Traceability 101
Learning to be able to trace goods won't be an elective for much longer. New regulations will require it, pointing to major disruptions in commodity marketing.
Traceability was originally developed to enable recalls to find the source of contamination in a supply chain. It also tracks where items are going, for example to prevent shoplifting.
In agriculture, traceability is the key that will unlock new marketable attributes for farmers, and establish regulatory compliance in supply chains. Given the backlash against calls to reduce fertilizer applications, and looking at what is already required in leading jurisdictions like Europe and California, it is expected that farmers and/or agronomists will face mandatory reporting in the future.
Data gathering and reporting is already financially viable today. In Canada for example, filling out the application to receive funding under the On Farm Climate Action Fund (OFCAF) is relatively straightforward, and payments are available up to $75,000 per farm per year. An approval under this federal funding program validates the emissions-reduction claim at the farm level.
Another way to monetize farm information is direct marketing. Commercial-scale traceability systems for producers to offer low-emission agricultural products to people who want to buy them are rare, but still appearing in new places.
According to the web site, 93 brands are marketing Certified Regenerative Organic products. This is a marketing claim with big gaps still in traceability, but as the numbers grow, there is the potential for the platform to help farmers find buyers of ecosystems services.
Land to Market is further along. So far, their value chains tend to rely on corporations or cooperatives that own dedicated processing capacity to keep non-certified products from being misrepresented under the seal, an investment opportunity that many believe will scale.
And of course, there are carbon and ecosystems markets developing, along with regulations and litigations attempting to control how they quantify outcomes and value the credits. This category of low-emissions farm finance will eventually develop into an asset class.
For bulk grain, part of the traceability solution will be to gather data on farm-level emissions as part of the purchase contract. From there, ownership of the data, assuming it has any value downstream to the consumer, may be transferred to buyers through the sales contract.
Systems Options
Business systems for managing traceability are advancing quickly. From bar codes to QR codes, lot numbering to RFID, technology is ushering in a revolution in visibility back through food supply chains.
There’s a common perception in commodity trading circles that traceability, and the segregation that is needed to monetize it, is expensive. Planet Tracker’s research suggests otherwise.
It may be tempting to dismiss the potential for new technologies to force changes in commodity marketing, since the task of traceability can seem daunting. Perhaps the solution won’t show up as a silver bullet, rather a suite of complementary technologies, as this executive points out about RFID tracking.
RFID, or radio-frequency identification, is now being piloted in the U.S. restaurant chain Chipotle. It’s important to understand that Chipotle is to North American food trends, what Europe and California are to regulations.
Speaking of regulations, this pilot project likely has a lot to do with the new traceability requirements rolling out at the U.S. Food and Drug Administration (FDA). Eventually, the same protocols for traceability are expected to apply to all types of food ingredients including bulk commodity grain.
Summary
In so many sectors of the corporate world, strategic business decisions are made by powerful senior leaders with decades of history managing the status quo. For the most part, these individuals calculate the likelihood of being forced to change before they retire as very low.
There is little urgency facing those who don’t wish to change, and a huge opportunity for those who recognize that it’s the right thing to do. Leading brands like Bimbo are already years into internal examinations of their supply chains for the purpose of introducing traceability - including making it a requirement of their suppliers.
Sustainable Growth, part of a UK business media syndicate, urges companies to “change things now that it’s only voluntary, before your jurisdiction forces you to. Getting ahead of the curve allows a company to experiment, make mistakes, get to know the challenges inside out.”
This week they report that the European Parliament has firmed up its position that “companies will be required to identify, and where necessary prevent, end or mitigate the negative impact of their activities on human rights and the environment. It will be imposed on larger companies first, most likely from 2024, then on organizations of all sizes.”
For more on traceability, check out this report. Interested to learn how to build your traceability model? Paid subscribers can reach out to me directly at hello@prairieroutes.ca.