Antonella Vulcano, our director, had published an article talking about blockchain technology to protect the Made in Italy products on the Italian Trade Agency platform “Train2Markets”.

"Digital transformation is generating an essential metamorphosis of entire production sectors. In a highly interconnected context, it is ever more necessary to automate processes and activities and guarantee transmission speed between a variety of actors, allowing for real-time access to data and information.

Agri-food is one of the sectors that are most facing this deep transformation with the increasing use of innovative systems along the entire production chain. The Italian agriculture 4.0 market passed from a turnover of €540 million in the first half of 2020 to €1.3 billion at the end of 2020, and up to €1.6 billion in 2021 (+23%)¹. A surprising growth is mainly due to the introduction of management software, machine monitoring and control systems, but also growing attention to data analysis and decision support systems. The agri-food sector, in fact, can count on a large amount of data generated by the various players in the supply chain, from the field, from farms, and from other sources related to production systems, processes and product components. The sector also uses data to control operations and ensure compliance with product safety regulations. Distribution along with logistics and transport also requires constantly updated data. Finally, the consumer, who is more and more oriented towards informed purchases and is no longer satisfied with knowledge on the origin of raw materials, ingredients and nutritional values, but also asks for information on the different production stages and transformation processes and on the actors involved.

The agri-food sector, populated by large producers and distributors, but also by numerous small and medium-sized enterprises, is going through a strong innovation process leveraging digital technologies to optimize and enhance the supply chains while protecting the consumer, improving the quality and yield of production and guaranteeing the origin and healthiness of the products.

In the new production paradigm, new needs are emerging: from the need to manage verifiable data and guarantee access to information in real-time, to the possibility of using smart contracts, decentralized electronic registers, but also ensuring more transparency of the supply chain, monitoring places of origin of raw materials, sustainability of products and processes, intrinsic characteristics of the product and state of conservation.

In this context, among the technologies that are showing a major ability to offer solutions in line with these needs, there is undoubtedly the blockchain. The term blockchain derives from the union of the words ‘block’ and ‘chain’. It is a decentralized distributed database, structured as a chain of blocks, which records transactions: a shared, public and decentralized register where to insert information in a sequence that, once recorded, cannot be modified or deleted. The sequentiality and immutability of the data entered guarantee the integrity and security of the “notarized” information on the distributed register, preventing any improper intervention by the parties involved in the supply chain.

The blockchain is not a technology that certifies the truthfulness of data or that replaces the traditional certification procedures, but it can support the certification process by demonstrating the existence of the data and its immutability over time, giving certain dates and paternity of the data, thus increasing the levels of guarantee and transparency of the supply chain. The use of the blockchain can therefore be a complementary tool to quality certifications to register and validate the requirements of products, for example, those with the IGP, DOP and DOCG marks.

The blockchain can intervene in combination with other emerging technologies such as the IoT, advanced sensors, Artificial Intelligence, to support the recording and storage of data collected along the supply chain by providing an immutable trace of a product through the integrated use of various devices such as smart sensors and QR codes or RFID systems.

Through the use of blockchain technology, producers can create a sort of "product identity card" providing information regarding the places of origin, provenance, the techniques used in the production, conservation, and distribution processes. This offers a guarantee both to the final consumer and to the producer who, in a transparent way, can declare the composition of the product and certify the good practices or traditional methods behind its creation. In this way, a connection is created between the producer and the consumer and a transparent relationship based on trust is established among them in a digital space that can bring many benefits to companies in terms of new customers and increased satisfaction.

The supply chain, therefore, is becoming progressively more transparent, based on people and trust. And trust is the central element in the use of blockchain technology. Indeed, in 2015 the Economist defined blockchain as 'the trust machine', to emphasize the trustworthy nature of a distributed and decentralized architecture where everyone can verify and no one holds alone the power of control.

But what the blockchain can do in a sector such as the agri-food? And what are the benefits it can bring to companies that sell on foreign markets? We can focus on three main uses:

• the traceability of the supply chain to know the origin of Made in Italy products and the management of the supply chain;
• the real-time product monitoring throughout the supply chain: farmers, processors, logistics, distributors and retailers;
• the certification of origin and authenticity to protect the Italian market and combat the phenomenon of counterfeiting and Italian sounding.

As for traceability, there are many applications involving consortia and clusters throughout the country, as well as large industrial and large-scale retail brands: from the Barilla pesto case that traces in the blockchain every single basil plant to the Gragnano IGP case which traces the origin of the grain, the drying time and temperature, as well as the experience of the “Arancia Rossa di Sicilia IGP consortium” to protect the Sicilian citrus and the first blockchain dedicated to the chicken supply chain launched by Carrefour Italia already in 2018. But there is also room for small and medium-sized enterprises. This is demonstrated by the numerous applications that have been adopted in recent years by various wine cellars and oil-producing companies where, through the use of intelligent labels such as a QR Code, producers can reliably and securely explain the value contained in each bottle of wine or oil by making available documents, certificates, photos and multimedia contents through which the consumer can fully understand the history behind the product, for a more informed purchasing process. A product that through storytelling offers obvious advantages to producers in terms of strengthening their image and reputation with a consequent growth of competitiveness in the local and foreign markets.

Real-time monitoring of each product from farm to fork can also be a very advantageous aspect for those who sell and distribute products, especially where the contents of a shipment can be checked in real-time along the entire route up to delivery, collecting and certifying geo-localized traceability data and recording the parameters relating to temperature, PH, and humidity during the shipping.

Finally, the theme of counterfeiting. At the end of 2020, Coldiretti data showed the value of the fake Made in Italy agri-food reached the global level of over €100 billion with a record increase of 70% over the previous ten years due to the improper use of words, colours, geographical references, images, denominations, evocative brands, and even recipes, to promote and sell products made abroad but offered as Made in Italy products on the international market (Italian Sounding). This phenomenon affects many food chains and mainly those of dairy products (mozzarella, parmesan), truffles and tomatoes, oil and coffee.

In this context, the Made in Italy agri-food sector is facing a major challenge and the innovative solutions based on the blockchain can bring a huge opportunity to maintain and consolidate market shares especially abroad by emphasising the origin and authenticity of the products and combating counterfeiting and price dumping generated by foreign products erroneously identified as Italian.

The use of solutions based on blockchain technology allows to create trust inside and outside the supply chain and to certify the Made in Italy origin of raw materials or products to increase the identity of the company and strengthen its brand. But blockchain is also useful to collect data along the entire supply chain and elaborate on them to achieve benefits beyond the guarantee of food safety by creating greater efficiency in the supply chain, coordination between its actors, and supervision of processes to enhance sustainability. This represents an opportunity for each company in each sector at each stage of the supply chain: production, transformation and distribution. It allows, in fact, to redesign procedures, analyse costs and make processes more efficient, identify wastes along the supply chain and tackle the digital transformation process. In this sense, what has been said so far for the agri-food sector may also apply to other Made in Italy sectors, especially those most exposed on the international markets such as textiles, clothing and fashion, luxury products, jewellery and artistic productions.

Despite the advantages and benefits described so far, however, there is still a lot of scepticism among companies towards the application of blockchain technology, more often associated with the digital currency sector and Fintech, but which instead is becoming pervasive in several industrial, retail and logistics sectors.

A barrier to adoption in small companies is undoubtedly the lack of knowledge on the advantages and benefits generated by the blockchain adoption, but also the concern about the required investments which are not within the reach of small and medium-sized companies. However, there are a lot of solutions available on the market and there are several suppliers offering systems of easy access at low cost. With a limited commitment, for example, companies can digitally collect information relating to a product and enclose it in a QR Code attached to the packaging to transfer information that is easily usable by consumers.

In terms of awareness and knowledge of the technology and what advantages it can offer, it is certainly essential to bring companies closer to the topic and bring concrete demonstrative examples. In this regard, in 2021, the Italian Trade Agency, in collaboration with the European initiative B-HUB FOR EUROPE, played an important role by implementing a dissemination and training initiative within the South Export Plan for small and medium-sized Italian companies to raise awareness of the blockchain technology and its potential through in-depth seminars and coaching activities (“Innovating to Grow - Innovation and Blockchain” courses). This action will also continue in 2022.

Another key lever for adoption is providing business incentives. Also on this side, it should be emphasised the commitment of the Italian Trade Agency with the launch of the "Blockchain Project for Internationalisation" aimed at providing support to Italian SMEs in the agri-food and textile/fashion sectors for the access to digital services based on the blockchain technology. After a phase of selection of the service providers by the end of 2021, the application phase for SMEs to access the support measure is now just launched.

In conclusion, the hope is that, in the current global context characterised by highly digitised production paradigms, small and medium-sized enterprises will be able to grasp the potential of blockchain as enabling technology and blockchain-based innovation can become a strategic lever to gain competitiveness and processes efficiency and valorise the quality of the Italian products”.

[1]Source: Smart Agri-food Observatory - School of Management of Polytechnic of Milan, March 2021

Translated from Train2markets, ICE. Read the original Italian version here: https://train2markets.ice.it/ice/blog/index.php?entryid=22