This edition of "SAP Perspectives" is written by Anja Strothkaemper, vice president of SAP Agribusiness and SAP Commodity Management.
We all participate, to some degree, in the global food value chain. It’s a complex series of steps, extending from farmers to processers, transportation companies, distribution centers and grocery stores.
The food we eat has often traveled for many thousands of miles and been touched — literally or figuratively — by many dozens of hands. But what ties the chain together?
Whether you’re eating in a restaurant, buying fresh produce from a farmer’s market, or picking up a frozen dinner at the supermarket, you typically trust that the items are:
- Labeled correctly with respect to ingredients like gluten-free), processing (organic), provenance (locally sourced), and so on.
The issue, of course, is that trust alone, without the requisite level of verification, does not provide any real guarantee that food is safe, fresh, and correctly labeled. And currently, the actual level of transparency across these multiple processes is extremely limited.
Think about what happens when there’s a breach in the chain of trust. Last year, in the U.S. alone, there were 218 food recalls solely on the basis of undeclared allergens ("A Look Back at 2017 Food Recalls,” Food Safety magazine, Feb. 6, 2018).
For an individual consumer with a food allergy, this means there was a very real risk of serious illness, or even death, had they unwittingly purchased one of the items. For retailers, recalls require significant effort to ensure that the items are quickly removed from shelves. Meanwhile, there are lost sales from shoppers unable to find the brands or items they seek.
However, the most significant costs of recalls are borne by the food manufacturer or consumer products company. In 2016, for example, a specific brand of flour was recalled when it was linked to an outbreak of E. coli — the cost to the producer was well over $5 million ("The Cost of a Product Recall in the Food Industry,” Manufacturing.net, June 21, 2017). Added to that are various potential indirect costs associated with litigation, decline in stock value, fines, lost sales, and so on.
What’s harder to quantify — but potentially even more significant — is the cost of losing a consumer’s trust. When a shopper spurns a previously favored brand, what’s lost is not merely a single sale but potentially the lifetime value of that particular consumer. In stark numeric terms, that’s the sum total of all the dollars the consumer would have spent with the company over the course of his or her life.
But as MIT’s Michael Schrage points out, there are a whole series of additional benefits that accrue from loyal consumers, whether it’s serving as brand evangelists, testing new products, or sharing ideas and data (“What Most Companies Miss About Customer Lifetime Value,” Harvard Business Review, April 18, 2017).
In short, for food brands, an enormous amount depends on consumer trust. Thankfully, the advent of blockchain technology makes it possible to create a food value chain based on trust and transparency among the various stakeholders, enabled by the open sharing of common data related to things like ingredients, provenance, and processing.
As an initial step in building out such a solution, SAP recently convened a "Farm to Consumer Traceability Proof of Concept," including food value chain leaders such as Kellogg, Natura, Naturipe Farms, Simplot, Johnsonville and Maple Leaf.
The specific goal of the project was to determine whether a blockchain solution can achieve “transparency of genealogy” – or the ability to view the origin of a given food item from the shelf all the way back to the farm – across the value chain, with the ultimate aim of minimizing recalls and, by extension, reducing food waste.
The result? The collective view of the participants was that building a blockchain network not only enables end-to-end food traceability, it also drastically reduces the time required to identify a necessary recall. Consumer health is thus protected, as is trust in participating brands.
So what comes next? Based on the valuable learnings from the initial phase, SAP and the participating companies are working together to begin developing a working solution — one that unites producers, manufacturers and retailers toward the common goal of increased food safety and transparency.