Blockchain Technologies in Agriculture and Food ...

Blockchain Technologies in Agriculture and Food Value chains in Kerala

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Blockchain Technologies in Agriculture and Food Value Chains in Kerala Kerala Development and Innovation Strategic Council (K-DISC)

Version 5.0 17.03.2018

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Contents 1. A Rapid Appraisal of the evolution of Agri-Food Supply Chains (AFSC) in Kerala ..................................................................................... 5 2. A strategy for building pro-people value chain development in Agriculture and food Value Chains .................................................................... 9 3. Aspects of employing blockchain technologies in pro-poor agri value chain building and collective marketing in Kerala. ...................................... 11 4. Implementation models ................................................................ 20 5. The next steps ........................................................................... 25 6. Conclusion................................................................................. 27

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List of Tables Table 1 Infrastructure gaps in markets in Kerala..................................... 20 Table 2 Registered Geographical Indications in Kerala ............................. 23 Table 3 Concerns on food safety ......................................................... 24 Table 4 Advantages along the value chain to various group in collective marketing ........................................................................... 26

List of Figures Figure 1 Traditional Supply Chain ......................................................... 9 Figure 2 Value Chain with Links between Consumers and Producers ........... 10 Figure 3 Procurement and fulfilment process without BCT........................ 14 Figure 4 Procurement and fulfilment process with BCT ............................ 15 Figure 5 Successive actions in a buyer – led securitisation transaction ......... 16 Figure 6 Blockchain-driven multi-investor reverse securitisation ............... 17 Figure 7 BCT and IoT in an agri-food supply chain ................................... 18 Figure 8 Holistic Collection, Storage, Analysis and Insight Solutions Will Emerge .................................................................................................... 20 Figure 8 The traditional vegetable value-chain ...................................... 22 Figure 9 Improved value chain ........................................................... 22 Figure 10 Existing food supply chain for vegetables and fruits ................... 24 Figure 11 Improved food supply chain .................................................. 25 Figure 13 Gartner Hype Cycle for Emerging Technologies, 2017................. 28 Figure 14 Blockchain strategy and assessment matrix .............................. 28

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Blockchain Technologies in Agriculture and Food Value Chains in Kerala In the Section 1 of the paper the evolution of the Agri-Food Supply chain in Kerala. In Section 2 a strategy of building a pro-people value chain is discussed and in section 3 aspects of employing Blockchain technologies is discussed. Section 4 covers three distinct implementation models in the context of Kerala. Section 5 is on the next steps. Section 6 is the Conclusion. 1. A Rapid Appraisal of the evolution of Agri-Food Supply Chains (AFSC) in Kerala The conceptualisation of consumer products and services as a supply chain becomes extremely convenient when we are planning to focus on quality, improve logistics and are attempting to bring down transaction costs. Kerala, being a consumer state facing dependencies on other states on food and essential commodities, examination of the various agricultural and food supply chains is relevant. In a value chain, utility is added to the products and services so as to enhance customer value. Enterprise development, processing and value addition in agriculture which are essential for enhancing the revenue from farming are at very low level in the state and hence value chain based approaches are very much relevant in the Kerala context. Research on changing consumption patterns in Kerala had been of interest to economists and development experts. The State ranks top among Indian States in per capita consumption though its rank in terms of per capita Net State Domestic Product is much lower. One of the important factors that has contributed to increasing per capita consumption levels in the State is the rising per capita household income which is in-turn strongly related to migration and migrant remittances. Changing food habits, items and quantum of food consumption in Kerala have been also conspicuous in Kerala across the decades and the rural-urban differential in this has remained by and large in- significant. It could be also easily seen currently in the state that the majority of households have shifted from non-packaged to packaged items of grocery and food items. The retail purchase preferences have moved from open market, local stores and

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door delivery to super markets and margin free markets. Yearly, half yearly and quarterly purchase have shown a declining trend and fortnightly, weekly and convenience purchase has increased. Eating culture has also changed over years and intake of ready-made food from restaurants and fast food outlets and copycat street food outlets have increased. A significant shift in food basket from cereals and cereal substitutes to noncereals have also occurred across households of all income groups in both urban and rural areas. Consumption of a wide spectrum of food items like milk, meat, eggs, fruits, vegetables and fatty oils across various income groups and in both urban and rural households is evident. Intake of highly processed convenience foods and drinks, temperate zone foods like apples have been on the rise. The share of fresh food through organised supermarkets in Kerala could still be low compared to processed food distributed through them, but the situation is fast transforming. The cropping pattern of Kerala has undergone major changes over the past five decades. While the overall cropped area registered an increase, rice which was the most extensive crop declined to third rank in cropping area with the area covered declining to one fifth, while coconut which was next in importance rose to the top most position with an increase in area covered. Rubber which was in the fourth position moved to the second position quadrupling the area covered. Tapioca which has in third position dropped to seventh position with a decline in area covered by one third. Arecanut and coffee moved from seventh and eleventh positions respectively to fourth and fifth position with improvements in the area covered. Area under cashew declined and the cropping share dropped from sixth rank to ninth. Area under pepper declined but pepper retained its sixth position. Plantains and banana consolidated the area under their cultivation but remained in the seventh position. Production of coconut has doubled, production of rice came down to half, white rubber production has multiplied more than six times. Productions of tea, coffee, plantain and pepper have increased whereas cashew-nut production has declined. There was a decline in cattle population but the genetic quality of the breed improved with substantive enhancement in milk production. The poultry population grew substantively and

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egg production has also increased correspondingly. Marine and Inland fish production also registered considerable growth during the last few decades. As could be seen from the discussions above agri-food consumption patterns have changed substantively in Kerala over years. The changes in food consumption pattern is more or less similar to the transformations happening in the retail sector throughout India- more prominently in urban areas and less starkly in rural areas. Throughout India the traditional agro-food logistics system is also undergoing a drastic transformation to meet these changing demands and is getting replaced by modern value chains. The modern value chains established by the big supermarkets are vertically coordinated and capital intensive. Super market value chains are capable of replacing traditional agro-food supply chains through their high marketing efficiency. However, they may offer serious barriers to small holder producers and small scale agro- producers. One major difference exists in Kerala, compared to the national situation, this being the presence of a strong public distribution system and the interventions made by the government in the open market system through fair price shops. The targeted public distribution system and the fair price shops in Kerala play a major role in the distribution of essential commodities and food grains in the food grain deficit state. Side by side with the supermarket chains like Big Bazaar, Spencer, Reliance, More etc. the Thriveni, Supply-co and Civil Supplies Corporation supermarkets are making their strong presence. Apart from this there are margin free franchise chains - the Neethi and Maveli Stores and local grocery stores run by co-operative societies. This network of public distribution outlets has remained critical in preventing undue increase of prices of commodities in the open market. But stabilizing agricultural production and strengthening their supply chain is also critical to ensure food security in the long run. A few other aspects of the agricultural and food supply chain in the state are also worth mentioning. The state relies heavily on the neighbouring states for vegetables and fruits. Pesticide content above the level fixed by Food Safety and Standards Authority of India (FSSAI) in samples collected from open market and stores

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had been a matter of concern recently. Government led promotion of domestic vegetable cultivation and fruit cultivation and aggressive testing of samples have seemingly reduced the extent of contamination. Milk production in Kerala is near self-sufficient even though the Kerala Cooperative Milk Marketing Federation is purchasing skimmed milk powder and arranging milk from State Federations of Karnataka and Tamilnadu to manage the shortfall between procurement and sale. Kerala is more or less self-reliant in meat and eggs. However, contribution of discarded cattle from other states in production of red meat and issues of hygienic slaughtering and inadequate cold storage capacities have raised serious issues of contamination and adulteration of meat. Lack of food safety procedures, improper storage facilities and poor transportation are some of the causes of contamination and deterioration in eggs. Fisheries had been a prime and consistently growing sector in Kerala and fish has remained the staple protein source for the malayali. Sharp increases in prices of preferred species in the domestic and export markets owing to increasing demand have necessitated transport of fish from adjacent states during the last few years. These inter-state channels having high market efficiency dominate supermarket chains and fisheries outlets even though local vendor systems and fish markets do coexist with different focus in the species carried. There is substantive spread in domestic prices due to large number of intermediaries and the return to the fishermen is highly skewed. Exploitation of fishermen by traders in auction and lack of infrastructure at the fish landing zones and fisheries harbours to handle bumper catches are the major constraints in the sector. The above discussions indicate that on the demand side the modern consumers in the state are looking forward to food that is fresh, palatable, nutritious and safe and also to choices of their convenience. Under such conditions, assured food traceability from farm to forki, implementing quality tests that can detect and prevent food hazards due to contamination and also preserving the identity and freshness of varied food items have become an invariable prerequisite of a professionally designed system for managing AFSC. These markets pull factors also have implications on the future of agriculture and allied sectors in terms of

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providing better share of the produce to farmers making available credit ensuring safe handling of food products pesticide application, environmental protection and profitability. The challenge is to examine whether it is possible to transform the agri-food value chains to meet the new demands protecting the interests of the small producers in the state and also retaining the fair price advantages for essential commodities from the government interventions. 2. A strategy for building pro-people value chain development in Agriculture and food Value Chains An Agricultural Value Chain approach involves a change in focus from inputs to supply chains that create value as perceived by the customer and results in a backward and equitable flow of value. See figure 1 and 2 below. The participants in the value chain improve their competiveness through product standardisation, differentiation and food safety required in a competitive environment and improve competiveness through innovation driven through better access to technology, credit and market opportunities. Figure 1 Traditional Supply Chain Flow of Services, Goods Products and Information

Input Suppliers

Producers

Assemblers, Traders

Processors

Retailers

The concepts central to value chain analysis are the following: i.

Getting the various stakeholders together and organising business linkages is the basic function of a value chain.

ii.

Effective co-ordination of decisions and their exchange is required for different participants in the value chain to work together.

iii.

The governance of the value chain covers the rules regulating coordination within among the stakeholders.

iv.

Increasing the value of the value chain is possible only by increasing the consumer demand.

v.

Beyond meeting the consumer demand the participants of the value chain need to be competitive.

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To maintain competitiveness the value chain needs continuously to innovate.

vii.

For the value chain to be sustainable in the market and to establish effective linkages the chain needs to distribute benefits among the various participants. Figure 2 Value Chain with Links between Consumers and Producers Flow of market information about orders and preferences

Input Suppliers

Producers

Assemblers, Traders

Processors

Retailers

Flow of Services, Goods Products and Information

The features of an effective value chain shall include the following: 1. Differentiate products 2. Continuously

innovates

ie

products,

technologies,

managing,

marketing and distribution 3. Creates higher value 4. Uses organisational mechanisms to achieve efficiency 5. Forms alliances and achieves co-ordination 6. Goes beyond spot market transactions and includes contracts, vertical integration, networks and supply chains 7. Introduces practices to meet environmental and social responsibility concerns. The key steps in pro-poor value chain analysis involve shall involve the following: (1) Value chain prioritisation. Prioritisation. of value chains in the sectors of interest based on criteria such as unmet market demand, number of targeted producers/enterprises in the

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value chain and the presence of agencies to invest in their relations with the target group is required for more detailed analysis and targeting. (2) Value chain analysis A value chain map which graphically present the stakeholders in the value chain and their mutual relationships is prepared. Constraints in market access,

input

access,

technology/product

development,

management/organisation, infrastructure etc. needs to be examined. Mechanisms of Governance, co-ordination, regulation and control in the value chains are examined. (3) Identification of market based Solutions Commercially viable solutions that

can contribute to

value chain

competitiveness and address the constraints listed in 2 above. Options for demand driven upgrading of Knowledge, Skills, Technology and Support Services shall be analysed. (4) Assessment of market based Solutions The distribution of income and employment benefits among the chain stakeholders and costs and margins needs to be assessed. Lead firms that could provide solutions in a sustainable manner shall be identified and challenges in providing the solutions examined. (5) Identification of facilitation activities A framework for the facilitation activities for supporting the in handling the challenges proposed by the lead firms are finalised through stakeholder consultations. (6) Structuring collaboration and measuring performance The project activities are structured based on a causal model that collects them to outputs, outcomes and impacts and collaboration mechanisms through Memorandum of Understanding, financial and technical support agreements shall be established. 3. Aspects of employing blockchain technologies in pro-poor agri value chain building and collective marketing in Kerala. Blockchain Technology (BCT) offers tremendous opportunities to improve supply chain transparency,ii traceability and reduce transaction costsiii. Blockchain makes use of cryptographic trust, is inherently traceable, time stampediv, censorship resistantv, distributed ledgervi and is near real-time. Further improvements in this technology have enabled algorithm based smart-contracts which enable integration of contractual relationships between trusted trading

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partners through self-verifying and self-executing agreements replacing intermediaries completely. IBMviihas announced teaming up with Maersk Line, the largest logistics service provided in the world, for shippers, ports, customs offices, banks, and other stakeholders in global supply chains track freight as well as replace related paperwork using BCT. China based Dianrong and FnConn have announced the launch of Chained Finance, which enables supply chain finance to deliver needed capital to SME supply chain suppliers and provide large multinational manufacturers with enhanced visibility and transparency using BCT. Several start-ups like Provenanceviii, Monegraphix, Skuchainx Gatechainxi, Hijroxii, Wavexiii Ripple

xiv

R3CEV

xv

have started implementing a series of projects and some of

them have already graduated into mature products and services.IBM and a group of leading food companies are taking a major step towards making food supply chains more transparent with BCTxvi. We discuss four use cases for BCT in the context of AFSC (1) BCT based smart contracts to handle information processing and contracts processing (2) BCT based supply chain finance integrated processing covering processing in multiple layers including multivendor contracts, information and financing of supply cash flows and trade receivable books. (3) IoT and BCT based agri-food supply chain covering information processing, multi-vendor contracts handling and traceability handling. (4) IoT, BCT and analytics based integrated, end-to-end based digitally connected multi-party logistics and supply chain ecosystem for cold chain management in horticulture, fish, meat etc. Use case 1: BCT based smart contracts for supply chain processing Let us now examine a use case of BCT in Supply Chain Processing. A schematic of how BCT could transform a supply chain is provided in figures 3 and 4 below. The relevant supply chain activities in a traditional supply chain is shown – Order processing, shipping and material flow, billing and invoicing and payment are considered. Buyers Purchase Order, goods availability check and Suppliers Sales Order are the steps in the order processing layer. Suppliers Delivery Document, Transfer order showing source storage bin and destination storage bin, updating Suppliers Sales Order based on actual shipment details in Suppliers Post Goods Issued Note, Carriers Bill of Lading, Buyers Goods Receipt Document matched with Suppliers Delivery

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Document and Buyers Purchase Order are the steps in Shipping and material flow. Suppliers Billing Due note based on Suppliers Delivery Document, Suppliers Sales Order created and based on these Suppliers Invoice created and despatched to buyer. A three-way verification between Buyers Purchase Order, Buyers Goods Receipt and Suppliers Invoice are matched and Buyers account debited. Buyer decides Payment process and Bank payments are made based on authorised Supplier Invoices. Use case 2: BCT based finance integrated supply chain processing In a BCT based Supply Chain scenario the order processing starts with a PO from the buyer. This is a time-stamped live smart contract and delivery documents can be also registered on the PO with embedded timestamp and key meta data. PO from Buyer with registered delivery documents, Bill of Lading from Carrier etc. could be automatically matched and Suppliers Invoice generated and Buyer approves the same through smart-contract. The authorised Sellers Invoice triggers payment transactions and reconciliations at one go through smartcontracts. The complete integration of product flows with the information flow could be achieved through IoT making the system complete in itself. Financing of supply cash flows and trade receivables books is important for successful business now a days. Compared to the old fashioned Letter of Credit Supply Chain Finance now encompasses trade finance instruments like factoring, reverse factoring, payable financing and dynamic discounting.

A buyer led

multi- investor securitisation process in an Enterprise Resource Planning ERP process and one involving BCT process are covered in figures 5 and 6 respectively. The starting point is the underlying trade between the buyer and supplier (1). As soon as the buyer has approved the payable he uploads the invoice (2) the supplier can wait until the payment term expires and the buyer pays the invoice or request an early payment (3). If the early payment option is adopted by the issuing and paying agents a note is issued by the clearing house. (5) If securities are successfully settled payment for the discounted invoice amounts would be recommended by the Special Purpose Vehicle (SPV). After this the supplier assigns the receivable to the SPV and the goods are warehoused. (6). When the agreed payment term between the supplier and buyer expires the buyer makes payment to the owner of the invoice ie the SPV (7) At the securities’ maturity the SPV redeems principal and interest on the securities (8)

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Figure 3

Procurement andand fulfilment process without BCT BCT Procurement fulfilment process without

PO

Supplier

Buyer

EDI Availability check

Sales order

Planning Division

Order processing layer

Due for delivery

Delivery Document

Buyer

Supplier

Bill of lading

Shipping layer

Successful Shipping Time

Carrier

Supplier Buyer EDI Delivery Document

Sales order

PO

Bill of lading

Invoice Invoicing layer

Three- way- match

Approved invoice

Supplier’s Bank

Wire

Buyer’s Bank

SWIFT Local clearing network

Payment layer

Local clearing network Correspondent Bank

PO – EDI – SWIFT –

Purchase Order Enterprise Data Interchange Society for World wide Interbank Financial Telecommunication

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Procurement and fulfilment process with BCT

Figure 4 Procurement and fulfilment process with BCT Supplier

Buyer

Smart contract

BCT layer

Availability check Order processing layer

PO

Automated invoicing and approval

Buyer

Shipping layer Carrier

Supplier

Debit account

Bill of lading

Time

Supplier

Buyer

Automated approval & reconciliation

Invoice

Invoicing layer

Credit account

Supplier

Payment e.g BTC

At maturity

Buyer

Cash token

Payment layer

Cryptographic Signature

Traded product Trade document / asset token

Ledger / database up-date Block chain back-end database Asset token

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Successive actions in a buyer – led securitisation Figure 5 Successive actions in a buyertransaction – led securitisation transaction

Suppliers (as creditors)

Buyer (as the organisor)

(1) Send Invoice

(2) Payable approve & Invoice upload

Technology platform service provider and arranger

(6) True sale

SPV

Investors

Trustee Legal Advisor Auditors

(8) Note’s Redemption

SPV’s custodian

(5) Note’s Redumption

CSD (5) Cash Settlements

(5) Note Settlements

Investors custodian

(8) Redemption

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Figure 6

Blockchain-drivenmulti-investor multi-investor reverse securitisation Blockchain-driven reverse securitisation

Supplier

Automated invoicing and approval

Buyer Due for delivery

Bill of lading

Carrier

Order processing layer Shipping Layer

2

Supplier

Buyer

Invoicing Layer

Automated approval & reconciliation

Invoice Signed by other banks or authorities

KYC

1

ID..

SPV

Investors

ABCP

[Reverse securitisation]

DvP

Transfer Ownership

Cash tokens

Early Payment Payment at invoice maturity Cash tokens

Buyer

SPV

Investors

BCT layer

Payment layer Time

Note’s redumption

Supplier

1

Cost effective supplier on boarding

2

Straight- through provide document processing- faster Invoice approval

3

Clear title of ownership and invoice validity

4

Efficient note issuance and clearing & Settlement

5

Faster and cheaper payment systems

SPV ABCP DvP KYC BCT

– – – -

Special Purpose Vehicle Asset-Backed Commercial Paper Delivery versus Payment Know Your Customer Block Chain Technology

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In the BCT driven process the shared and trusted databases support the financing process which includes the invoice approval, note issuance, post-trade processes, payments etc. All these could happen much faster, cheaper and more efficient through smart contracts in the BCT context. Use case 3: IoT and BCT based agri-food supply chain covering traceability handling A schematic of using BCT along with IoT (here RFID) in an Agri-food supply chain is provided in figure 7. Figure 7 BCT and IoT in an agri-food supply chain Real Time Tracking, Monitoring and Tracing

Blockchain system and internet

Customer Farm

Sales market

Plant

Transport Vehicle

Warehouse centre

Regulatory agency Information gathering, Transformation and sharing

RFID, GPS, Sensor, Wireless network Technologies

The agri-food value chain could cover fresh fruits &vegetables, milk, egg and meat. Fish landing zones and fishing harbours can also be connected. As and when we add them the system could handle fish as well. The agri-food supply chain traceability

system

established

here

relies on Radio-Frequency

Identification (RFID) technology to handle data acquisition, circulation and sharing in production, processing, warehousing, distribution and sales links of agri-food supply chain relating to product movement. BCT handles all the

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aspects of quantity, compliance, contractual and accounting through a distributed ledger process which adds traceability and transparency as well. The smart contracts potentially enable self-establishing contracts among the stakeholders. The greatest advantage in the BCT based process is the faster and cheaper access of information, faster payments and reconciliations on the one hand and its amenability to handle material, contractual and data flows at one go. The smart contracts also eliminate errors avoid unnecessary reconciliations, mis communication and poor enforcement of joint contracts – all leading to improved efficiency and lower costs. Use case 4: IoT BCT and analytics based cold chain management in horticulture, fish and meat. Cold chain is temperature sensitive supply chain and this is critical in the perishable space where food borne illness and spoilage are common. Using GPS enabled temperature monitoring solutions the temperature of food can be monitored with high accuracy. The blockchain serves to store and share data from the IoT devices enhancing track and trace and enabling seamless monitoring and triggering intelligent equipment and storage and logistics process downstream and upstream. Through these values adds blockchain bring down the cost of cold chain substantively. The end result is that holistic collection, storage and insight solutions will emerge. (1) Retailers and super markets could invest in fresh foods and drive sales growth. (2) The food quality could be maintained through IoT enabled insights based on remote monitoring and management services. (3) Real time product and transport occurs in refrigerated containers and truck. (4) The data collected through the cold chain in harvest and processing also gets integrated with transport and distribution giving holistic insights and end to end food quality. The Analytic(s), IoT platform and BCT services based virtual food chain architecture easily blends with a collective marketing network which shares supply chain gains democratically and meaningfully among producers, distributers, retailers and consumers. See figure 8.

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Figure 8 Holistic Collection, Storage, Analysis and Insight Solutions Will Emerge

4. Implementation models Model 1: Strengthening Agricultural Market Infrastructure and improving market intelligence and systems for marketing Multiple players are involved in this area. Effective co-ordination is required. A survey of the identified infrastructure gaps in this area looks as follows: Table 1 Infrastructure gaps in markets in Kerala Sl No 1

Category

Gap description

Wholesalexviimarkets Electronic weigh bridge, cool rooms, controlled atmospheric storage with supporting reefer packs, pack houses, ripening chamber, sorting and grade unit, retail markets, shops. Malls, action facilities, scientific waste management and public amenities.

2

District

Cool rooms, Controlled atmosphere storage with

procurement and

supporting reefer packs, pack houses, ripening

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Sl

Category

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Gap description

No Marketing Centres 3

xviii

chamber, sorting and grade units, shops etc. and waste disposal and public amenities

Local Governmentxix

Sheds,

vegetable markets

chamber,

crates,

billing

retailed

machines,

markets,

shops

ripening auction

facilities, waste disposal and public amenities. 4

Paddy procurement centres of civil

Godown and harvesters required

supplies corporation 5

6

Kerafed, Marrketfed Godown,

driers,

tender

coconut

water

and Consumerfed

processing, coconut oil processing, virgin coconut oil processing and desiccated coconut.

Vegetable Fruit Promotion Council

Cold storage, Cool chamber, concrete floors for fruits and vegetables handling

Kerala (VFPCK) 7

Warehousing

Additional ware houses to be established

corporation 8

Fishing harbours

Ice plants, Ice supply and box pack in vessels, cold

and fish landing centres

storage and freezers for buffer stocks, ice factory, workshop, diesel yard, fish drying yard, sewage treatment plant, rest room, complete waste treatment plant, drinking water, parking area

9

10

Wholesale Fish

Parking

area,

waste

management,

drinking

markets

water, freezers, ice plants, shelter and fish dressing, cleaning facilities, drying facilities

Retail fish markets / Local fish markets

Ice plant, cold storage, parking area, waste management, drinking water, freezers, shelter and fish dressing area, cleaning facilities, public amenities, retail market auction area

Rubber and Spices are not covered in the tabulation above. A traditional vegetable supply chain in Kerala covers a long supply chain of producers, consolidators, sub agents, agents, transporters, merchant, exporters, wholesalers, retailers etc before the consumers. It is sought to transform the supply chain as shown in figure 9. 21


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Figure 9 The traditional vegetable value-chain Export Market

Agents

Wholesale merchants Exporters

Wholesalers

Domestic customer

Producers

Preharvest contractors, village merchants commission agents

Hawkers

Retail Traders

(Small farmers, Leg 1 Self help groups, Sanghams, Cooperative, Artisonal fishermen marine fisheries)

Leg 2

Leg 3

Traditional Supply chain

Figure 10 Improved value chain Leg 1

Farmers Producer Organisation

Contract Farm

Leg 4

Stores Local Consolidation Centres

Wholesale market and Distribution hub

Customers

Producers

(Individual farmers, Self Help Groups, Co-operatives, Farmers Producer Organisation)

Leg 3

District Procurement Centres

Lease Farm

Insurance

Credit

Leg 2

Stores

Cart vendors

Retailers Individual farmers

Agents

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The local government level consolidation centres, district procurement centres and wholesale markets are the major players apart from retailers. The model is based on backward integration and is focussed towards building the entire value chain from farmer to end customers. By improving the infrastructure at the local body level and district procurement centres and the wholesale markets, quality and safety standards can be adhered to, shelf life can be increased, grading and packaging can be organised more effectively, post-harvest losses can be reduced and farmers can obtain better returns. Better demand information travels across the chain and harvest calendars, logistic plans etc. can emerge effectively creating value additions. Kerala has registered several geographical indications registered during the last few years. See table 2 for the list of registered geographical indications. Wayanad Robusta, Muthalamada Mango, Kuttiyattoor Mango etc have applications under process. Table 2 Registered Geographical Indications in Kerala Sl No 1 2 3 4 5

Category Rice Pepper Cardamom Pineapple Banana

Registered Geographical indications Naara, Pokkali, Kaipad rice, Wayanad Grandhakasala Rice, Palakkadan matta, Waynad Jeerakasala rice Malabar pepper, Telicherry pepper Alleppey green cardamom Vazhakkulam pineapple Chengalikodan, Nendran Banana

Use of collective market / certification marks and Geographical Indicators can be important tools for improving standardisation, quality control and for better market value. As an effort in differentiation of products organically produced vegetables can be aggregated separately and branded and marketed through eco chains. Branded fresh produce supply chains can be also established in suitable locations and linked to convenience stores as well. Once the systems of aggregations, certifications and value chains are in place blockchain based approaches could be adopted as out lined in section 3.

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Model 2: Strengthening food safety through improving food testing facilities and improving traceability It is observed that fruits/ Vegetables or fish/meat from other states is laden with harmful chemicals artificial preservatives and pesticides. See table 3. Table 3 Concerns on food safety Sl No.

Category of Food

Suspected additive/ contaminant

1

Milk

Neutralizers detergent

2

Mango

Artificial ripening with calcium carbide, Non permitted colour

3

Fish

Use of ammonia and sodium benzoate

4

Fruits and vegetables

Pesticide residues, oxtocin, wax etc.

Copper

sulphate

Figure 11 Existing food supply chain for vegetables and fruits

Producer Packer

Outside state

Wholesaler

Packer

Producer

Transport

Wholesaler

Distributor

Retailer

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Figure 12 Improved food supply chain Import Channel 1

Import Channel 2

Sample

Sample

Safety testing processes and intervention

Certification

Domestic Channel

Sample

Retailer

Interventions for food safety should establish systems for safety testing and controls in accordance with the standards fixed by the Food Safety and Standards Authority of India (FSSAI).The implementation model in this context would to be strengthen the infrastructure for food testing and based on this proactively work with the value chains to build trust and put in place a process of certification through agencies accredited with the National Accreditation Board for Certification Bodies (NABCB). Along with this implementation Food Safety and Standards Act 2006 in restaurants and hotels would take the state substantively forward in terms of Safely in the food supply chain. Once the improved food supply chain is established BCT processes can be incorporated as outlined in section 3. 5. The next steps Both the implementation models get combined here The horticultural, fisheries and livestock value chains would have to be dealt with separately each requiring independent strategies. The infrastructure could however be shared substantively. (1) Improving small producers, negotiation through organising them as professional producer organisations (2) Strengthen infrastructure in retail outlets, whole sale markets and procurement centres with thrust on hygiene, IoT based smart infrastructure

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and quality and freshness of produce and IoT driven monitored and managed logistics along with inclusion through involving women co-operatives and margin free groups. (3) Linking producer organisation with buyers through a collective marketing framework based on contract farming, implemented through in smart contracts and facilitating virtual auctions, supply chain finance and insurance all in BCT enabled smart contract. (4) Creating ICT infrastructure from producer till buyer encompassing all intermediaries. (5) Integrate IoT driven quality testing and analytics for holistic insights along the entire supply chain. Table 4 Advantages along the value chain to various group in collective marketing Sl No 1

Category Consumers

Advantages Optimal price quality ratios, fresh produce, assured quality, traceability and no contaminants

2

Producers

Level playing field, access to volume, guarantees, credit, insurance

3

Retailers and Wholesalers Steady

supply

uniformity costs,

quality

streamlining

reduced

losses

control

and

of

marketing

of

punishable

produce 4

Other stakeholders

Banks can achieve priority lending targets, crop insurance becomes meaningful, food product

testing

outcomes,

logistics

agencies

achieve

management

is

streamlined The greatest advantage is that the producer groups, consumer societies, distribution collectives can share information and work democratically for benefit of all. The success of the project depends on the effective co-ordination between the producers, wholesales, distributors, transporters, retailers and consumers. The virtual value chain infrastructure need to be judiciously designed and integrated with IoT and analytics platform and blockchain services. The involvement of small

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and marginal groups in the distribution and marketing chains and intervention to regulate prices of procurement and distribution is also critical.

6. Conclusion BCT is still at a nascent stage of development but there are signs that it is exiting the hype cycle of inflated expectations and entering an entering a more realistic and pragmatic phase of exploration as indicated in the Figure 13 the Gartner Blockchain Maturity Cycle of July 2017. A broad strategy of intervention as shown below in figure 14 which could be adopted for process improvements and for creating new value chains for the Agriculture and Food sector in Kerala. The key assessment criteria

should

focus on providing

the

stakeholders including customers

transparency, productivity, cost savings, speed, quality, trust access lower risk and unique value propositions like more value creation and more equitable value distribution. On the road to such implementation, major risks should not be under estimated 1. The legislative and regulatory environment and how it may affect distributed ledger technologies and smart contracts from angles of data privacy and compliance. 2. The risk to cope up with such a huge change in culture and operations across a gamut of stakeholders and the talent pool required to interact with the polity and the community leadership to drive them towards the change is phenomenal.

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Figure 13 Gartner Hype Cycle for Emerging Technologies, 2017

ASSESSMENT CRITERIA

STRATEGY

TRANSPARENCY

Process Improvements

PRODUCTIVITY

MARKET DESIGN CHOICES

Figure 14 Blockchain strategy and assessment matrix

PRIVATE OPEN

COST SAVINGS SPEED QUALITY TRUST ACCESS

BLOCKCHAIN TOOLS

USE CASE SELECTION

LOWER RISK

New Market Creation

NEW SEGMENTS OR SERVICES

INHOUSE

NEW MARKETS OUTSIDE CORE BUSINESS

EXTERNAL PARTNER

NEW BUSINESS MODEL

CONSORTIA

DEVELOPMENT MODEL PARTNERSHIP

i

There are six elements of traceability viz. (1) Product traceability for physically locating the product in the AFSC to facilitate logistics and inventory management. (2) Process traceability- sequence of activities during the growing and post-harvest and is critical for determining contaminants

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(3) Genetic traceability -determines the genetic constitution of the product and mode of propagation. (4) Input traceability -determines type and origin of inputs including additives or chemicals used for preservation. (5) Disease and pest traceability -traces the epidemiology of pests’, biotic hazards, viruses and emergent pathogens that might have contaminated (6) Measurement traceability – relates individual measurements through an unbroken chain of calibrations to accepted reference standards. ii Transaction once entered cannot be altered and anyone can transact on a blockchain. Blockchain systems incorporate a fully auditable and valid ledger of transactions. This ledger is unforgeable and indelible. Only those entries which are validated by the connected network of blockchains alone can be entered into the ledger. For making a change in the ledger every individual blockchain in the system needs to be altered. Therefore, fraudulent transactions cannot be added and it’s impossible to delete a blockchain transaction in an attempt to hide it. iii The advantages of lower transaction costs arises from better data sharing across the supply chain which could allow for: • faster and more accurate tracking of products and distribution assets – for example containers, as they move through the supply chain • a reduction of errors on orders, goods receipts, invoices and other trade related documents due to less need for manual reconciliation • sharing of information about process improvements and maintenance in real-time • a permanent audit trail of every product movement or financial transaction from its source to ultimate destination, reducing opportunities for fraud. All the above removes paperwork and reduces administrative and compliance costs. iv Each block contains a Unix time timestamp. v Transactions which are unaltered ie. with no means of rewriting history are termed censorshipresistant in the first part Everyone in the network regardless of personal attributes not described through network protocol should be able to transact on the network. Thirdly changes in governance rules of the blockchain network emerges through consensus and does not follow real life governance changes. Lastly the hard fork is a radical change to the protocol that makes previously invalid blocks/transactions valid (or vice-versa), and as such requires all nodes or users to upgrade to the latest version of the protocol software, could be also a resort of censorship resistance. vi Distributed ledger is a database held and updated independently by each participant (or node) in an interconnected network. There is no central authority to communicate the transactions to the various nodes, instead they are independently constructed and held by every node. Each single node after processing every transaction gets a consensus by making certain that the majority agree with the conclusions. vii A pilot, which traced a container of flowers that sailed from Mombasa, Kenya to Rotterdam in the Netherlands has been completed. They have since partnered with DuPont, Dow Chemical, Tetra Pak, various ports and customs offices for field tests. viii Empowering customers all along the supply chain, Provenance enables retailers to provide shoppers with trustworthy data. The UK’s largest consumer co-operative, The Co-op uses Provenance software to track fresh produce, and their product claims, from origin to supermarket. ix Monegraph, a collaborative project between a New York University professor and a technologist offers a radical new way for artists to secure digital property - by logging it in the blockchain. x US company Skuchain has partnered with Japanese NTT Data to build a BCT based supply chain and logistics management. The solution, which combines BCT with internet of things (IoT) devices such as radio-frequency identification (RFID) was successfully trialed in Japan’s manufacturing sector. They are also working with companies in Japan to use the supply chain platform to offer inventory financing in other industry sectors such as food and agribusiness. xi A Zurich based start-up Gatechain uses BCT to interconnect the parallel streams of finance and goods for trade finance, allowing for reduction of processing time and the lowering of costs while improving cash-flow in trade. xii Hijro through a developer platform and API layer has demonstrated ability to drive security, automation, and efficiency in origination, distribution, tracking, settlement, and reconciliation of trade assets including receivables and approved payables. allowing business networks such as SAP Ariba to connect to the Hijro Asset Distribution Network. xiii Wave has created a peer-to-peer and completely decentralized network that connects all carriers, banks, forwarders, traders and other parties of the international trading supply chain. Wave's product has been leveraged by Barclays Corporate Bank in a bid to help business clients reduce costs associated with supply chain management. 29


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xiv

Ripple connects banks, payment providers and digital asset exchanges via RippleNet to provide one frictionless experience to send money globally. They have joined hands with Earthport global payment specialist. Earthport executed the first cross-border payment transaction received via distributed ledger for Santander UK, enabling it to become the first UK bank to use distributed ledger technology for cross-border payments. xv R3CEV is a distributed database technology company leading a consortium of more than 70[ of the world's biggest financial institutions in research and development of distributed ledger usage in the financial system. The consortium's joint efforts have created an open-source distributed ledger platform called Corda especially geared towards the financial world as it handles more complex transactions and restricts access to transaction data. Corda's code was open-sourced on November 30th, 2016 here, and may in the future be contributed to the Hyperledger project. xvi The consortium, includes Dole, Driscoll, Golden State Foods, Kroger, McCormick and Company, Nestlé, Tyson Foods and Walmart, has announced a collaboration with IBM to test the IBM solution “to identify and prioritise new areas where BCT can benefit food ecosystems. The collaboration will build on a successful pilot that IBM carried out with Walmart earlier. During the pilot, Walmart discovered that it took six days, 18 hours and 26 minutes to trace a package of mangoes back to the farm in the US where they were grown, whereas with BCT this was possible in just a couple of seconds. Further BCT revealed not only the farm from which the mangoes originated – but the exact path they followed on the way to the retail shelves. xvii

Wholesale markets are Urban-Anayara, Maradu, Vengeri, Moovattupuzha. Rural – Nedumangad and Sulthan Batheryand are meant for Nendran, Poovan, Chenkadali, Njali poovan, Robusta, Palayancodan, all vegitables, coconut, Tapioco, Elephant foot yam, Citrus varieties etc. xviii Kaliyan Chanda (Kollam) Koden thuruthu (Alappuzha), Kuruppanthara (Kottayam), Thodupuzha (Idukki) and Pavarti (Thrissur) xix Panchayat markets - 1076, Municipal corporation 65 and Municipalities 129

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