Blockchain Adoption for Traceability in Food Supply Chain Networks
Posted: 21 Nov 2019
Date Written: November 11, 2019
Innovative retailers in food supply chains have been exploring the use of blockchain as a part of ongoing effort of reducing continuing contamination risks and food waste. We investigate how the adoption of blockchain technology can affect incentives of supply chain members and whether and how its anticipated benefits may be realized. We study a three-tier supply chain with multiple lower-tier (tier-2) suppliers and characterize the equilibrium contractual arrangement and corresponding tier-2's risk mitigation effort for both the cases with and without blockchain. We first find that traceability enabled by blockchain may not always be beneficial to all supply chain members and may also decrease lower-tier suppliers’ incentive to invest in contamination risk-reduction effort. As a cautionary tale, it is possible that the retailer, usually the main advocate of the blockchain technology in food supply chains, could be worse-off after achieving perfect traceability via blockchain. Moreover, the supply chain network structure and the supply chain member interaction also influence the effect of blockchain-enabled traceability. Blockchain adoption is always beneficial for the retailer and the suppliers in both tiers when the number of tier-2 suppliers is large enough. When there are multiple tier-1 suppliers who share all tier-2 suppliers and compete in a Bertrand manner, blockchain adoption always benefits the retailer and the tier-2 suppliers, while leaving zero profit to tier-1. Finally, when the tier-1 supplier can implement imperfect inspection that provides partial traceability, the retailer may favor the inspection-driven partial traceability than the blockchain-driven full traceability.
Keywords: blockchain, traceability, multitier food supply chain, food contamination, cascade effect, double marginalization
Suggested Citation: Suggested Citation