A successful experiment by the University of Cambridge Institute for Sustainability Leadership (CISL), bringing together Sainsbury's, BNP Paribas, Unilever, Barclays, Standard Chartered and Rabobank, has shown how a new model of blockchain and other data sharing technologies can enhance the sustainability of global supply chains without increasing production costs.
Trado: New technologies to fund fairer, more transparent supply chains shows how shared data from smallholders can increase supply chain transparency and lead to earlier, pre-shipment financing with the potential for long-term benefits for suppliers, with net zero impact on production costs.
The Trado model was piloted with smallholder tea farmers in Malawi who were offered a financial incentive in return for feeding social or ecological data into the blockchain. An innovative blockchain structure, enabling traceability, has been developed into a blueprint for replication, development and experimentation in other contexts. The Trado model could potentially pay for some of the investment needed to establish traceability across supply chains, although further investigation is needed to scope the model’s ability to do this while benefitting smallholders.
Thomas Verhagen, Senior Programme Manager, CISL, said:
“This is a significant step towards the further development and understanding of how technology-driven innovation can support delivery of the UN Sustainable Development Goals.
“Collaboration between multi-nationals, financial institutions and fintech firms can harness new ways to ensure financial flows support fair and just policies and practices ready for a new financial system. The Trado model has potential for replication across a wide range of topics and we hope the blueprint will encourage others to deliver its potential for social and environmental improvement.”
It is estimated there are around 500 million smallholder farmers producing 80 per cent of the food consumed in developing countries, with the majority likely to be found in Least Developed Countries where the cost of borrowing is high. Many large companies recognise the importance of these producers to their supply chains.
The Trado model enables a sustainability ‘data-for-benefits’ swap between a buyer and a seller in the supply chain using banks’ traditional supply chain financing. This swap provides parties in the supply chain with reliable data about its sustainability properties, helping to reward first mile producers such as smallholder farmers for information on their production practices.
The Trado model could allow for access to data by many parties in a supply chain or across many supply chains, and the data could relate to any number of topics, for example deforestation, land management, biodiversity, socio-economic development, or verified distribution of Trado-generated benefits.
In exchange for the data, the buyer enables the provision of benefits by allowing a (lower) financing rate to be applied to working capital financing of the supplier. This can make a difference since suppliers often borrow money to cover their working capital needs at a higher cost than that of the buyer. The transaction takes place using a bank’s regular supply chain financing process. The Trado model acts as an add-on, causing minimal disturbance to the bank’s business.
Jacques Levet, EMEA Head of Transaction Banking, BNP Paribas, said:
“BNP Paribas is extremely proud to have collaborated on this project from its onset and conducted the pilot together with Unilever and the University of Cambridge. We are fully committed to supporting initiatives that promote sustainability: this is of strategic importance to our clients and for BNP Paribas.
“This initiative is testament to the fact that true collaboration between all stakeholders in a supply chain ecosystem, helped by the development of new technologies, can lead to more transparency and ultimately foster sustainable production. We trust and hope that this experience can be replicated in many other supply chain ecosystems and therefore contribute to meeting the UN Sustainable Development Goals.”
For banking, the new technology has potential to offer better data, and therefore better oversight of transactions. A future application might be to enable compliance with domestic regulations such as the Climate Change Act, Modern Slavery Act and Bribery Act in the UK. Improved access to sustainability data could also help to attract clients wishing to demonstrate social and environmental leadership.
Michiel Teunissen, Head Innovation TCF, Rabobank, said:
"Trado shows how to translate traceability and sustainability data into real impact at smallholder level, motivating them to produce more sustainably. In our view that is the key to make supply chains more sustainable in a scalable way.
“Open innovation has proven once more to be a successful formula for innovating effectively. Technical expertise and agility is brought by the start-ups and large institutions provide market expertise and network."
Michael Vrontamitis, Head of Trade, Europe and Americas, Standard Chartered, said:
“Not enough has been done to embrace the necessity of responsible supply chains. By working closely with both established and emerging companies, Trado has been a milestone for companies in delivering increased transparency for customers, shareholders and other stakeholders to meet the UN Sustainable Development Goals through their supply chains. This is part of our core principles at Standard Chartered and should be a moral imperative for all.”
Judith Batchelar, Director of Sainsbury’s Brand, said:
“We know our customers want to know how and where the products they buy are sourced. We also want them to be confident that producers are paid a fair price and be confident that what they’re buying has been sourced ethically and sustainably. We believe blockchain and other technologies have real potential for those industries that have global, complex and fragmented value chains where absolute transparency has been traditionally difficult to achieve. The results from this pilot really showcase just how the technology can be applied, clearly illustrating who and how multiple stakeholders can benefit.”
Erwin Vroom, Procurement Operations Tea, Unilever said:
“Access to affordable working capital is a key problem for smallholder farmers. Making more affordable working capital available to smallholders will enable them to increase investments in their farms to enhance their productivity. This is a critical step to building transparent sustainable supply chains.”
Tea is Malawi’s second biggest export and the sector provides livelihoods for more than 18,000 smallholder farmers. While efforts are being made to raise the national standard of living, with a living wage benchmark set in 2014, the World Bank states that the country’s national poverty rate increased slightly from 50.7 per cent in 2010 to 51.5 per cent in 2016. The UK’s Department for International Development (DFID) provided financing for this project.
Daisy Kambalame, Country Co-ordinator Malawi for IDH, The Sustainable Trade Initiative, said:
"Through technology we can generate savings that can be further invested into improvement of tea production systems. What this means to IDH is that resources generated will be invested to enhance livelihoods and improve tea quality from Malawi and can provide solutions for low income countries.”
The innovative technology for the project is used by a collective of start-ups including blockchain-based supply chain services firms Halotrade and Provenance. Consortium member Meridia provided on-the-ground data collection services in Malawi.
Jessi Baker, Founder and CEO, Provenance, said:
“The Trado model can help businesses pay farmers more without impacting consumer prices. A brilliant proof of what can happen when a group of like-minded businesses and innovative start-ups come together, convened by a practical academic partner like the University of Cambridge, to create solutions to global problems. Our ultimate goal is for positive impact to be ‘business as usual’ which is why we created an open blueprint. We’re excited to help more businesses adopt the model and prove the impact they are having to shoppers that want to buy from purposeful brands.”
Shona Tatchell, CEO and Founder, Halotrade, said:
“Through Halotrade’s system we were able to generate financial savings in real terms. These were returned to smallholder farmers to improve their livelihoods and help them to be more sustainable, with no extra cost to the end consumer. The fact that the origin producers received the benefit was incredibly well received by consumers. The project shows how to realise new and more responsible forms of finance from which the entire supply chain can benefit. We’re excited for the next step.”
Kurt Kim, VP Supply Chain and Procurement, Sappi Europe, said:
“In a world with increasing concern about the environmental impact of non-recyclable and non-biodegradable packaging, paper products are a great alternative. To deliver sustainable paper packaging solutions, it is of utmost importance to ensure that the wood supply originates from sustainably managed forests. This requires forest certification and a high level of transparency and incorruptible tracking systems in order to give consumers the confidence they require to make their purchasing decisions.
“Project Trado has offered a great opportunity to explore whether the use of Blockchain technology could add value to forest certification systems by offering a new and real-time way to trace our wood from the forest. Looking forward we will now assess possibilities for scaling up the solution together with other stakeholders including certification systems and industry partners.”
The Trado project was led and convened by the University of Cambridge Institute for Sustainability Leadership (CISL). Members of the consortium include: Barclays, BNP Paribas, CISL, the UK Government’s Department for International Development (DFID), Halotrade, IDH the Sustainable Trade Initiative, Meridia, Provenance, Rabobank, Sainsbury’s, Sappi, Standard Chartered and Unilever.