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Mhlnews 8857 Food 1 1 0
Mhlnews 8857 Food 1 1 0
Mhlnews 8857 Food 1 1 0
Mhlnews 8857 Food 1 1 0
Mhlnews 8857 Food 1 1 0

Blockchain Points Way to `Massive Change' for Commodity Supply Chain

Dec. 14, 2017
In most food-supply chains it might take weeks to figure out where it went from source to destination, and in some cases, the source may not be known, but on a blockchain, it takes just seconds.

Blockchain is upending the world’s financial markets with the rise of bitcoin, and now the digital-ledger system is poised to do the same next year for raw materials like food and energy.

Companies including BP Plc, ABN Amro Group NV and Mercuria Energy Group Ltd. said last month they will adapt blockchain to streamline physical energy transactions. In October, four banks joined a venture started by UBS Group AG and International Business Machines Corp. to use the technology in a platform for the global goods trade. Natixis SA and Trafigura Group Ltd. announced in March they will employ the system to finance buying and selling oil.

“We’re talking about this massive change in the way that business is being done,” said Eric Ervin, the CEO of Reality Shares Inc., a San Diego fund manager that created an index to track returns of companies adopting the technology. “Everything happens automatically, without a bunch of paperwork, processing and transferring.”

Blockchain is an online ledger that records transactions using encryption to ensure security while allowing a network of users to verify them. The most-prominent use was in bitcoin, which became a global sensation in 2017. Over the past year, as investors became more comfortable with how bitcoins and ledger systems work, the price of the cryptocurrency has surged more than 2,000% and touched a record this month of $17,578.45.

The technology is a big selling point for the global food industry to identify counterfeit ingredients and to trace the source of contamination during product recalls. Michigan State University estimated fraud costs the global food industry as much as $40 billion a year. In August, IBM said it’s working with a group of companies including Wal-Mart Stores Inc., Nestle SA, Tyson Foods Inc., Unilever NV and McCormick & Co. to identify ways they can incorporate blockchain.

Weeks to Seconds

In most food-supply chains, “it might take weeks to figure out where it went from source to destination,” and in some cases, the source may not be known, Arvind Krishna, IBM director of research, said at a Dec. 5 technology conference in Park City, Utah. “On a blockchain, it takes just seconds.”

De Beers is investing in a blockchain platform to track the origin of diamonds to avoid selling gems from war zones.

Blockchain also is becoming a key tool for shipping companies. AP Moller-Maersk A/S in March disclosed a ledger system with IBM that will help manage and track the paper trail of tens of millions of shipping containers. About $16 trillion of physical raw materials are transported around the planet each year, and better tracking offers the promise of big reductions in record-keeping costs. Current spending on documentation alone accounts for 7% of global trade, according to the Global Alliance for Trade Facilitation.

Energy Trading

European utility companies Enel SpA and RWE AG joined a project to test blockchain-based trades in wholesale power and natural gas markets. TenneT Holding BV is looking at the technology to manage power grids that are preparing to accommodate the growing volume of renewable energy. Vemanti Group Inc. said Dec. 12 it will invest in a Singapore-based company developing a blockchain-based platform energy trading.

There was even a proposal this month by the president of Venezuela, where the domestic currency is in freefall because of economic sanctions and a long recession, of creating digital petrocurrencies backed by the country’s reserves of oil, gas, gold and diamonds. This week, a group announced plans to use blockchain to create OilCoin, a U.S.-government regulated digital currency that would be backed by crude.

Consumers could also benefit from wider adoption of the technology. In Thailand, power producer BCPG Pcl said last month it plans to use the blockchain to allow customers who produce energy through solar rooftops to engage in internet-based energy trading.

“The potential is huge to increase efficiency and to create value propositions,” said Harry Smit, a Utrecht-based analyst at Rabobank. “Once you’ve established blockchain and it’s working, you will see faster changes, because then the transformation of the value chain becomes an option.” 

By Luzi Ann Javier