Regulatory Challenges in the Global Agri-Food Supply Chain

The globalization of food production, distribution, and consumption has— together with trade liberalization, market integration, and technological devel­opment in recent decades—generated considerable benefits.^[225] At the same time, it has posed significant challenges to the industry, as well as to governments and consumers around the world.^[226] Among other issues, food safety, authentic­ity, traceability, and sustainability are of crucial importance and have serious public health, economic, and social ramifications.^[227] Food safety, security, and sustainability are further intertwined in today’s multi-level and multi-layered food systems that interact with global environmental change, labor issues, trans­national regulatory landscape, scientific development, and other cross-sector interconnectivities.^[228] This section provides a quick overview of these issues from a global governance perspective, which will hopefully serve as a premise

Blockchainizing Food Law 79 for subsequent discussions on whether and to what extent disruptive technolo­gies, such as blockchain, can help to address these regulatory challenges.^[229]

A.

Food safety issues have become globalized, crossing state borders to pose gov­ernance challenges to economic development and public health, according to the World Health Organization (WHO).^[230] There are more than 3.2 billion cases of foodborne diseases in children above five years of age reported annu­ally in Southeast Asia and 5 billion reported cases worldwide.^[231] Because food products can be made in one place with raw materials from multiple regions, processed in another continent, exported into the global supply chain, and delivered to the shelf or the dinner table in distant locations, food safety inci­dents that occur in a specific node along the supply chain can pose substantial risks globally.

In the United States, for example, documented food safety incidents result in more than 48 million illnesses, 128,000 hospitalizations, and 3,000 deaths annually (based on statistics rather than actual reports).^[232] In addition, the Food and Drug Administration (FDA) in the United States has been criticized for its failure to combat “food fraud” in various products such as seafood, fruit juice, and olive oil.^[233] To be sure, not all forms of food fraud may directly affect food safety. While some types of economically motivated adulteration (EMA), such as padding, diluting, or substituting certain ingredients of food products, may not threaten food safety, other types of food fraud usually pose serious health risks to consumers.^[234] Internationally, cross-border food safety crises are no less problematic: Chinese dumplings tainted with harmful pesticides made

700 people sick in Japan in 2008,^[235] bovine spongiform encephalopathy (BSE, commonly known as “mad cow disease”) resulted in 180,000 cattle cases in 20 countries and affected human consumption worldwide,^[236] and melamine-laced dairy products from China led to over 50,000 cases of infant hospitalization and affected 46 countries.

Coupled with the increase in food trade, the continuing consolidation of agricultural and food companies into large transnational food corporations and the remarkable growth of these resulting companies are essential driving forces behind the sweeping changes in the global food system.^[237] With the force of international food trade that ties together companies with different sizes and capabilities in jurisdictions with diverse degrees of oversight, the likelihood, scale, and severity of outbreaks of foodborne diseases and con­tamination from unsafe foods all have increased exponentially.^[238] Food science advances and the modernization of various production methods have also contributed to the ever-growing complexity of the agri-food market global- ly.^[239] Considering the rapid scientific and technological developments in the agri-food sector, eminent scholars have also argued that the establishment of the government’s national food strategy “should have the ability to respond to changes in science and technology, as well as new and unexpected chal­lenges that emerge.”^[240] As a result, information asymmetry abounds along the prolonged supply chain,^[241] from farm to fork, further leading to market failures (e.g.

In addition to food safety, a related problem concerns the authenticity of food products—food fraud or economic adulteration. As rightly pointed out

Blockchainizing Food Law 81 by the European Union’s DG SANTE in its most recent 2018 annual report on the EU Food Fraud Network:^[243]

The complex nature of our globalized food supply chains and the eco­nomic motivation to provide cheaper food products have contributed to the prevalence of food fraud. The cost for the global food industry has been estimated at around EUR 30 billion every year, thereby hindering the proper functioning of the internal market. Fraudulent practices in the food sector may also lead to public health risks.^[244]

Indeed, food fraud is usually economically driven and emerges when there is a significant price gap between the authentic and substitution products, which incentivizes suppliers to corrupt and adulterate.^[245] The increasing globalization and complexity of the agri-food supply chain practically reduces transparency and widens information asymmetry in the marketplace, reducing the risk of being caught, preventing consumers from ascertaining product differentials, and so exacerbating the economic drivers for food fraud.^[246] Notable examples include the melamine-tainted infant formula scandal in China in 2008, prob­lems with horsemeat in beef products across Europe in 2013, and the sale of adulterated olive oil in Taiwan in 2013. Given the strong economic incentives for fraud and the weak capability of ensuring transparency (for authenticity verification) in the market, it is unsurprising that even in the European Union, one of the most developed jurisdictions, the number of reported food fraud cases jumped to 234 in 2018, marking a 31% increase compared to reported cases in 2017.^[247]

Rampant food fraud—be it dilution, substitution, or mislabeling—can result in economic loss, public distrust, and public health risks, which further weaken the government as well as the industry’s credibility and accountability as an effective gatekeeper of food safety and fair trade.

Association) does not seem to be properly addressed under the law, and the FDA has not devoted adequate resources to alleviate the issue.^[248]

At the global level, it becomes more challenging to detect food fraud along the complex and extended supply chain in which a huge number of suppli­ers, processors, distributors, importers, and retailers are involved. The sheer number of actors taking part in the global supply chain without rigorous cross­border law enforcement means that some can easily remain anonymous or are simply invisible.^[249] Commercial practices mean that food products and com­modities are often reprocessed, reloaded, and repackaged in different jurisdic­tions by different factories, increasing the information asymmetry gap and, consequently, the incentives for fraud.^[250] Due to the problems of information asymmetry along the global food supply chain, importers and local marketers (except for those that enjoy market power and technical expertise to require third-party auditing and certification) have limited choices other than to rely on the regulatory systems of origin countries.^[251]

B. Traceability and Transparency

Traceability generally refers to the “ability to identify and trace the history, distribution, location and application of products, parts, and materials, to ensure the reliability of sustainability claims, in the areas of human rights, labor (including health and safety), the environment and anti-corruption,” per the definition provided by the United Nations Global Compact.^[252] To be sure, traceability and transparency are not always strictly connected, as the interac­tion between the two notions is multifold and complex.^[253] Yet considering the conceptual and politically and socially constructed nature of transparency and the practical orientation of traceability, this chapter focuses on their mutu­ally reinforcing relationship.

Blockchainizing Food Law 83 understood as “the ability to trace and follow a food, feed, food-producing animal or substance intended to be, or expected to be incorporated into a food or feed, through all stages of production, processing and distribution,” accord­ing to EU General Food Law.^[254]

Reading from these texts, we know that traceability is a complete process of knowing each link along the food supply chain and the ability to pinpoint the relationship between different links and activities therein. More specifically, traceability can mean business-to-business documentation of the path of distri­bution along the supply chain or that of the specific condition (such as micro­biological tests, pesticide residues, or quality certifications) of a product at each stage of distribution.^[255] The former is a minimal implementation of traceability, while the latter is more robust traceability and requires more technological sup­port. Regardless of the kinds and degrees of traceability possibly required in the supply chain, it has generally remained a costly and demanding endeavor for both the government and industry.^[256]

Recent food safety and fraud incidents, as noted previously, have spurred public outcry and consumer demand for the right to know.^[257] Traceability is a key element in ensuring food safety because it empowers regulators and companies to facilitate and expedite outbreak response, increases the legal risks of getting caught, and strengthens deterrence effects on potential violators. There have also been serious calls for better governance actions to ensure suf­ficient traceability to facilitate outbreak response and corruption deterrence.^[258] Nevertheless, the globalization and complication of agri-food supply chains, as well as the characteristics mentioned previously (such as weak cross-border law enforcement; information asymmetry in the market; the sheer number of supply chain players with all sizes and abilities; and common commercial practices to reprocess, reload, and repackage) have made traceability a daunt­ing task.^[259]

For one, a considerable share of the agri-food industry, especially in less developed jurisdictions, is characterized by labor-intensive manual work and

handwritten paperwork,^[260] which are prone to mistakes and vulnerable to fraud.

For another, from a supply chain perspective, the world’s “[f]ood systems and agricultural practices... are diverse and range from modern, large-scale distribution system channels to traditional food chains,” rendering the linkages among all players legally and technically difficult.^[263] In addition, most transac­tions along the agri-food supply chain are processed by multiple intermediaries, without a clear, consistent, and efficient set of procedural standards or rigorous implementation. Indeed, contemporary agri-food systems are defined by their “inherently cross-level and cross-scale” complexity.^[264] It is, therefore, arduous today for companies—especially those who are small or medium enterprises (SMEs) with less market power and technical expertise—to trace each link in the supply chain of a specific agri-food product back to its origin.^[265]

C. Food Security and Sustainability

Because it holds different meanings for different people in different contexts,^[266] food security has been defined and redefined by international organizations

Blockchainizing Food Law 85 and conferences on many occasions.^[267] Among the 200 definitions that can be found in worldwide publications, the most influential redefinition seems to be that of the World Food Summit of 1996:

Food security, at the individual, household, national, regional and global levels [is achieved] when all people, at all times, have physical and eco­nomic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life.^[268]

There are at least three key elements that form the operational concept of food security in public policy—food stability (an individual’s ability to obtain food over time), food access (affordability and distribution of food), and food avail­ability (general supply of food).

The flexible and broad notion of food security incorporates various meas­ures of supply stability, disruption resilience, and equal access, which are closely tied to supply and demand information as well as diverse risk factors (such as climate change, economic instability, wars, and trade measures). For example, one of the biggest disruptions to the stability of the global food market was an incident in which the prices of a few food commodities spiked in 2007 and 2008, seriously impacting global food availability, stability, and access.^[269] The adverse consequences of food insecurity were particularly manifest for “devel­oping countries and net food importers, countries that are dependent on the international food market to ensure their domestic food supply.”^[270]

Determining legal, policy, or technical solutions to ensure productivity and efficiency in the global agri-food supply chain, reducing operational and trans­action costs and increasing economic gains for suppliers (especially small and medium entities), and lowering food prices for consumers are of great rel­evance and importance. Toward such a purpose, market transparency—which can facilitate “greater access to more accurate market information, strengthen the global food system and reduce the incidence and impact of price surges that are a major threat to food security”—is a key element in the promotion of food security and sustainability around the world.^[271] This is where blockchain technologies may come in to revolutionize the food supply chain and empower

market players along the agri-food supply chain by increasing transparency, efficiency, and trust among all players. At the same time, applying blockchain technologies to the governance of food safety, traceability, and sustainability, as analyzed in the following, may pose another layer of regulatory questions about technical capacity and infrastructure gap, scalability and implementation costs, global standardization politics, cybersecurity and data protection, and the technologically inherent limits of blockchain. Whether blockchain promises to be a grand “technical fix” calls for a closer examination.

III.