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Chinese retailers jumping on blockchain to safeguard against scandals

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China’s second-biggest e-commerce platform has taken to using blockchain technology to help consumers track the provenance of some of the food available on its site.

JD.com uses the technology to track all aspects of beef produced by Inner Mongolian beef supplier Kerchin from farm to fork, including where each cow has been reared and what were fed.

The process is designed to assuage the fears of consumers in a country dogged by food scandals. Indeed, according to a study by Pew Research Centre last year, the number of Chinese concerned about the safety of the food they eat has increased to 40% in 2016, from 12% in 2008.

This rise came in the wake of the widely publicised melamine infant formula adulteration scandal which saw six babies die and hundreds of thousands sickened. Though now over a decade later, it is still widely talked about in consumer circles.

Blockchain, a form of “ledger” technology best known as the source of cryptocurrency such as bitcoin, can be used in a variety of food-safety recording applications.

Its greatest benefit in food tracking is that the data recorded on blockchains are difficult to be modified and are readily available to consumers.

JD.com has adopted open-source blockchain software and applied it to Kerchin’s recording system in minute detail.

We generated serial numbers for every cow slaughtered at the very beginning of this supply chain, which enabled us to track where any cow was raised—all vital information—and how the resulting beef was handled,” said Yongli Yu, president of supply chain research and development for JD.com.

Kerchin's delivery boxes come printed with a barcode that can be scanned to reveal the beef’s provenance—up to and including tests to detect bacteria, water content and growth promoters.

Though JD.com is still trialling the technology, and is frank about the sheer scale of the task involved to deliver it to other food lines, neighbouring Taiwan is at the forefront of Far East blockchain use among food suppliers.

There, an e-commerce start-up launched earlier this year to connect food vendors with farmers, claiming to be the world’s first blockchain food system of its kind.

OwlTing Market’s founder, Darren Wang, a Google alumnus and founder of several tech startups, returned from Silicon Valley to his native Taiwan to build the platform.

"I am doing this new business to provide fresh milk and healthy foods for my kids," Wang said, adding that he personally selected each of OwlTing’s new vendors.

"We are extremely meticulous when it comes to food. Products with additives, artificial colouring or flavouring cannot be sold on OwlTing.” 

This seemingly cumbersome approach has, however, identified more than 1,500 farmers and merchants in Taiwan alone. The business appears to have captured the imagination of consumers, more than 20% of whom are now recurring subscribers.

An incentive programme that allows users to earn rewards with social recommendations has helped gain a customer retention rate of 70%, with users returning to place orders each fortnight on average. OwlTing has also created a new distribution channel for farmers in Taiwan. 

"Farmers can earn more money by working with us," said Wang, "With increased income and better brand awareness, they can reinvest in their businesses, creating more jobs and better products."  

His technology also includes OwlTing Map, which integrates detailed dairy and fruit product profiles with geophysical info, allowing consumers to have a “god's-eye view" over high-quality producers and place orders on a map. AI chatbots have also been developed to handle customer inquiries via Facebook.  

In the future, the company plans to evolve more solutions for other segments, such as fine ingredients, importers/exporters and logistics service providers. All of these will collaborate to build an open supply chain system that can shed light on each step of the production and distribution processes. 

"Blockchain-based supply-chain network services are getting more attention from internet and financial technology investors around the world," said Thomas Hu, founder and chief executive of Kyber Capital, and a strategic investor in OwlTing.  

With JD.com, alongside the likes of Alibaba and Walmart, all investing heavily in blockchain in China, Taiwan's heavyweight neighbour is catching up fast.

Beijing officials will also begin work with the European Union on the EU-China Safe project this autumn to investigate ways to use blockchain and other technologies to further enhance food safety. They will also look at how to streamline the supply chain so that each step communicates with the next in terms of shared data.

Their collective findings have the power to transform the shape of food safety in China—at least in terms of online tracking.

 

More from China…

Richer Chinese making dent in established organic markets

Chinese demand has been fuelling growth in the global organic food market, which is predicted to grow to a value of nearly US$190bn by 2021.

Between 2012 and 2016, the segment increased at an annual rate of 10.9%, and should further accelerate at 13.8% per year over the next four years, according to industry researcher MarketLine.

While America will remain the biggest single market, accounting for roughly a third of sales, Asia-Pacific growth—fuelled by China—is expected to grow much more quickly, cutting into he US's market share.

Although the US currently accounts for over 45% of the global market, its share will fall to 34% by 2021 due to growth in the Asia-Pacific region,” said analyst Christopher Leyman-Nicholls. 

Despite the continued healthy growth of the US market, China’s rapidly expanding consumer society is propelling that of Apac to grow at a much faster pace.”

Demand for organic food is increasing globally as knowledge surrounding its environmental and health benefits improves, he added.

Growth in America is expected to slow because it is the most mature market globally. Those such as China are expected to undergo rapid expansion, reducing the US’s influence on the global market during the forecast period.”

Rising wages, higher standards of living and a burgeoning middle class are allowing more people to afford organic food in China.

The Chinese market has also been helped by greater awareness of malpractice in food production, creating a pull factor towards organic food,” Leyman-Nicholls added.

 

Food delivery apps record fastest growth in China’s online market

Heavy discounting by start-ups backed by internet majors Tencent and Alibaba have made online food delivery the fastest-growing online segment in China.

In the first half of this year, services like Meituan Dianping, the segment leader, delivered orders to nearly 300m Chinese, according to a market snapshot by Beijing internet monitors. 

This surge of 42% since January is far ahead of other digital markets which have also been thriving in China. These include online payments, which grew by 7.7%, and ride hailing, which saw a 24% increase in business in the first six months of 2017.

Over 92% of food delivery customers used smartphones to place an order, the China Internet Network Information Centre (CINNC) said in its report. 

Though delivery services are not new in, they have been grappling for market share by offering millions of discount codes in a bid to gain greater visibility for funding rounds and acquisitions.

Bloomberg recently reported that Tencent-backed Meituan is in talks for a US$5bn injection. If the funding round is successful, it could become the world's fourth largest startup, according to the business wire. 

Chinese online search giant Baidu, meanwhile, is said to be negotiating the sale of its loss-making Waimai food unit to Alibaba-backed Ele.me. 

With 28m monthly active users, Ele.me is in a battle for supremacy with Meituan. 

As the industry matures and profitability remains low, it became an obvious choice for the platforms to explore other related businesses," the CNNIC said. 

There were 751m internet users in mainland China as of June, almost 20m more than at the end of 2016, according to the report.

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