The production of palm oil has risen to unprecedented levels in the past decade to meet its consumption demand. As a result, there is a great deal of public scrutiny into its use, environmental impact, and the sustainability of its supply chain.
The industry’s initiatives to address growing concerns by developing sustainability benchmarks have made some headway. For example, the Roundtable on Sustainable Palm Oil (RSPO)1 works to implement best practices in production and trade, while leading brands have pledged to be committed to 100% RSPO-certified palm oil and oil products. However, despite their best efforts, only 17% of global palm oil production is certified sustainable.2
In reality, the supply chain is still relatively opaque, making it hard for regulatory bodies to ascertain whether a producer is genuinely sustainable and for consumers to know they are buying ethical products. There is no foolproof system to trace back the produce to the plantation, and traceability is still in its infancy – and in many cases almost impossible.
However, there’s good news for producers, regulators, and consumers. Emerging technologies like blockchain could have a transformative impact on the palm oil industry – not only by creating near-perfect transparency in the supply chain but also creating value for its stakeholders, both upstream and downstream.
Blockchain to the rescue
The financial services industry has already embraced blockchain technology to create more transparency in its transactions and reduce leakages. What’s more, there is a precedent for the use of blockchain in building sustainable supply chains. British technology platform Provenance piloted the use of blockchain to bring greater transparency to the controversial tuna fishing industry so that the entire sourcing process – from farm to table – was visible to every stakeholder in the supply chain.
We believe that by 2030, the use of blockchain combined with smartphones, RFID, IoT networks, and mobility applications could create a palm oil trading industry with near-perfect sustainability records. While we may realize this vision earlier, there are real technology adoption challenges in palm oil-producing countries that must be factored in.
What is a blockchain?
Simply put, a blockchain is a tamper-proof, encrypted database that resides with every participating entity – or node – in a value chain. Each of these nodes contains precisely the same transaction records – be it the farmer, producer, transporter or buyer, every transaction in the value chain will exist in every node. Transaction data is encrypted and stored in containers of information called “blocks” which are pushed out across all the nodes. A blockchain can also embed business rules, known as “smart contracts” into the system that apply “if this, then that” logic, making actions free of human arbitration.
Building sustainability on Blockchain
Blockchain finds an astute place in the palm oil supply chain, where it is capable of closing current gaps in transparency. Exhibit 1 shows the concept of how a digital layer can shift the value chain into a sustainable digital supply chain with an audit trail that runs from end to end.