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Blockchain-based Halal Food Supply Chain: A Potential for Mutual Symbiosis with Islamic Finance

| 15/01/2020

By Nida Khan, Doctoral Researcher on Blockchain and Data Analytics

The halal food market is witnessing a growth globally with western countries embarking on offering halal food items to target the ever-growing population of Muslims, which is around 2 billion presently with Islam as the second largest growing religion in the world. The halal food market will exhibit a CAGR of 12.7% in terms of revenue from 2019 – 2027 as per forecasts. The international relocation of Muslims to countries other than their home country and the recent refugee migration to western countries has increased the demand for halal food products, which is expected to witness a steady growth on account of the increase in the global Muslim population. The global halal market is expected to be worth $1630 million by 2024 and the imminent growth of this global industry has catapulted it into limelight, bringing forth the drawbacks that can impede it’s growth.

Islamic Finance and Halal Food Supply Chain

The halal industry incorporates companies and businesses that are in need of financing and these financing needs can be met through Shariah-compliant financing. Halal food supply chain is an integral component of the halal industry. Companies in the halal industry, whose core competencies revolve around offering a halal product need not be deemed as Shariah-compliant by Shariah screening bodies and hence investment into these companies would not be permissible.

The halal industry would benefit by incorporating a Shariah screening body to regulate its processes and oversee that there is no conventional financing in the company’s financial books, to be eligible for investment by Islamic investors. Islamic finance and the halal industry are complementary as they both share a common requirement of Shariah adherence and a symbiotic relationship exists between the two that needs to be exploited to advance the global Islamic economy.

The financing needs of companies in the halal food supply chain can be in terms of working capital, liquidity management and trade finance amongst others. All these needs can be met through Shariah-compliant funding and Islamic finance can benefit by these companies being enlisted on the ethical indices series as potential alternative investment assets. The incorporation of blockchain in the supply chain of halal food products, highlighted in this article, can serve as a bridge to forge the symbiotic relationship between Islamic finance and the halal food industry by the information and procedural transparency that it provides at each stage of the supply chain, a vital component of the Shariah screening process to ensure that the product offered is truly halal.

Blockchain-based Halal Food Supply Chain

Research by Zulfakar et al. deriving inspiration from earlier research attempts has identified five parts, that contribute to developing a conceptual framework for a halal supply chain, robust enough to withstand the present competitive environment. This article will attempt to consolidate the different parts, enlisted by them, to incorporate the use of blockchain establishing its need and significance in the domain:

1. Halal Food Supply Chain Integrity

This is the core component of the halal supply chain that will ensure the trust consumers place on the product and future continued revenue generation. The following enumerated points from 2 to 5 comprise to provide halal food supply chain integrity.

It is vital to ascertain and verify for the consumers that the halal integrity of the product has not been compromised at any stage of the supply chain by virtue of cross-contamination particularly during warehousing and storage, transportation and terminal interchange. The argument is that quality assurance is certified within a certain organization in the supply chain but as the movement of the goods progresses along the supply chain, the quality of the product varies with the next party handling the product, so a uniform quality of the product cannot be guaranteed and verified.

Consolidation of the different intermediaries along the supply chain to work as a single unit is essential to preserve the integrity of the halal product. Electronic seals can help in this process and when attached to the packaged halal product can help in tracking and monitoring the product as it moves through the supply chain. The use of smart thermometers would be also helpful to monitor that the temperatures along the supply chain have been within a certain prescribed threshold.

In order to generate trust in these initiatives, blockchain can be used to record the movement of the halal product with information like origin, destination, surrounding temperature, location, electronic seal ID, and the like, at key points in the supply chain. The immutability of the recorded information in the blockchain will reveal any manipulation and fraud along the way and if it is ensured that the warehouses, storage and transportation containers of the halal products is separate from the non-halal ones then unique location/container IDs can clearly demarcate that a cross-contamination has not taken place.

Real-time updates on the blockchain related to the movement of any product along the way can also make the different stakeholders in the supply chain work like a logical unit.

2. Traceability

This deals with the ability to track and trace a halal product from its origin to the ultimate destination. The conventional methodology is incapable of providing this feature to halal products and consumers have to rely on the information provided by the seller, who in turn relies on the information provided by an entire linear cycle of third parties, originating with the manufacturer.

Blockchain by virtue of it’s inherent characteristics provides traceability. Halal supply chain coupled with blockchain and IoT, as in the case of electronic seals, can work together to ensure the traceability of goods from the origin to the destination, minimizing the trust invested in the interim third parties in the supply chain to authenticate the viability and halal integrity of a product.

3. Assets specificity

This implies any durable investments of physical or human assets that are to support the successful execution of a transaction. In the context of halal supply chain, asset specificity stresses upon suitable storage, transportation and handling equipment. Separation of the halal and non-halal products is desired by the consumers and is necessary to prevent cross contamination.

The majority of halal food exporters are non-Muslim countries like Brazil, India, United States and China being in the top ten. Logistic service providers do not segregate the halal products from the non-halal ones in order to minimize the operating expenses. Therefore, this has led to a lack of trust in the consumers with residents of many European countries like Netherlands and Belgium, opting for local slaughter houses.

In order to increase the adoption and market usability, demarcation of the infrastructure handling halal products, is needed. Middle East and South East Asian countries have embarked on providing a dedicated infrastructure for handling, storage and transportation of halal products and the same should be followed by the other countries to capitalize on this growing market segment.

The majority of Muslim consumers would prefer to not eat non-halal food and opt for vegetarian options rather than choosing doubtful halal products, where integrity is questionable. Blockchain can aid in making this segregation transparent to the consumers by recording the fleet container IDs and locations at critical points in the supply chain to ensure that they don’t resonate the non-halal products.

A consumer should be provided with information on containers originating from a particular source with IDs differentiating the halal and non-halal ones if there is no demarcation in the warehouses and storage locations. Route information on both the kinds of containers, with halal and non-halal food products, should also be made available so a consumer can check if needed, that the containers with halal products follow a different route perhaps.

4. Quality Assurance

Halal certification is a benchmark that can make consumers trust that the halal product is truly halal. However there are different standardizing bodies and the different geographical regions in the supply chain exposes the halal food products to different rulings. Therefore, it is imperative and logical that the standard body at the consumer level should be satisfied and similarly the halal certifying body at the origin of the product should verify the nature of the product. Once a product is certified at the origin, blockchain can be used to follow its trail with the help of IoT. Thereafter at the destination another halal certifying body should consolidate all the available information on a product from the blockchain to give its approval. The halal certifying body at the origin and destination can be one unit or separate entities but their working together is crucial to ensure the authenticity and genuineness of the halal product.

5. Trust and Commitment

Trust implies reliance on a trading partner in the supply chain industry to provide products of the expected quality. Trust is built upon transparency in sharing vital information. Blockchain can help to build this trust among the partners in the supply chain industry through recording of goods related information at the critical points in the supply chain. Commitment indicates the willingness of a partner to exert effort by means of investment of resources towards the business relationship.

A blockchain-based supply chain would require less trust and resource investment but nevertheless being a nascent technology, all the partners would need to be educated to cooperate in order to garner on the benefits of a blockchain-based supply chain. Investment in terms of education, technological infrastructure and mass education of the intermediaries would be needed to bring about the success of the project. Once in place, the future success and ROI of such an initiative can be predicted to be more than the conventional ones, in consideration of the minimization of costs due to automation.

Figure 1: A Simplified Representation of a Blockchain-based Halal Food Supply Chain

Figure 1 represents a simplified blockchain-based halal food supply chain. The halal food item is certified at the origin by a halal certification body. The relevant information is entered into a block of the blockchain. As the food item moves along the supply chain, at critical points, which may be a storage location, a warehouse or an intermediary party, updated information relating to the food item is entered into a block of the blockchain. The procedure is repeated till it reaches the destination.

At the destination a second halal certification body verifies all the information about the concerned food item from the blockchain and gives its approval by a second halal stamp on the food item. The consumer can verify all the information related to the product from the blockchain at any point.

Conclusion

An enumeration of the benefits of a blockchain-based supply chain, while adhering to a conceptual framework to realize the end goal of providing halal supply chain integrity, brings about the significance of the technology to the halal food market. In a nutshell blockchain will ensure transparency, real-time information on any product, fraud circumvention, manipulation resistance, reduction of operational costs, auditability, enhancement of product quality, safety for health in consumption and a more structured halal certification process.

The blockchain-based infrastructure can go on to build more tangible relationships between globally distributed trading partners by a transparent networking base. An added advantage of using blockchain would be to have reliable data at all levels of the supply chain, which can be exposed to machine learning techniques to get insights on product demand, product usage, product fungibility with AI being used to predict future trends to ensure a ready supply of goods in demand.

A very good starting point would be to have a consortium blockchain with all trading partners having dedicated nodes to validate the recording of information at critical points in the supply chain in their domain. Blockchain can play a pivotal role in consolidating the two emergent sectors, namely Islamic finance and the halal industry, to further Islamic economy in the global market and is an area that should be delved upon further.

For the original article please go to:

https://www.linkedin.com/pulse/blockchain-based-halal-food-supply-chain-potential-mutual-nida-khan/?trackingId=XwV5R9UUV3UAFuzCfC2jUg%3D%3D

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Category: Asia, Blockchain, Digital Economy, Europe, Halal Integrity, Middle East & Africa, Research

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