Can Blockchain Make Chocolate Fairer? | International

Rosalindo Guerrero has been clearing the ground all morning with a machete and planting seeds under the hot tropical sun. His farm is located in Ecuador’s Cordillera del Condor, in the transition zone between the Andes and the Amazon. The work is exhausting, which is why most of his children decided to migrate to the city, or found work with the mining companies that recently arrived in the area. Only his two youngest are still at home.

The smallholder family survives on a traditional mix of companion crops they grow, mostly for self-sufficiency, on their eight hectares of land. The rest, mainly bananas and cocoa, is marketed through the Ecuadorian agricultural cooperative Apeosae. But market prices are low, and Guerrero has had problems with mold and fungus. This is why he decided to start growing more cocoa. “And then this project, the blockchain, came and I was convinced,” says the 55-year-old farmer, wiping a few drops of sweat from his forehead with a ragged old towel.

More than 6,000 miles away, in Amsterdam, Guido van Staveren hopes to end the injustices of the international market for agricultural goods. “We need to rethink the 21st century economy,” proclaims the founder of the Dutch foundation Fairchain. With products such as coffee, bananas and cocoa, large trading companies tend to dictate prices, driving many producers to ruin and forcing them to resort to unsustainable monoculture or practices such as child and slave labour. Van Staveren believes the time has come to change that for good. For this reason, he teamed up with the United Nations Development Program (UNDP) in 2019 to start a pilot project in Ecuador called #theotherbar. Guerrero signed up to participate.

The idea was simple: use blockchain to make the supply chain more transparent, then test to see if consumers are willing to pay more for products containing this information. The blockchain is a type of digital ledger; it records all transactions for an item, and each step is monitored and validated by all participants in the production and marketing chain.

In the case of chocolate, you can access the supply chain using a QR code. At the end of the chain, the buyer has the opportunity to download an app, scan the code and receive information about the farmers who supplied the raw material. Buyers also have the option to digitally transfer a €0.25 donation to the farmers, on top of the chocolate’s three euro price point per 100 gram bar. These tips then go directly into the Ecuadorian cooperative’s account.

Climbs onto the roof to get a signal

Apeosae’s cocoa collection center, where the beans are fermented and dried, is located on the outskirts of the village of Panguintza in southern Ecuador. Internet reception there is unreliable, especially when it rains. “To send the data to the office, we sometimes have to climb onto the roof,” says 24-year-old Alex Jiménez, who oversees the center’s operations. Jiménez is excited about the project: “If we can bring agriculture and technology together and get better prices, maybe we can keep young people on the farms.”

So far, agriculture has lost the race to mining. The area is full of copper, gold and silver deposits, and Chinese and Swedish-Canadian companies exploit the resources with open-pit mining, while local entrepreneurs search for gold in the river valleys. Deforestation has increased in recent years. For small farmers, this poses two major problems: they can hardly find enough workers for the harvest, and because of the mining, their produce is sometimes contaminated with cadmium and other pollutants and is rejected by buyers. This then triggers a vicious cycle of destruction: discouraged farmers often sell their plots to companies that deforest the land to plant monoculture crops such as bananas, balsa trees or palm oil. Deforestation in turn accelerates climate change, leading to more pests and landslides, destroying the livelihoods of more small farmers.

From Apeosae’s warehouse in Panguintza, the blockchain cocoa, already dried and bagged, is transported to the Hoja Verde chocolate factory in Quito, the country’s capital. There, in the cool highlands of the Andes, they produce two varieties for Fairchain: a dark chocolate and a milk chocolate.

Hoja Verde has produced almost 20,000 bars for the Dutch foundation. Fairchain says that local value creation is an important element in achieving its goal of keeping 50% of its chocolate’s retail value in producing countries. Currently, however, farmers are a long way from the big share, currently keeping only 3% to 7% of the chocolate’s final selling price. From the warehouse in Quito, the finished bars are transported in transport containers to Amsterdam. Fairchain then digitally records receipt of the product, and prints a unique QR code for each individual line.

A boost for the local economy

For Nora Ramón, the cooperative’s manager, the experience has been largely positive: thanks to blockchain marketing, the collective earned an additional 6,000 euros from the increased selling price of the cocoa. “We convinced the UN to buy cacao plants from one of our cooperative members who runs a nursery,” says Ramón. “These types of wood are much better adapted to the humid climate of the Amazon and are less prone to fungal diseases. We promoted local research and the money stays in Panguintza’s local economy.” Ramón adds a caveat to the rosy picture: the software used by Fairchain costs 12,000 euros. “For now, we can’t afford it,” she says.

For Fairchain, the experiment has been a great success. The chocolate sold out within months, and almost half of all buyers activated the QR code, and 90% of them chose to pay an additional tip to the farmers. Consumers under the age of 25 were particularly enthusiastic. But financially, the project would not have been possible without outside support. According to Guido Van Staveren, Fairchain and the United Nations Development Program invested around 400,000 euros in the project – a sum far beyond the reach of a farming cooperative in a developing country.

Fairchain’s local manager, Jorge Suescún, believes blockchain will soon be the global standard. If so, this will mainly be due to new European regulations on social responsibility and transparency in the supply chain. However, major food companies have not yet joined Fairchain, and Suescún is betting that organizations specializing in fair trade and organic products will be the first to do so. “Blockchain has the potential to replace all these labels,” he says. For cooperatives, that idea is attractive, since such certifications are often quite expensive. If a single production block were to contain information from several different certifications, it could reduce the product’s total cost.

Blockchain can collect various information about working conditions and production practices, but it cannot replace inspection visits to ensure compliance with these standards. This is why the German “Fairtrade” label, for example, has not yet been incorporated into the system. “Blockchain is ultimately just a technological tool, not a panacea,” says William Crumpler, a technology expert at the Center for Strategic and International Studies in the US. “It helps protect data, but it cannot guarantee that the data is entered correctly.” In the hands of unscrupulous actors or institutions, Crumpler warns, the blockchain could even be used to legitimize corrupt data at the source—for example, in cases where land has been acquired through forced relocation and with the help of corrupt state agents.

What needs to change more than anything else, says Carla Barboto, co-founder of Ecuadorian chocolate maker Pacarí, is the entire world trade system. “Prices are determined based on the final sale to the consumer, not based on what a producer needs to survive,” she says. Since 2002, Pacarí has ​​worked to reverse that logic with its premium, high-dollar fair trade chocolate. The company has several certifications, and in Europe a 50g bar sells for €3.50 – more than twice as much as #theotherbar. “For now, blockchain will only incur an additional cost to us, without providing any other benefits or additional profits,” says Barboto.