As Chinese consumers place a premium on food safety, a technological tool is providing the answer.
Kiwi companies are developing and using cutting-edge technologies to ensure their food products are trusted within a discerning Chinese market where millennials are extensively researching brands before making purchases.
China has been beset by multiple food scandals in the past. But today's middle class Chinese consumers are increasingly putting a premium on the safety and provenance of food, traceability and premium brands.
New Zealand companies are at the forefront in tackling these challenges.
In April 2017, Alibaba and PwC signed a memorandum of understanding with Fonterra, Blackmores, NZ Post and Australia Post to create a global traceability framework for food and brand protection to give consumers further confidence when purchasing food products online.
AsureQuality and PwC had earlier inked a deal with COFCO, China's largest agricultural and food products supplier, to embed best practice in food safety and quality across the Chinese food and agriculture industries.
Fonterra's Tim Kirk says the memorandum of understanding looks at various technologies, of which blockchain is one.
"We're in the final stages of pulling that together," says Kirk, who is GM — Food Safety, Quality and Regulatory at the dairy co-operative. "The outcome is commercially sensitive across the partners. Once the body of work is concluded, the next stage is for Alibaba to explore the commercial feasibility of the solutions.
"There then needs to be the piloting of one or any of the solutions and an implementation plan around the chosen solution, which partners will move forward."
Kirk confirmed the core foundation group might be extended to more partner groups.
"It's about commercial feasibility, implementation planning and moving forward with the partners."
He stressed blockchain is an emerging technology with the potential to transform New Zealand's digital economy. "It's centred around trust, and authenticating data. There are a number of providers for blockchain technologies — it's somewhat of an endless list. "There is a lot of global interest around blockchain. We're all assessing the technology, running pilots, seeing what the capability of blockchain can and cannot deliver; what are its limitations, what are its constraints, how easy is it to adopt, and ultimately, how does it improve our experience and our consumers' experience, and how does it deliver trust.
Trust is extremely hard to build, but very easy to lose.
"Personally, I think there needs to be some sort of global standard, or at least a global agreement, over how blockchain needs to be formatted and what its construct is. I think until we get to that point it is going to be hard to implement blockchain solutions at a global commercial scale."
Blockchain may well be in its infancy, as Kirk points out, but it is fast developing as a technology in this area.
China's second largest ecommerce player, JD.com, has made several announcements on food quality and safety using blockchains.
Last December, the Blockchain Food Safety Alliance was established between JD.com Walmart, IBM and Tsinghua University to enhance food tracking, traceability and safety in China.
In February, JD.com announced a new accelerator focused on blockchain startups to develop technologies for supply chains.
And in March, an InterAgri Partnership was formed to ramp up Australian exports into China of Pure Black Natural Angus Beef, leveraging the Blockchain Food Safety Alliance.
"For Chinese consumers, one of the most important things they are buying when they purchase Australian and New Zealand products, is an assurance they can have confidence in the products," says Josh Gartner, Vice President of International Corporate Affairs at JD.com.
"For Australian and New Zealand products that is particularly important, because if they're not 100 per cent sure that they're getting the quality that they're paying for, then what's the point of buying those products?"
Gartner says JD.com is looking at multiple tracks and multiple uses for blockchain.
"You've seen the partnership we have with IBM and Walmart and that's focused very much on food quality and is a much more mature technology.
"We're also looking at helping smaller companies get into the blockchain game. I think there are a lot of potential uses for it and that's what the accelerator is about.
"So far, we've looked at fresh products with blockchain, but I think we want to look at every type of product. Obviously, there have been safety scandals in China — where their products are coming from, whether that's beef or even something like toothpaste."
Gartner says the company has partnerships with New Zealand firms and the agricultural sector. "In terms of the supply chain going into China, we're definitely keen and very eager to expand co-operation in the blockchain area, which I think will give consumers the confidence in those products and boost demand.
"Blockchain technologies for food traceability can really make a huge difference for New Zealand and Australian farmers."
At Milk New Zealand — which now has substantial investment from Alibaba and its founder Jack Ma's venture fund — managing director Terry Lee points out that China's supply chains have become much more efficient, with less wastage. Middle-class consumers have more purchasing power and there is an emphasis on fresh products.
"Previously, New Zealand fresh products like fresh milk and fresh yoghurt were too expensive for the Chinese market. But the middle-class can now afford these products because incomes have come up over the past two years," says Lee.
The company now delivers fresh milk in 72 hours from the paddock in New Zealand to the supermarket shelf in China. The fresh milk has a shelf life in China of 10 days.
About 6000 to 10,000 litres per week of fresh milk are being exported,
Milk New Zealand also exports nutritional milk power and UHT milk to China.
Three kiosks in New Zealand supply Milk New Zealand Fresh Milk to the local market at a retail price of $2.40 per 1l bottle. But a 1l bottle of the fresh milk retails in China for 79 yuan ($17.29).
"In New Zealand we are a big dairy country and our dairy products are commodities," observes Lee. "The Chinese consumer can now pay for consumer dairy products, but we are not ready for that. Processing facilities are designed for the local consumer market, but not for export in terms of the packaging, the research and development, and the capacity."
Lee reckons the Chinese market offers very good opportunities for New Zealand dairy processing companies to make premium products with good margins. Companies like Alibaba — which is the largest online channel with about 70 per cent of the Chinese e-commerce market — have also invested heavily in the supply chain and efficiency has improved dramatically, with low wastage and improved customer experience.
Milk New Zealand is also developing a trust system through its relationship with China Certification and Inspection Group (CCIC) laboratories in New Zealand. (CCIC is the Chinese regulatory quality testing agency).
Theland Farm Fresh Milk is the first fresh milk product to be exported to China without bureaucratic problems because of the new working methods and an established trust system using QR Code technology and the CCIC testing laboratory
Alibaba also has an offline channel (through majority shareholding investments in supermarket chains) which will sell the New Zealand product. "This model will attract a lot of suppliers like Milk New Zealand to bring more and better products into the supply chain," says Lee.
"Another benefit from the new retail is to get recommendations from suppliers to say this is the right product for the family, this is the best package for you. For us, this is accurate brand, product and sales promotions."
Milk New Zealand is the first customer of AsureQuality to adopt their QR code system to trace the provenance of Theland Farm Fresh Milk products exported to China.
Lee says Milk New Zealand has not adopted blockchain technologies for food traceability. It is waiting for Fonterra and Alibaba to trial the technology.
The use of traceability and blockchain is not confined to the dairy industry. JD.com's Gartner highlights two additional factors: "Because of our business model, there we do a lot of direct sales; when we work directly with suppliers and brands, we have big flexibility in that supply chain and it is easier for us to implement some of these technologies and make sure we have visibility all the way to the farms.
"We've mainly talked about agricultural products. I think there a wide range of other products that this applicable to like every day consumer goods like New Zealand wines because there's been an issue of counterfeit wines in the market. It's just something people don't generally think of first."
Creating a new ecosystem
Kiwi blockchain company Centrality has announced a major deal with Wanda Internet Technology Group to create an ecosystem connecting consumers, retailers and other aspects. The first phase of the co-operation is mainly technical integration of the public-private technology PL^G of Centrality into the Wanda Group.
"Wanda have an interesting business; a lot of people don't know necessarily who they are.
But they own Legendary Pictures and have an involvement with the New Zealand film industry through Hoyts," says Aaron McDonald, CEO and co-founder of Centrality.
Wanda has been active in blockchain development and joined the Linux Foundations Hyperledger project in 2016.
McDonald says the strategic alliance is a natural fit for Wanda because of Centrality's focus on mass-market consumer experiences.
"They've got all these different retail channels and all these different experiences — 350 million consumers touch their products on a regular basis," says McDonald.
"There's 100 5-star hotels. They serve food. That food comes from somewhere. People who eat there want to know where that food comes from, so that's an obvious case. You have 300 malls selling products, same type of thing."
Centrality has quite a big Chinese team. "Probably 25 per cent of our developers are New Zealanders with Chinese parents or have recently emigrated to New Zealand. So we've got a good internal Chinese community and they have relationships in China and in the case of Wanda," says McDonald.
Wanda Internet Technology is a tech spin-off from giant Chinese Conglomerate Dalian Wanda Group, which was ranked 380th on the Fortune Global 500 list in 2017 with revenue of US$28.45 billion and assets of US $152.7b.
Centrality is a blockchain venture studio partnering with industry to create a marketplace of blockchain applications. The venture now employs 75 staff in Auckland and is the first blockchain company Callaghan Innovation has got behind through an R&D Growth Grant worth 20 per cent of eligible R&D expenditure, capped at $5m per annum.
So far, the start-up has raised US$160m through three token sales in the past six months (despite the cryptocurrency markets being down since December).
"This is the cool thing about it," says McDonald. "We're a little Kiwi company exporting to one of the biggest businesses in that market at a relatively early stage in our development."
TECHNOLOGIES PROTECTING SUPPLY CHAINS
Producers and manufacturers provide tamper-evident packaging on products for consumers to visibly detect product tampering. Overt and covert technologies are used to protect brands from counterfeiting;
QR codes on packaging provide links to websites for product traceability. This can include full electronic traceability from raw source on-farm through every stage of manufacturing and the ingredients in each product.
QR codes on packaging linking to blockchain ledgers for entire supply chain traceability and audibility. Today these are mostly private blockchains; in the future, public and hybrid blockchains are expected to integrate the global supply chain. QR codes inside food linking to websites that validate the authenticity of the food or ingredients using biosensors. Virtual reality environments enabling consumers to interact from farm to manufacturer for consumer visibility and building trust and loyalty.
What is Blockchain
Blockchains are chains of information blocks cryptographically linked to create a permanent ledger. Blockchains are distributed across multiple computers using consensus mechanisms so the ledgers cannot be modified.