Coffee, the second most widely traded commodity, is a $100 billion market. However, it is primarily grown by small farmers, most of whom depend on unreliable income, often under $2 per day[i]. An astounding 25 million of these farmers produce 80% of the world’s coffee[ii]. Yet, the current supply chain system is antiquated, rife with unfairness and uncertainty. bext360 is disrupting this industry by leveraging blockchain to bring transparency to its supply chain and to ensure equitable payouts to farmers. It is bringing the largest un-automated system in the world into the digital age.
The Denver-based startup recently launched a pilot to produce the world’s first blockchain traceable coffee. By using the shared accounting ledger that led to the rise of Bitcoin, the company can significantly improve the upstream supply chain. Its technology provides an immutable record of all transactions that take place on the supply chain, stretching from the farmers who grow the beans, through the multiple stages of manufacturing, to the end consumer.
At the production stage, a “bextmachine” uses artificial intelligence, machine learning and internet of things to grade coffee bean quality at washing stations. Farmers load daily hauls of around 30 kilograms into these machines, which are equipped with optical recognition devices and sensors to sift and sort the beans. The sensors send live streams of weight, size and ripeness data on each bean to the platform’s appraisal software. The grades from the production stage are then made visible to buyers who bid on the beans.
The movement of the beans is then tracked through the supply chain, enabling all stakeholders, including farmers, roasters and consumers, to access data at every stage. This ensures that farmers can be paid fairly based on the quality, not just the quantity, of their yield. Moreover, these payouts are instantaneous. bext360 connects to Stellar.org’s blockchain technology to generate crypto tokens to track data on the origin and quality of each batch across the life span of its production. New tokens are automatically created as the beans move through the supply chain, to represent their new form and value through the production process. Small famers worldwide are paid in real-time based on these values, through the company’s mobile-based payments app, making their income more reliable. The payments are made in digital currencies with Stellar’s protocol. Additionally, the farmers do not have to accept payments on the spot. They could decline the initial offer made after the bean grading step, and sell the beans directly on the commodities market using bext360’s technology.
bext360 raised a seed round of $1.2 million in April 2017. With this funding, it plans to continue building upon the shifts in microfinance, mobile internet access and digital payments in developing economies. Before tackling additional commodities, the company plans to continue piloting with coffee in the short term, as demand for coffee is projected to rise by 25% in the next five years, with the share of premium coffee exceeding 55% of the market. In fact, a record 158 million bags are estimated to be consumed in 2017 itself[iii]. Additionally, consumer preferences are increasingly aligned toward organically sourced coffee beans and toward companies committed to positive environmental and social impact, making bext360’s value proposition more attractive.
bext360’s tokenization technology can be expanded to other global commodities to dramatically decrease their transaction and inventory costs. This stems from the fact that certification processes in supply chains is very expensive. At every stage, an inspector physically examines the product, attaching certification papers to each batch. Using blockchain allows for full transparency and immutability, along with cheap and instant cross-border trades for this global product.
Additionally, bext360 has developed a RESTful API to access bean quality and additional supply chain information. This will fuel further innovation as retailers and wholesalers can use the API to develop data-driven loyalty programs for their customers.
Food supply giants have jumped on this emerging trend as well. Walmart, Unilever, Nestlé and Dole have partnered with IBM to use blockchain to trace a range of a products, including poultry, fruit and chocolate, from farms to shelves worldwide[iv]. With buy in from these major players, blockchain-based supply chains could also be vital for reducing food spoilage. Blockchain could also help track and identify the root causes of food-borne illnesses more efficiently, shortening this process from weeks to seconds.
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[i] The World Bank, “A Year in the Lives of Smallholder Farmers”, February 2016, [http://www.worldbank.org/en/news/feature/2016/02/25/a-year-in-the-lives-of-smallholder-farming-families], accessed November 2017
[ii] Fairtrade Foundation, “About Coffee”, [http://www.fairtrade.org.uk/en/farmers-and-workers/coffee/about-coffee], accessed November 2017
[iii] Foreign Agricultural Service, “Coffee: World Markets and Trade”, United States Department of Agriculture, June 2017, [https://apps.fas.usda.gov/psdonline/circulars/coffee.pdf/], accessed November 2017
[iv] Robert Hackett, “Walmart and 9 Food Giants Team Up on IBM Blockchain Plans”, Fortune, August 2017, [http://fortune.com/2017/08/22/walmart-blockchain-ibm-food-nestle-unilever-tyson-dole/], accessed November 2017