Blockchain is more than just numbers for these small farmers


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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