The below article was published in the February 2020 Tax Stamps & Traceability Newsletter which can be found here.
Often when people hear about blockchain, they immediately think about bitcoin, the cryptocurrency that has dominated the news coverage about blockchain technology in recent years. However, something that is less prominently covered is the advance of the underlying blockchain technology across various non-financial industry sectors and use cases to provide secure track and trace.
Blockchain technology is a public encrypted non-centralised ledger system that allows every participant on that system to track and authenticate items of value, which can also be physical hard goods. Because the system is a non-centralised ledger, it is considered to be tamperproof, especially since the decentralised nature of the system makes it economically and logistically impossible to ‘fake’ blockchain data across the entire ledger.
This has made it very attractive for companies and government agencies that need to securely track and authenticate large volumes of products that recently have been hard to track or authenticate. Most notably, there has been significant progress in food and pharmaceutical tracking. In addition, Europe is looking to blockchain for trusted data sharing for cross-border trade, tax, and other systems.
One example of the rising use of blockchain for food traceability relates to the increasing number of companies adopting the IBM Food Trust™ programme. This proprietary programme was launched in late 2018 after 18 months of extensive testing and development. IBM Food Trust uses a decentralised model to allow multiple participating members of the food supply chain – from growers to suppliers to retailers – to share food origin details, processing data and shipping information on a permissioned blockchain network.
The IBM Food Trust programme continues to attract significant established players in the food and grocery industry. Among its participants are Carrefour, Nestle, and US based grocery giant Albertsons.
Last month, French agribusiness firm Avril Group joined IBM Food Trust to provide food traceability for its fresh egg brand Matines. The Avril Group operates in 21 countries and has distinctively positioned its eggs as being high quality across several types, from organic to free-range and standard eggs. Avril is looking to IBM Food Trust to help it fulfill its commitment to its consumers and various NGOs to only sell eggs from hens reared in laying barns, or under free-range or organic conditions, fed with 100% French cereal and raised without antibiotics.
To accomplish this goal, Matines eggs will use a QR code printed inside the egg box, which will take the customers to a dedicated application providing details of the eggs. The integrated blockchain technology will ensure the safety of the system, which also includes the farming method, utilised feeds, as well as dates for egg-laying, packaging, and warehouse dispatch. IBM Food Trust records the data at each stage, and the open ledger ensures transparency against the claims and commitments made by the company.
In addition, French premium foods company Labeyrie has started to track its Norwegian salmon through the platform, Italy’s Gruppo Grigi is tracing its Aliveris pasta brand and Tunisian olive oil producer CHO is tracking its lines of exclusive olive oil.
IBM Food Trust has helped members to increase sales due to faster transaction speeds and secure the supply chain by tracking previously hard-to-track items such as meat, milk, lettuce, fish and fruit, from farm to store. Blockchain allows for food to be quickly traced back to its source in as little as a few seconds instead of days or weeks.
Most importantly, the IBM Food Trust is interoperable and built on open standards. The programme was designed to enable organisations in the food industry to run their businesses more effectively and provide safer food at lower costs.
FDA pilot programme for pharmaceutical track and trace
In 2019, the US Food & Drug Administration (FDA) announced that it would explore and pilot several new technologies, including blockchain, to help in the track and trace of pharmaceuticals, which is required under the US Drug Supply Chain Security Act (DSCSA). The DSCSA was enacted in 2013 to ensure counterfeit pharmaceuticals cannot penetrate the legitimate supply chain.
To be most effective, track and trace systems need to become interoperable. Currently, the systems of various countries are not compatible, thereby increasing the risk for counterfeit, adulterated or substandard drugs to penetrate legitimate distribution chains. The DSCSA spans the full supply chain, which requires information sharing between manufacturers, repackagers, wholesale distributors, dispensers and their providers.
According to former FDA Commissioner Gottlieb, the FDA is looking at blockchain for pharmaceutical track and trace to fully secure electronic product tracing, by providing a step-by-step account of where a drug product has been located and who has handled it – as well as to establish more robust product verification to ensure that a drug product is legitimate and unaltered, and to make sure that any party involved in handling drugs in the supply chain has the ability to spot and quarantine and investigate any suspect drug.
Shortly after the pilot programme announcement, the MediLedger Project was accepted by the FDA as one of its approved proposals. MediLedger will evaluate how to utilise blockchain for track and trace.
Now, a powerful coalition working group of 24 industry-leading pharmaceutical manufacturers, distributors, retail chains, logistics partners and solution providers in the United States has been established to make this vision reality. On 24 February, the working group released its report on the rationale, efficiency, efficacy and security of blockchain. The group claims that blockchain is needed to ensure the secure adoption of track and trace in the country.
The working group report concludes that blockchain can meet the 2023 DSCSA requirements for an interoperable, secure, confidential track and trace system that can efficiently track change of ownership for the US pharmaceutical supply chain.
Most importantly, the report highlights that the blockchain network is able to validate the authenticity of drug identifiers and trace saleable units throughout the supply chain without the need to share any proprietary data on the blockchain. Instead, the system allows for proprietary data to be securely exchanged with trusted trading partners as needed, without ever leaving a company’s control.
The only data publicly posted are so called ‘cryptographic proofs’, which are also known as zero knowledge proofs. These proofs do not contain confidential data but help ensure that business rules and data standards are followed. In addition, all trading partners operate on the same up-to-date data.
This speed and security could be a game changer for the pharmaceutical industry and provide the foundation for a truly secure global interoperable track and trace system.
Governments looking how to secure their data
Finally, the European Union (EU) is in the process of deploying its European Blockchain Services Infrastructure (EBSI), which went live on 12 February with the deployment of its first data node in Belgium. The goal of the EBSI is to enable crossborder public services within the EU, with security and privacy.
While these goals sound amorphous, they are the manifestation of the EU’s desire to transform the way it manages data. In 2018, EU member states created the European Blockchain Partnership (EBP) to cooperate and build the EBSI. Currently, the EBP has 30 signatory countries, including all the EU states as well as non-EU members UK, Norway and Liechtenstein. The EBSI is envisioned to be a network of blockchain nodes across Europe, to support use cases prescribed by the European Commission.
Currently, the EBSI has four specific use cases, each led by a member state and a user group. Use cases include notarisation to prove data integrity, blockchain diplomas for trusted education credentials, European self-sovereign identity to give users control over their data, and trusted data sharing for cross-border trade, tax, and other systems.
This signals an important step by the EU to move their cross-border trade and tax data away from paper-based systems to electronic systems.
Blockchain has the potential to radically change the landscape of track and trace for various industries... and the momentum is building.
Sven Bergmann is a Managing Partner at Venture Global and advises brand owners, technology providers and governments on anti-counterfeit strategies, programmes and technologies. Send your comments to SBergmann@VentureGlobal.com.