Alibaba: New Leader of Food Safety in China?
Alibaba, e-commerce giant based in China. Food safety, one of the biggest threat to Chinese consumers. What happens when the two comes together with digitalization?
Alibaba, China’s e-commerce giant, is attempting to tackle food safety issues haunting the country by revolutionizing information flow throughout the supply with blockchain technology. A sense of crisis emerged among the mass in 2008 when six babies in infancy died because of toxic melamine milk powder. Since then, an increasing number of consumers regard food safety as a “very big problem”, jumping from 28% in 2008 to 40% in 2016 based on a Pew Research Center study.[1] Alibaba, capitalizing on growing middle class’ demand for trustworthy produce, began to source food from international markets and sell the imported produce on its B2C platform TMall.com. Although buying from outside of China implies stronger food safety, how can consumer be sure of where their food comes from, how it is processed, and who is accountable? How can downstream players within the supply chain even be sure of conditions upstream? Blockchain technology is Alibaba’s answer.
Because TMall.com is loaded with produce from Australia and New Zealand ranging from fruit to seafood, Alibaba has decided to implement blockchain technology on its supply chain in these two countries by partnering with PwC Australia, Australia Post, and suppliers.[2] For Alibaba, this strategy will not only boost sales by enhancing consumer confidence, but also build a long-term competitive advantage as one of the first-movers in leveraging blockchain for supply chain management. Other players such as Walmart and IBM have also jumped at the opportunity in their respective markets. Blockchain, the technology that originated from Bitcoin trading, is revolutionizing information flow in supply chain by:
- Tracking the complete chronological history of a product
- Creating one single, shared source of information for all participant
- Protecting data from corruption
For more on blockchain:
Prior to this, Alibaba has used blockchain technology to track charitable donations as they leave the donator’s pocket to be received by the beneficiary. Similarly, blockchain can make digital marks on an apple from its harvest to retail, or furthermore on an apple pie with a complete set of data for every ingredient. Bitcoin Magazine illustrates what the future holds for consumers:
“Once the food lands on a retailer’s shelf, consumers can scan a QR code on the food package with their mobile phones to receive food safety information about the product, including details as to what is in the package and its origination.”[3]
With promised accuracy and transparency, blockchain technology, once adopted, will eliminate any form of shady act on the supply chain that may threaten food safety. “This project is the first step in creating a globally respected framework that protects the reputation of food merchants and gives consumers further confidence to purchase food online,” said Maggie Zhou, managing director for Alibaba in Australia and New Zealand.[1] In the long-run, Alibaba aims to provide blockchain technology to more geographies and industries. For example, Alibaba also considers blockchain to be valuable to the judicial system as a safer way to record and transmit evidence.
From my point of view, Alibaba should focus on the following areas to further tackle food safety issue with blockchain technology. First, roll out pilots of this technology on its Chinese supply chains as soon as possible, and gradually expand to the whole country. Needless to say, blockchain can play a huge role in pushing local players to enhance food safety standards, although there may be foreseeable resistance at first. Once quality improvement is achieved, it will help Chinese companies prove their credibility to the rest of the world. Second, create partnerships. It is evident that Alibaba now as the technology provider must involve many more stakeholders to make changes happen. In China, though challenging, it may be the most efficient to get buy-in from the government to truly solve food safety issues at the national level. Third, set the rule. Alibaba should proactively work with other players in the field, especially international ones to ensure commonality of systems so that once adopted by the mass, every step of the supply chain is “speaking the same language”, regardless of location.
Fraud costs the global food industry as much as $40 billion annually.[2] It is not a regional problem, but a global one that remains to be solved. However, despite the bright future that Alibaba paints with blockchain, there are still questions to be answered before this technology could be adopted by the mass. At what cost will blockchain be economical to participants of the supply chain? How will increased transparency impact the cost of producing food? Yes, food of higher quality is always a plus, but at what expense?
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References
- Campbell, R. (2017). Burgers on the Blockchain: How Tech Guards Food Safety. [online] Bitcoin Magazine. Available at: https://bitcoinmagazine.com/articles/burgers-blockchain-how-tech-can-keep-food-safe/ [Accessed 16 Nov. 2017].
- O’Brien, E. (2017). Inside the Secret World of Global Food Spies. [online] Bloomberg.com. Available at: https://www.bloomberg.com/news/articles/2017-08-06/spies-blockchain-and-alibaba-beating-china-s-fake-food-scourge [Accessed 16 Nov. 2017].
- Thomsen, S. (2017). Alibaba wants to use blockchain to prevent counterfeit Australian food products in China. [online] Business Insider Australia. Available at: https://www.businessinsider.com.au/alibaba-wants-to-use-blockchain-to-prevent-counterfeit-australian-food-products-in-china-2017-3 [Accessed 16 Nov. 2017].
This is an interesting article with a great embedded video to help explain block chains to people that do not understand them. What I think is the most interesting is the idea that you would be able to quickly and efficiently track a food/manufacturing issue down to the person that caused that issue, which would enable you to hold that person/entity accountable.
As we have seen in past TOM lessons, the ability to isolate the issue inside a manufacturing chain is critical to process optimization. In this case, you could cut out suppliers who fail to meet standards.
My concern would be if this really enables you to catch a perpetrator before the food issue has arisen- which is really to say, this still sounds like a “reactive” solution as opposed to a “proactive” solution. A proactive solution would identify an issue in the supply chain before the product went to market. While you can cut someone out who has failed in the past, they can always change the name of the entity or corporation and continue to produce inside someone else’s supply chain.