Can the World’s Largest Retailer Scale Farm to Table?
To sustain growth in China Walmart needs to manage a reliable and safe food supply. Their solution partnering with IBM is blockchain. Blockchain will allow consumers to trace the source, environmental impact, treatment, and transactions of any product they buy.
After the Chinese government fined Walmart for multiple food safety violations including mislabeling donkey meat as fox meat and selling expired duck meat, Walmart needed to regain trust from the Chinese consumer.[1] A rising Chinese middle class is demanding higher quality as 38% cited food safety as a problem in China in 2009 up from 12% in the prior year.[2] Walmart’s public goal in 2013 to invest $48M in food safety audits and controls only accommodated for a poor supply chain through added controls and food safety training.[3] Supply chain quality and transparency is becoming necessary for Walmart to continue to sustain growth to serve the world’s largest population.
Beyond China, the World Health Organization reports that one in ten falls ill to food-borne diseases globally, and 420,000 die from contaminated food annually.[4] A recent outbreak of salmonella in papaya in the US took the government two months to trace the source farm of the contamination[5]. The lack of food traceability and information about the supply chain causes some of our greatest issues in food such as contamination, expensive recalls, and food-borne illness.
However, recent advances in digitalization, specifically blockchain, have opened possibilities to increase supply chain transparency and to correct issues quickly as they arise. Blockchain consists of a series of decentralized servers that can be accessed with permission, but whose data cannot be altered or edited.[6] As the food supply is decentralized, a decentralized solution makes sense.[7] Walmart is piloting a food supply chain traceability initiative in China through a partnership with IBM and Tsinghua University[8]. Their promised $25M investment over five years moves to correct versus merely accommodate for supplier issues as information flows freely on the source, treatment, and passage of food Walmart procures.[9] As a piece of fruit progresses through the supply chain, information is stored via blockchain on any transaction that is made or any treatment given. Chinese consumers will soon be able to scan the fruit in Walmart and see exactly where it was sourced and where it’s been.[10] Historically, something like this might have taken almost a week to provide and is now available in seconds.[11] Walmart’s pilot has successfully traced a mango to its plant, and pork to its farm. Walmart is planning to scale the use of blockchain in China first due to the size of food consumption and support from the Chinese government on food safety.[12],[13]
As the entire supply chain looks to provide transparency, it will require engagement from all parties to fully gain the benefits of blockchain. While partial transparency helps the consumer know which farm a vegetable came from, it does not tell the whole story of which trucks, warehouses, or other handlers touched the food. Walmart is well positioned to command this level of engagement from its suppliers, but building out this expensive infrastructure would take mutual belief in the need and desire to please the consumer through traceability. While IBM is pioneering blockchain food supply chain efforts with other large food companies such as Nestle, Tyson, and Costco, every element of the supply chain must begin to move to make the system effective.[14]
Additionally, Walmart can capitalize on this technology in the US to differentiate its produce sourced organically and priced at a premium by providing trust to its consumer through transparency.[15] Many retailers claim organic sourcing, but few can validate this claim leaving consumers uncertain by high prices. Walmart could dispel this with blockchain. Also as sustainability becomes a table-stake in the food industry, Walmart can make supplier decisions based on financial, quality, and socio-environmental impact. Through blockchain Walmart should be able to know the carbon emissions of the trucks used to transport the food and even the water supply used to grow them.[16]
But what is the cost and who is going to bear it? Additionally, blockchain seems to still be a system based fundamentally on trust and reliability of each member of the supply chain to accurately input their data. Could the system break down if suppliers or distributors are dishonest? What good is more information if it is not true? While consumers lack trust in sourcing and food safety, how much really will they have time to digest that much more information about where their food came from?
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[1] Laurie Burkitt, “Wal-Mart to Triple Spending on Food-Safety in China”, Wall Street Journal, June 17, 2014, Accessed Nov 2017, https://www.wsj.com/articles/wal-mart-to-triple-spending-on-food-safety-in-china-1402991720
[2] Ibid
[3] Ibid
[4] Roger Aitken, “IBM Forges Blockchain Collaboration with Nestle & Walmart in Global Food Safety,” Forbes, Aug 22, 2017, Accessed Nov 2017, https://www.forbes.com/sites/rogeraitken/2017/08/22/ibm-forges-blockchain-collaboration-with-nestle-walmart-for-global-food-safety/#633b47883d36
[5] Bien Perez, “Coalition to Drive Global Food Safety Efforts with Blockchain Platform Initiated in China,” South China Morning Post, Aug 22, 2017, Accessed Nov 2017, http://www.scmp.com/tech/enterprises/article/2107847/ coalition-drive-global-food-safety-efforts-blockchain-platform
[6] Maras, E. (2017, May 03). How blockchain technology brings new efficiencies and transparency to the food supply chain. Pizza Marketplace.News Features Retrieved from http://search.proquest.com.ezp-prod1.hul.harvard.edu/docview/1894621182?accountid=11311
[7] Raja Ramachandran, “The Blockchain of Food,” Forbes, Oct 23, 2017, Accessed Nov 2017, https://www.forbes.com/sites/themixingbowl/2017/10/23/the-blockchain-of-food/#2d3afa24775f
[8] Meng Jing, “Here’s a Peek at Wal-mart’s Game Changing Plan to Trace Food from China’s Farms to Stores”, South China Morning Post, Nov 6, 2017, Accessed Nov 2017, http://www.scmp.com/business/companies/article/ 2118556/walmart-led-pilot-project-can-accurately-trace-food-chinas-farms
[9] Ibid
[10] Ibid
[11] Roger Aitken, “IBM Forges Blockchain Collaboration with Nestle & Walmart in Global Food Safety”
[12] “Walmart, IBM, Tsinghua University Explore the Use of Blockchain to Help Bring Safe Food to Dinner Tables Across China”, PR Newswire, Oct 19, 2016, Accessed Nov 2017, http://www.prnewswire.com/news-releases/walmart-ibm-and-tsinghua-university-explore-the-use-of-blockchain-to-help-bring-safer-food-to-dinner-tables-across-china-300347302.html
[13] Meng Jing, “Here’s a Peek at Wal-mart’s Game Changing Plan to Trace Food from China’s Farms to Stores”
[14] Roger Aitken, “IBM Forges Blockchain Collaboration with Nestle & Walmart in Global Food Safety”
[15] Raja Ramachandran, “The Blockchain of Food”
[16] Maras, E. (2017, May 03). How blockchain technology brings new efficiencies and transparency to the food supply chain.
Great pun at the end with “digest.” I think you’re right to question two things. The first is, will consumers suddenly trust the sources of their food because some technology called “blockchain” now certifies where it came from? Brands can already use terms like organic, cage-free, no pesticides, etc., but ultimately consumers don’t know. It comes down to them trusting the brand and the retailer. I’m not sure telling them a software program tracked their food will make things more believable. Secondly, the implementation of this throughout the supply chain seems at risk for implementation errors if the employees in the supply chain don’t believe in the importance. Right now Wal-Mart could likely find out what trucks and handlers touched the food, but why don’t they? Why not simply demand a written record of everywhere the food went prior to its delivery? We saw Toyota keep the information sheets along with each car being produced, but why didn’t Walmart and its suppliers ever go through the process of tracking who handled the food? Creating a blockchain solution may make this tracking more feasible, but it might be a technology solution for a problem that people don’t think they have.
This is such a fascinating issue. Your last few questions brought to mind the phrase “garbage in, garbage out” and unfortunately I think that is true in this case if, like you say, the onus is on the supply chain to input data correctly. I wonder if there is a way to automate even this aspect of it, similar to RFID technology we’re seeing in retail, where each piece of clothing is tagged with RFID technology and you’re able to track inventory down to the individual SKU. The issue with that too, though, is this idea of cost that you’ve rightly brought up, and more broadly, building out the infrastructure to accommodate something of this scale.
To Joe’s points above, I would push back and say that it is in Walmart’s, or any large CPG company’s, best interest to make their suppliers care about this issue. I see blockchain as being most useful not to the customer, but for the retailer themselves to identify inefficiencies in their supply chain or potential red flags early on before it reaches the consumer. I can only imagine the scale of cost savings if Walmart is able to measure the exact time it takes for this particular banana to travel from farm to shelf, and (perhaps more sinisterly), their ability to leverage this data against their vendors to compete for faster delivery times or better pricing.
Interesting read on an important topic. You raised a few questions regarding who will bear the cost and how much customers will take the time to do research prior to purchasing, the answers to which I find concerning for the firm(s) investing in this type of system. It appears that Walmart is essentially supporting a mechanism for transparency that one would expect to lead to tighter controls, the cost of which will reverberate through the entire supply chain. I would characterize Walmart consumers as extremely price-sensitive, and an improvement in sourcing transparency is not something I expect the average customer to be willing to pay for. I suspect the incremental cost would ultimately be borne by the government in the form of subsidies, or by Walmart’s suppliers (given the operating leverage that Walmart has). I am optimistic that consumer health and safety are powerful enough forces for this to succeed, but I am also skeptical. To Joe’s point, this solution may be overshooting what consumers truly care about, and be a bit too complex to resonate with someone making a quick buying decision.
Thanks for a really thoughtful article Caroline. To your point about consumers having time to actually understand this information- I would argue that this will simply become a norm in the future. We are already seeing a trend toward transparency in sourcing, through companies like Whole Foods, who provide visible sourcing info on signage within stores. Currently, one could argue that decision making based on this information is simply a luxury for people who have both the time and money to choose their food based on where it was sourced (vs. how much it costs). However, increasing transparency of supply chains in the future could actually level the playing field and improve the quality of food for all people- not just those of us who are able to afford organic salmon at a high end store like Whole Foods. The ability for people to be knowledgeable about their food, regardless of their income, poses positive benefits for health outcomes in communities everywhere. While I completely agree with the risks of “garbage in garbage out” mentioned above, I see the overall benefits of this system as outweighing those risks. And as technology becomes ever stronger, checks will likely be put in place to verify supplier info going forward. Great read!