Bel Yousefi, Sai Prem Achuthan, and Christopher Tang
UCLA Anderson School
In 2017, the Washington Post reported that millions of pounds of “USDA Organic” soybeans and corn imported through Turkey appear to have been fraudulent.[1] This is a common occurrence in the United States: a significant proportion of imported “organic” foods turns out to be fake. Why does this happen? How does this happen? What can be done?
The underlying causes of Organic Fraud
There is a belief and some research evidence that organic foods may have higher nutritional value (vitamins and antioxidants) than conventional food because, in the absence of pesticides and chemical fertilizers, organic plants boosts their natural production of the phytochemicals (vitamins and antioxidants) to better fight against bugs and weeds. For this reason, organic foods can be sold with a 25-60% price premium. By 2017, the US organic market was valued at over US$43 billion and it is expected to reach $70 billion by 2025.
Despite the demand for organic food in the U.S having grown by double digits, it is surprising to note that organic cropland remains less than 1% of all U.S. farmland. The underlying reason is due to a strict organic certification process, for which approval can take domestic farmers more than three years. Because supply cannot meet demand of organic foods, retailers, feed companies, and packaged food manufacturers are importing organic foods from India, Ukraine, Turkey, Romania, etc. With an exponential growth of imported foods labelled as “organic”, the US certifying agency (the Agricultural Marketing Service (AMS) National Organic Program (NOP)) that oversees all imported USDA-certified organic agricultural products is unable to thoroughly conduct inspections.[2] The convoluted inspection process often involves intermediaries such as customs brokers and central exporting collectors. Because the inspection is not as thorough as it should be and because imported organic foods can be sold at a higher price, these two issues create a perfect storm for exporters/importers to commit organic fraud.
Preventing Organic Import Fraud via Blockchain
Because there is a strong incentive for exporters and/or importers to commit organic fraud, there is a need to prevent falsified records in the supply chain process associated with importing organic foods to the United States. As shown in the figure below, the supply chain process of imported organic coffee beans involves many supply chain entities, each of which has the potential to violate certain organic certification requirements imposed by the USDA.
To prevent falsified information recorded along the supply chain, Blockchain appears to be a promising solution. Blockchain technology is digital information (the “block”) that is stored using a public database (the “chain”). Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. By design, a blockchain is immutable (resistant to modification of the data), decentralized (uses network consensus), and transparent (each public address is open to viewing) - an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.[3]
Blockchain can help digitally trace and authenticate food products from a vast ecosystem of suppliers all the way to store shelves and ultimately to consumers. Its potential benefits to the food industry are: 1) increases transparency, 2) enforces standards and enhances security by solving the issue of source identification, 3) eliminates intermediaries and increases efficiency of the whole supply chain, and 4) opens up new markets to producers who may otherwise not have access to a wider market.[4] Implementation of this technology has benefits across stakeholders. For farmers, blockchain can help open up new markets for their products by essentially shrinking the supply chain to the end user. For distributors, it helps to expand international sourcing and avoid risk related to changing supply or demand. For processors, it helps increase quality control by allowing growers and processors to share information. Finally, for consumers, it can help lower prices and increase brand loyalty.[5]
IBM is currently leading the charge in blockchain innovation in the food industry and has announced a consortium with 10 major suppliers to help improve food safety and ingredient transparency via the IBM Food Trust. A few examples of this technology in action can be seen in Walmart’s Mango Tracking project that used (IBM’s) blockchain technology to reduce the time it took to track a mango from 6+ days to 2.2 seconds.[6] Another notable example of a major supplier piloting IBM’s Food Trust partnership is Albertsons who is now using the technology to track high-risk foods such as romaine lettuce to help reduce the time it takes to identify the source of potential e-coli outbreaks.[7]
The challenges of adopting Blockchain technology
While IBM is leading its effort, widespread implementation of blockchain technology across all supply chain partners is challenging because: 1) the potential of data inaccuracies incurred by less sophisticated users (e.g. poor rural farmers); 2) the high energy and storage costs; 3) the unknown potential for scalability; 4) the synchronized integration and adoption of blockchain with other technologies such as RFID and IOT, and most importantly, 5) the question of whose responsibility it is to initiate the project; i.e., who is responsible for bearing the cost of implementing the technology and educating stakeholders on its usage and benefits? Private-public partnerships may be one answer.
Public-private partnerships can help standardize the technology and increase the adoption rate. Since the food industry is heavily subsidized in many nations, it makes sense for governments to bear the cost of developing and implementing the technology, and educating stakeholders. System feasibility can be tested through strategic partnerships with a limited number of key producers and distributors similar to the pilot projects previously mentioned. Additionally, as only one government agency, the AMS, oversees all the USDA-certified organic agricultural products produced in the U.S and around the world, they would be key in helping to standardize the technology. The AMS can also help increase adoption rates as it has well-established relationships with various stakeholders.
Blockchain technology appears to be a promising solution for fighting organic food fraud. If it works, brands can earn more by selling more genuine organic foods in the market. At the same time, consumers absorb more vitamins and antioxidants from eating organic foods and thrive.
[1] https://www.washingtonpost.com/news/wonk/wp/2017/06/12/millions-of-pounds-of-apparently-fake-organic-grains-convince-the-food-industry-there-may-be-a-problem/?noredirect=on&utm_term=.e62639a8767f
[2] Organic Trade Association Organic Regulatory Update 2017
[3] https://www.investopedia.com/terms/b/blockchain.asp
[4] https://www.startus-insights.com/innovators-guide/8-blockchain-startups-disrupting-the-agricultural
[5] https://www.forbes.com/sites/themixingbowl/2017/10/23/the-blockchain-of-food
[6] https://newfoodeconomy.org/blockchain-food-traceability-walmart-ibm/
[7] https://www.forbes.com/sites/rachelwolfson/2019/04/11/albertsons-joins-ibm-food-trust-blockchain
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