How Blockchain Benefits the Coffee Supply Chain

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With over two billion cups consumed each day, coffee is by far the world’s most popular drink. Almost every country has its unique take on the caffeinated drink, and many go to great lengths to create the perfect cup of joe.

Not only does coffee play a role in the routines of families across the globe, but it also has significant social and economic impacts on the people who work hard to produce this beloved beverage. While 90% of the world’s coffee is produced in developing countries, it has not been a reliable source of income for its farmers.

Economic issues, such as limited market access for producers and lack of product and market information, coupled with depreciating market prices, all contribute to problems that farmers face every day. General market prices of coffee do not always reflect the quality of an individual’s crops, or personal financial situation.

What’s more, there are a number of big-name coffee companies claiming to be engaging in “fair trade,” when in reality they purchase their coffee through other middlemen. While exporters and middlemen may see an extra cut from this purchase, the farmers rarely do. For these reasons, farmers rarely receive fair compensation both for the extent of their work and for the value of their product.

Redesigning the coffee supply chain to increase transparency, efficiency, and win-win economic transactions can help to rectify this situation. Blockchain in the coffee supply chain can help growers see where their beans end up, and enables consumers to see where their coffee comes from. This technology can help ensure that growers are given fair payments for their crops and are maintaining sustainability practices. And it can allow consumers to make more informed decisions about where they should purchase their coffee.

While the global coffee supply chain is extremely complex, it can be roughly broken down into the following parts:

  • Producers/farmers,
  • Mill,
  • Brokers/commodity traders,
  • Transporters/shippers,
  • Exporters,
  • Importers,
  • Roasters, and
  • Packagers/distributors/retailers

 

 

This is a rough, simplified diagram of the coffee value chain.

The Commodity Fairness Index displays the measure of equality or fairness for members of a commodity supply chain by evaluating its degree of imbalance. For example, the index showed that almost 90% of producers Colombia are capturing a little less than 5% of the value created by their coffee. And if other developing, coffee-producing countries have similar levels of inequality, thousands of producers are being undervalued and paid unfairly for their work.

While producers are the most important link to the coffee supply chain, they are often the most undervalued. Some think that farmers should be made part of social programs that provide them with grants and loans to fund their work. However, this isn’t a realistic or sustainable solution. Farmers should be treated like any other member of the business supply chain and be paid fairly.

The application of blockchain technology provides a way to tackle the profit imbalance in the coffee supply chain, through the introduction of transparency.

Blockchain enables the storage of data in a distributed fashion among its participants. The system of recording information is done in a way that makes it difficult to alter data or input incorrect data. Each block in the chain contains a ledger of transactions. Each time a new transaction happens on the blockchain, a record of this transaction is put onto the ledger of each participant. At any given time, everyone involved in the chain knows about each transaction made.

It’s no secret that customers are starting to flock to local coffee roasters and small craft shops. Why? One reason is that local roasters typically offer higher-quality coffee. Another is that many customers want to see exactly where their coffee is coming from.

The transparency and traceability resulting from blockchain technology offer two primary benefits that can improve the coffee purchasing experience, and help work toward fair compensation for producers.

First, when applied to the coffee supply chain, blockchain allows everyone to know where their coffee came from, and the conditions under which it was shipped and produced. End-to-end traceability allows consumers to see the place of origin and how long their coffee has been in transit after being roasted, enabling them to ensure that their coffee arrives fresh. It also enables roasters and distributors to provide more detailed information to consumers about the coffee they’re purchasing.

Transparency in the origin and quality of coffee generates more trust into the coffee supply chain among consumers, roasters and distributors. This may result in consumers becoming loyal supporters of brands they can trust. Consumers may also be willing to pay more for coffee that is sustainable, traceable, and fairly purchased, providing further incentives for businesses to compensate producers fairly.

Second, if other members of the coffee supply chain understand the extent to which every entity is profiting from the coffee, they can work or advocate to even out the discrepancies. This transparency in profits could be one step toward bringing about fairer compensation for producers.

Furthermore, ensuring traceability throughout the entire supply chain means that the coffee’s origin, quality, and freshness can all be verified. This, in turn, allows growers who produce top-tier coffee to be recognized for their efforts and be rewarded. Full transparency demands the accountability of each member in the chain, reducing the likelihood of food fraud. And growers who produce quality crops can be rewarded accordingly.

In recent years, the coffee industry has suffered, affecting producers and growers tremendously, while other members of the coffee supply chain have escaped comparatively unscathed. And while the third-wave coffee movement has seen prices of high-quality coffee skyrocket, producers are often left out of the increased profitability.

Blockchain can rectify imbalances in the coffee supply chain through full transparency and traceability. The result is greater equality and fairness for producers, as well as a more balanced and sustainable coffee industry that works better for everyone involved.

Daniel Browning is business development coordinator at PDF Supply, a global supplier of automation products.

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