Thursday 10 October 2019

In the journey from farm to fork, opacity in supply chains can mean crippling costs for smallholder farmers. But as consumers increasingly demand to know the provenance of their produce, might a pilot blockchain project used for Malawian tea farmers be the test case we have all been looking for?


The revolution has already begun in our own homes. When we choose our brand of shampoo, detergent or coffee, we are more aware than ever of their methods of production. Do they contain single-use plastics? Have they been produced using harmful chemicals? Were they produced ethically?

" It is becoming increasingly clear that the UN SDGs will not be achieved if we follow the path of business-as-usual."

Pierre Rousseau, BNP Paribas
Consumers are increasingly putting their money where their mouths are, rewarding sustainable producers, or punishing those that are not. This has prompted smart companies to rethink the way they are producing fast-moving consumer goods, with the spotlight falling on how the structure of supply chains can promote fairer trade, as well as improve transparency around provenance.

"As a world leader in supply chain finance innovation, we started to wonder how BNP Paribas could use blockchain to improve trust and efficiency in the supply chain," says Jacques Levet, Head of Transaction Banking, EMEA, BNP Paribas.

Cynthia Tchikoltsoff, Head of Supply Chain Management Group, Asia Pacific at BNP Paribas goes on to explain how working closely with many multinational corporations to implement supply chain finance programmes meant an awareness of the challenges – and the opportunities – for retailers when it comes to meeting consumers' expectations. "Lack of transparency is one of the key hurdles across most supply chains," she says. "Addressing opacity can contribute to creating more value for consumers, whilst also helping the weakest parties operating upstream in the supply chain," she continues.

Specifically, the bank wanted to find out whether a means to track purchase orders, physical flows of goods and payments across an entire supply chain could help the world's 500 million smallholder farms.  These often-tiny operations produce a staggering 80% of the food consumed in the developing world, yet the farmers remain poor and lack proper access to financial markets and services.

Better Trade with Project Trado

Our search took us to Malawi to trial Project Trado, a smallholder-trading model developed by companies, banks and fintech start-ups, and convened by the University of Cambridge's Institute for Sustainability Leadership [1]. The product in this case was tea, Malawi's second-largest export worth about $90 million annually, which provides a livelihood to 16,500 small farmers.

On-the-ground data collection services in Malawi (Source: consortium member Meridia)

The challenge was to address three areas falling under the United Nations' (UN) Sustainable Development Goal 12 (SDG 12) that aim to ensure responsible consumption and production. It would need to:
  • Improve pre-shipment financing so farmers are paid faster and earn more
  • Provide trust and transparency across the supply chain so goods can be traced, and consumers could see where their food originates
  • Improve the sustainability of the supply chain, giving farmers greater incentives to be more sustainable, and improving the fair-trade ecosystem
 
In the Malawi pilot programme we worked with a range of partners, including fintechs Provenance and Halotrade, as well as consumer goods conglomerate Unilever. Consortium member Meridia provided on-the-ground data collection services in Malawi. Trado's goal was improve the lives of the smallholder tea farmers.

Malawian farmers typically harvest their crop and pass it to a local tea estate, which then processes the tea and ships it to the buyer. Payment is only authorised once the tea had cleared into the buyer's warehouse overseas. It has several shortcomings:

  • High cost of capital for the smallholder and the processor over a significant amount of time
  • Data held in multiple silos, meaning it is often neither transparent nor trusted
  • Getting paid, which for smallholders can mean many weeks
 

How Project Trado Works

Blockchain, which The Economist has dubbed "the trust machine", allows first-mile producers, last-mile consumers and every supply-chain player between them to connect and share data.

Trust is at the heart of Trado: data about the tea at every stage of its production are recorded on blockchain, which is reliable, visible and tamper-proof, and therefore embeds trust and creates a new balance across the entire supply chain.

Smallholder farmers are paid earlier because the buyer has the confidence to pay before the goods are delivered. For small farmers, this means that they no longer need to seek local stopgap financing at high interest rates.

The data put into the blockchain provide detailed information consumers can trust: the farmer who produced the tea, the methods used to produce the tea, how and where the tea leaves were shipped, and how they were processed and packaged before they brew in our teacup.

Additionally, the data can cover a wide range of information beyond agricultural produce: deforestation, land management, biodiversity and socio-economic development are but four examples.

What next?

Can the approach taken by Project Trado be scaled up across different global supply chains? The benefits for smallholder farmers have been obvious – but others gain too.

"It is becoming increasingly clear that the UN SDGs will not be achieved if we follow the path of business-as-usual," says Pierre Rousseau, Strategic Senior Advisor, Sustainable Business, BNP Paribas. "Deep and broad innovation will be vital for the systemic change needed to deliver a safe, fairer future," he explains.

On-the-ground data collection services in Malawi (Source: consortium member Meridia)

Deploying blockchain more widely to improve trust, transparency and traceability in supply chains will require the involvement of corporations, banks, fintechs, processors, NGOs and, of course, smallholder farmers.

Alain Verschueren, Head of Innovation & Distributed Ledger Technology, Trade Finance Competence Centre, BNP Paribas, is hopeful: "We are confident that, as consumers increasingly advocate for more sustainability in their customer journey, blockchain has a promising future in global supply chains."


[1] Project Trado is an ecosystem of brands, retailers, banks, NGOs and technology startups. It takes a cross-industry approach that applies financial innovations, supply chain knowledge, technology solutions and consumer insights.





Jacques Levet
Head of Transaction Banking EMEA at BNP Paribas
Cynthia Tchikoltsoff
Head of Supply Chain Management Group Asia Pacific at BNP Paribas
Pierre Rousseau
Strategic Senior Advisor, Sustainable Business at BNP Paribas
Alain Verschueren
Head of Innovation & Distributed Ledger Technology, Trade Finance Competence Centre at BNP Paribas
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