uphold the ledger and therefore is called distributed trust.
Is operation centralized?
The third question analyses the operations of the supply chain. Does one single entity control the operations for the supply chain or does every party involved have control of its own data and assets? In both scenarios, it creates challenges for governance. However, for the use of Blockchain, none of the operations is centralized and thus the system is not controlled by one party but rather every party within the supply chain is in control of its own operations (Lo, Xu, Chiam, & Lu, 2017). Therefore, using the
Blockchain technology within a supply chain does not allow for a supply chain that needs centralized operations.
29 Is transparency required?
The fourth question is to analyze whether data transparency or confidentiality is required within the supply chain. The Blockchain allows participants to check all published data on the platform and can be verified by all processing nodes. However, this question brings many considerations with it. It is possible for parties to encrypt the data
beforehand which increases privacy but can decrease performance, transparency or independent auditability. On the other hand, participants can store only a hash on the Blockchain and keep the raw-data offline in order to keep data disclosed and improve performance. However, this goes against the purpose of Blockchain which is to provide distributed trust. The different participants can use pseudonyms and use encrypted data but improving transparency is in contrast with commercial confidentiality. Roles and rights can be allocated within the Blockchain by determining who can read and access what, but it remains difficult to keep confidentiality between competitors. ‘’The main trade-off is between the benefits of sharing data within the group of collaborators (visibility) and retaining confidentiality towards competitors where needed’’ (Lo, Xu, Chiam, & Lu, 2017, p. 159).
Is transaction history required?
The purpose of answering the fifth question is to analyze whether data integrity is
necessary within the supply chain. These historical transactions are required for creating provenance, which allows tracing back physical assets back to its original source
through changes in ownership and handling.
Is immutability required?
In the case of this question, immutability is referred to as to whether information inserted in the chain can be modified or altered by others within the same platform. The
Blockchain can be of a real added value by providing for immutability and a non-repudiation. Blockchain platforms do not allow for easy changes due to its continuous replication of data across different locations and organizations. If one party tries to change the data, it is considered as a breach of the integrity of the whole supply chain. On the other hand, such practices may cause problems due to disputed transactions,
30 incorrect addresses, exposure or loss of private keys or data-entry errors. When
applying Blockchain technology within a supply chain, all parties need to carefully consider the need for historical transactions during the design of such platform. Immutability within Blockchain also works against itself and may prove less
implementable than conventional technologies used by trusted third parties that allow for rollback.
Is high-performance required?
The Blockchain is still in its early phases and still faces plenty of limitations such as data storage and scalability. However, these limitations are expected to be overcome in the future. Private Blockchains with thorough thought design and allow for performance tuning have much better performance than public Blockchains. Current practices to work around the limitations of large data storage is to store these amounts off-chain to reduce the risk of duplication of all the input from all participants within the supply chain.
The speed of implementation of the Blockchain technology depends on the novelty and complexity of its environment in which it needs to be implemented. Novelty refers to the amount of effort to envision and convince the users of implementing this technology. Whereas complexity refers to the number of participants that need to work with the technology. In areas with high novelty and high complexity are areas where
implementation takes longest while having the greatest impact (Iansiti & Lakhani, 2017). Since Blockchain is still in its early days, it also comes with challenges for the
implementation of such a novel technology. First, the technology is rather immature and many parties are still investigating the advantages and impact of the technology in different industries. In addition, the second challenge is the novelty of the technology, which requires an understanding of the technology by all participants and industries in order to understand the applications of it. The third challenge is that of complexity. The more users involved, the more collaboration is required to successfully implement the technology.
31 2. Type of Blockchains
Now that the suitability of the technology has been established, the next step is to decide what type of Blockchain is necessary for traceability system. There are different types of Blockchains which are called ledgers. There is a traditional ledger which is centralized, permission private based, permission public based and non-permission public (Brennan, Lunn, Zelnick, & Yates, 2018). Bitcoin, for example, makes use of non-permissioned public ledger which has no single owner. In contrast, a permission based ledger is a ledger where the parties involved are preselected and the ledger is owned by one or more parties (Hancock & Vaizey, 2016). In order of most decentralized is first the non-permission based ledger, then the permission public ledger, followed by the
permission private ledger and last the centralized ledger. Jeppsson et al. have
developed a framework, figure 5, in order to decide which type of ledger is necessary.
Figure 5 Which type of Blockchain? (Jeppsson & Olsson, 2017)
Shared access?
Who controls the ledger?
Inter-firm Intra firm
Public permissioned ledger Private permissioned ledger Anyone participate? Traditional Ledger Non-permissioned ledger NO YES YES YES
32 3. Blocks and the Merkle tree
Taking a look at Bitcoin, the content of a block consists of a so-called block hash, the previous block hash, a nonce and the Merkle root. An example of this is shown in Figure 6 below. According to Lemieux, the Merkle root is a digital signature that consists of all the transactions in that particular block, which is used to save disk space (Lemieux, 2016). In the end, all transactions are put together and are summarized in one hash which is called the Merkle tree root. The output of each hash is one of a kind and each block is referring to the previous block, making it impossible to make any adjustments without interrupting the previous or next block in the chain. This would create an entirely new transaction and hash history. Through this system, the legitimacy of the reference of the first block is confirmed, and all the other transactions ever made and to be made are as well confirmed (Tschorsch & Scheuermann, 2016).
Figure 6 Hashed transactions and the Merkle root (Jeppsson & Olsson, 2017) Merkle root Hash 5 & 6 Hash 1 & 2 NR-123 Transaction 1 NR-123 Transaction 2 Hash 3 & 4 NR-123 Transaction 3 NR-123 Transaction 4 NR-123 NR-123
Hash 1 Hash 2 Hash 3 Hash 4
33 4. Transaction process
A transaction between two counter-parties requires a public and private key, which uses encryption to keep the data stored securely and is essential for maintaining authenticity (Taoscott & Tapscott, 2016). Jeppsson et al. make use of a metaphor to describe the transaction process. The metaphor is a box where value can be stored.
Imagine a box that has no lock and is open for anyone. However, the difficulty is in finding this box within the network. A party needs to know the location of the box in order to access it. ‘’The network contains 10^77 of those boxes, which can be compared with the amount of grain of sand on the earth that is 10^27’’ (Lovén, 2016).
To unlock the box, Blockchain makes use of a so-called double key concept. There is a public key and a private key. The public key functions as proof that a party has also the private key without making the private key available to the network. For example, when preparing a load for sending, for which the document needs to be hashed. When the document has been hashed, the owner of the document can decrypt the hash-code relevant for this document with the private key (Lemieux, 2016). Once done, a digital fingerprint of this shipment has been created.
The next step in this process is to send the document to a counter-party and allow it access to this box. Therefore, the sender sends the original document plus the public key and the digital signature to the receiver. However, the receiver needs to be
evaluated if it is the intended recipient to gain access to this box. The receiver needs to hash the document received using the same hash as the sender did. In the previous example, this hash was NR-123. If the input is the same, the hash produces the same hash output. The given public key send by the sender decrypts the digital signature. The network then compares the two hashing codes, and if these are the same, both the sender and the receiver are the legitimate owner of the document (Swan, 2015).
34 Any transaction in the Blockchain carries certain data. It is important to understand what data has to be inserted in this transaction that can be implemented in the Blockchain. Furthermore, this is critical to understand when creating a traceability system. A transaction is a line of code, shown in figure 7, that consists of four components (Nakasumi, 2017):
- Input: The origin of the amount transacted (i.e. vender)
- Output: The destination of the amount transacted (i.e. customer) - Amount: Quantity of the unit transacted
- Metadata: Any other data that is deemed necessary can be stored along with the transaction. Each transaction consists of a number, NR-123 as per example in the Merkle root described earlier.
The code shows that it requires the identity of the participants involved in the exchange. For the use of a successful traceability system, the route of the product needs to start at the source of the supply chain. In the case of the rubber supply chain, many
smallholders live remote and are not registered within databases of local authorities. The next part takes a look into how Blockchain can help to create an identity.
5. Self-sovereign identities
One of the issues faced in the rubber supply chain is that of registration of either the land or the farmer him or herself. However, Blockchain offers several alternatives for solving such issues or at least trying to do so. What is exactly a self-sovereign identity?
Self-sovereign identities is the belief that everyone is in control of our own identity, both offline and online. Since such identities are not reliable on a centralized authority, the
Input Output Amount Metadata
35 self-sovereign identities are decentralized, exactly the opposite of how an identity is created in reality (Windley, 2018).
However, the offline world also makes use of decentralized credentials which are verified to and by the owner of this identity. These third-party credentials are called claims, which can be confirmed as unique even when they are conveyed by the subject of the claim. These verifiable claims are the core of the belief of self-sovereign identities (Windley, 2018).
Although self-sovereign identities allow for some control, it doesn’t offer complete control. However, it creates guidance in areas where the individual can make decisions and outside these borders you can negotiate with peers. An example to explain how sovereign-identities work. When applying for a driver license, the local authority is the claim issuer and gives this person, who is the claim holder, a digital representation of a driving license whereas normally that person would get a physical card. Through the use of the key linked to the decentralized identifier on the Blockchain, the government can sign the claim to make it immutable which can be confirmed by anybody that it was issued by the government. A digital wallet allows a person to hold its claims and use keys linked to the decentralized identifier, controlled by this person on the Blockchain, to counter-sign the license.
For example in a bar, the bartender needs to verify its customer’s age, to check whether these are allowed to drink. A customer can present its digital representation of its
driver’s license and the bartender can confirm that the credentials haven’t changed, that the government issued it, and the customer is the one presenting it. The Blockchain is accessible by anyone to check for decentralized identifiers, access, and related public keys. Anyone is free to issue any claims, each person is free to store any claims in its wallet. On the other hand, claim verifiers are also free to pick any claims they trust. Through decentralizing these options, the system ensures the flexibility required so that these identity systems can be used for any purpose (Windley, 2018). Figure 8 shows this process.
36 Figure 8 Process of sovereign identification
In order to be fully self-sovereign, such a process requires the following:
- Persistent: Identities are possessed by the person who creates it. It’s not just individuals who need identities but also organizations which can use the same process as individuals do. Such self-sovereign identity systems are durable and non-reusable.
- Peer-based: A sovereign identity defines the area within a community or individual has control and outside this area is where they interact with other peers. Individuals and organizations are in control of the information they share with peers and the relationships they start. However, others are allowed to make the same decisions.
- Privacy protecting: ‘’ Self-sovereignty puts the person in control of how
information is shared. Consequently, any identity system that doesn’t prevent correlation, minimize attribute disclosure, and provide for explicit consent puts people’s information at risk and removes it from their control’’ (Windley, 2018, p. 1). Public Blockchain Claim Issuer Signs Claims Claim Holder Countersigns Claims Claim Verifier (bar) Verifies Signatures Issues Claim Presents claim
37 - Portable: All the data stored on the sovereign identity needs to be portable and to
be able to operate with other devices to protect choice and control.
The focus on sovereign identities, allows to answer the 3rd sub-question of the literature
review. ‘’What is the process for generating an identity for smallholders through the use of Blockchain?’’. The Blockchain allows through the use of peers within the same network to verify the data that is updated by the individual who creates a new identity. This principle is similar to the offline world where a physical card is used to present and verify claims.
6. Agnostic Blockchains
‘’Agnostic, in an information technology (IT) context, refers to something that is generalized so that it is interoperable among various systems.’’ (Rouse, 2016, p. 1) Agnostic Blockchains are the idea that Blockchains can interact with each other, meaning that data from one Blockchain can interact with the other. This idea is
particularly useful in knowing that many parties across different industries are looking into the implementation of Blockchain. This would mean that in the rubber supply chain different Blockchain initiatives could exist.
- Platform-agnostic
Such software is a combination of different platforms that are able to operate together. This is also called cross-platform.
- Device-agnostic
This type of software is able to operate between different types of devices such as smartphones and laptops for example.
- Database-agnostic
Here is where software interacts with different vendor database systems. Examples of such software products are business analytics (BA) and enterprise resource planning (ERP).
38 This is an independent software that negotiates protocols with peers and initiates communication.
- Business process-agnostic
The software functions in different business environments. An example is a service that condenses logic related to a specific business entity such as an invoice.
- Vendor-agnostic
This software can function between different legacy systems instead of only two specific systems.
- Hardware-agnostic
This a type of licensing that can be applied to per-device or user-model, instead of needing a license for each specific device that has a user.
To finalize the part of the literature review, the last sub-question needs to be answered. ‘’How can Blockchain be used to enhance traceability and sustainability?’’. Blockchain enables the supply chain to trace a product to its source through registering the
exchanges between parties at different stages in the supply chain. Through coding these exchanges, the data becomes immutable and fraud is impossible. Through enhancing traceability, Blockchain can verify sustainable claims by participants.
Now there has been an understanding created of traceability and the requirements related to it. In addition, an understanding has been created how Blockchain works and what kind of data that can be entered into the Blockchain in order to facilitate traceability. Furthermore, two frameworks have been suggested, one that analyses the suitability for the Blockchain technology, and secondly a framework that allows choosing what ledger is required when using Blockchain. The type of ledger requires users to have a certain right and access to data and some data to be encrypted.
The following chapter looks into the best practices of different industries that have implemented Blockchain in order to enhance traceability and sustainability. Next, to this, another use case is analyzed in order to create an understanding to solve the
39 registration issue that farmers face in Indonesia. There is a percentage of the population that does not have a birth certificate which makes it difficult for these people to register land among others. Among these people are also many rubber farmers who live in remote areas.
40 Blockchain best practices
This chapter focusses on different best practices that use Blockchain for different purposes. The first case is the use of Blockchain in the aquaculture industry, which faces illegal fishing practices that make it difficult to verify the authentication of the fish. Through the use of Blockchain, sustainable practices are enhanced in the fishing industry. The second case plays in the food industry, how Blockchain can enhance traceability within this particular supply chain. The third case is to use Blockchain to provide Syrian refugees with an identity to allow for easier integration with society once arrived in Europe. This use case is particularly interesting to look at in regards to
providing an identity to the rubber farmers in Indonesia.
A. Blockchain in the aquaculture industry to enhance sustainability
The fastest-growing food-producing sector is that of aquaculture, which is supplying 50% of the fish eaten worldwide. With this fast growth come concerns about the compliance with standards as EU Ecolabel, Aquaculture Stewardship Council (ASC), Seafood Watch and Naturland. However, there is a growing interest from both consumers as producers to ensure that such standards are met within the industry.
This industry has not only seen rapid growth but also an increase in the variety and complexity of the supply chain which makes authentication difficult (Klinger & Naylor, 2012). An international ocean conservation and advocacy organization conducted research that showed that approximately one-third of the seafood was mislabeled in 2015 (Warner, et al., October 2015). Such practices show the need to further develop certification and traceability methods that prevent or help stop these falsified practices that undercut certification labeling of the abovementioned governing bodies.
Wang et al. have developed a tool in order to source the fish back to its origin by through the different diets that the different fish get. In this way, it can implement traceability practices and at the same time enhance sustainable practices within the industry (Wang, et al., 2018). With implementing the different diets within the Blockchain, the industry can verify where the fish comes from and fight fraudulent practices. Of course, more data is needed to be implemented in the system. However, this kind of method
41 developed by Wang et al. shows the possibilities to differentiate between raw materials where traceability is difficult to implement. Furthermore, in the case of salmon, the fish are widespread and dilution of traceability is a high risk. Therefore, this kind of method could further enhance traceability and authentication of the supply chain (Ahmed & Broek, 2017).
Through looking at the diet of the salmon, the food industry is able to determine the area where the fish comes from. This verifies that the salmon is caught in a region that is allocated by governments as an area where fishermen are allowed to fish. This is particularly helpful in areas that are overfished and where the fish population is
threatened by overfishing the area. Such a method prevents fraud by being able to verify from which region the salmon comes from.
B. Blockchain in the Food Industry
As discussed in the section about traceability in the literature review, there are different possibilities to track and trace without using Blockchain. However, Blockchain brings benefits such as data immutability and certain data can be disclosed. The one benefit really outstanding in the agricultural industry is that Blockchain creates trust in low cost IT solutions. Whether this is e-mail or Word, or a mobile phone, the data remains accurate. Through the use of low cost IT solutions, it allows, for example, rubber smallholders to integrate with the distributed ledger (Axfoundation, SKL Kommentus, Swedish county councils and regions, Martin & Servera, & Kairos Future, 2017).
There are three areas where Blockchain is currently used within the food industry which are interesting and could be applicable to the rubber industry.
Conditions at the production facility
As is in the rubber industry, most of the conditions in the agricultural industry like
factories, fishing boats are difficult to verify. Conditions like labor, environmental, quality control etc. are all conditions that need to be able to be verified in a traceability system but are today difficult to verify. With the use of Blockchain, such conditions are harder to
42 falsify. However, these conditions need to be digitalized in the ledger, having a digital representation of the conditions. Such representation can exist of a photo or a digital file which can be stored in a mobile application for example. One of the use-cases is that in the fishing industry, where a photograph of a catch of a fish is made and uploaded onto the ledger. ‘’A verification of the same files, a digital fingerprint in the form of a hash, is published in a blockchain. Time and location cannot be manipulated since it is recorded in the Blockchain’’ (Axfoundation, SKL Kommentus, Swedish county councils and
regions, Martin & Servera, & Kairos Future, 2017, p. 41). This can be proved by random checks by NGOs to verify the input and whether the conditions conform with what has been inserted in the ledger.
Tracking of food volumes in the supply chain
Commodities that are bought in bulk, like coffee, cacao, sugar etc. are very difficult to track. This also applies to rubber, where one container consists of input from many different smallholders. By using Blockchain technology, each entity within the supply chain can track and trace the volumes bought and sold. Through the distributed ledger, the supply chain becomes transparent in the sense that all data and transactions of the participating parties become available to everybody within the supply chain. Of course, some info can be encrypted and only accessed by certain parties. However, in this way, everyone gets an insight into the volumes within the supply chain and thus making it more transparent.
This would mean that using Blockchain, the volumes of organic soybeans sold can never be more than the volume bought for any of the participants in the supply chain. This also means that with the use of Blockchain that it is not feasible to purchase ordinary rice and mix this with a lesser type of rice and sell this volume at the higher ordinary rice price. Blockchain prevents this as the tracked amount of ordinary rice entering the supply chain cant outweigh the volume going out of the supply chain (Axfoundation, SKL Kommentus, Swedish county councils and regions, Martin & Servera, & Kairos Future, 2017).
43 Tracking of food items in the supply chain
Through different methods, Blockchain is used to track packages of food throughout the supply chain. Methods like a barcode, QR-code or RfID transmitters are used to track supply through a chain. As mentioned, Blockchain can regulate what data is public and what data is encrypted by means of a permission ledger. ‘’Integration between regular transaction data and more complex data such as sensor data of temperature and humidity can be directly connected to the product. The cost and speed of
implementation can probably benefit from an integration with existing product IDs’’ (Axfoundation, SKL Kommentus, Swedish county councils and regions, Martin & Servera, & Kairos Future, 2017, p. 6).
There are different traceability protocols for different industries. In industries with a extensive and unequal multi-stakeholder framework such as agriculture and most manufacturing, several traceability frameworks exist (Norton, et al., 2014). These are:
- Product Segregation model: certified materials and non-certified materials are not mixed (e.g., Fairtrade coffee)
- Mass Balance model: this method allows for the mixing of certified and non-certified materials where segregation is very difficult or impossible to achieve (e.g., cotton yarn)
- The Book and Claim model: does not seek to have traceability at each stage of the supply chain. The model relies on the volume of the certified material
produced at the beginning of the supply chain and the amount of certified product purchased at the end of the value chain. Sustainability certificates are bought via a trading platform (e.g., UTZ Certification).
This first part of the best practices in the food and aquaculture industry, answered the first two sub-questions of this part. ‘’How can Blockchain enhance traceability?’’ and How can Blockchain enhance sustainability?’’. The food industry uses three methods in order to ensure the ability to verify sustainable practices and to enhance traceability in the supply chain and to enhance. It does this through digitally documenting the
