Can this startup use blockchain to brew up more sustainable coffee?
An entrepreneur with a background in verifying the provenance of so-called conflict minerals is applying that expertise to keep tabs on one of the world's most widely traded commodities: coffee. Tracking this kitchen staple requires a mélange of emerging technologies such as blockchain, artificial intelligence and the internet of things.
The goal of his venture, bext360, is to help coffee buyers automate their dealings with fair-trade farmers, allowing them to more closely track the source and quality of the fair trade beans they’re buying while speeding up payments for local growers.
For buyers, the service promises deeper transparency, as well as a way of automating the verification process. For harvesters and growers — largely women — the service could mean more ready access to investment capital, according to bext360 CEO Daniel Jones.
"We’re aiming to transform the coffee supply chain while bringing consumers and farming communities together to improve product quality, community livelihoods and the consumer coffee experience," he said in a press release launching the new company.
To achieve that aim, the startup — which emerged from stealth Tuesday with $1.2 million in venture funding led by SKS Venture Partners — is tapping into Stellar, an existing blockchain-based transaction network used in emerging economies. Blockchain is the distributed ledger that manages transactions of the bitcoin digital currency, although the technology is at the center of dozens of experiments in the sustainability realm, many involving a range of supply chain applications and energy trading schemes.
Bext360’s first "product" will be a kiosk, similar to a Coinstar change collection machine, that farmers can use to sell their beans, Jones said. The system is designed to use smart image recognition technology to evaluate the crops being submitted at production facilities, drawing on machine learning software to categorize the grade, assign a price and determine the identity of the person selling it. The farmers are credited for their delivery via a mobile app.
He got the idea for using digital payments within the coffee supply chain — an estimated $100 billion market worldwide — while working on a previous business focused on exporting conflict-free minerals from the Democratic Republic of Congo. According to Jones, 25 million people are directly involved in the coffee chain, many in rural, emerging countries. Reaching them is a thorny logistics issue.
"What we found while we were doing that, we looked at our P&L and our cost structure and what was going on around us, is that we were spending 30 percent of SG&A on security and other logistics services just to transport money into the field to pay the artisanal miners for their good, to analyze their goods," Jones told GreenBiz. "At the same time, we were always surprised that even in eastern Congo that we could get a cell signal, and that most people even in small villages, or some people I should say in the small businesses of Congo, were transacting on the streets with their phones."
Learn more about models for market transformation at VERGE Hawaii, June 20-22 in Honolulu, Hawaii.
Initially, bext360 will work directly with coffee buyers to place machines in communities where they have trading partners. The business model calls for its kiosks to be owned by local entrepreneurs and cooperatives, with commissions from transactions split between the banks or financial services companies managing the digital "wallet" accounts of farmers, the business hosting the collection system, and (ultimately) bext360. "They would be able to implement our technology seamlessly into their supply chain," Jones said.
The company has tested the technology at coffee plantations in Mexico and plans to run a larger pilot in California this summer, Jones said. Bext360 already has relationships with financial institutions in Congo and Rwanda, and is in discussions with an investment group interested in deploying the systems in Colombia. "Our goal is that we are going to do two of those before the end of the year," he said. "Supervised, end-to-end deployments."
Another potential impact of the technology, according to Jones, is that farmers might be able to command a higher price for their harvests because the system’s artificial intelligence software will use image recognition to assess the grades of their beans more accurately than the current manual methods.
"The way the NGOs are working, and the people who monitor that fair trade for the companies themselves, it’s very antiquated," he said. "In some cases, it’s as antiquated as carbon copies: green, blue, yellow pieces of paper. With our technology, combined with Stellar, we’re able to know exactly where every cherry came from in that batch, every farmer that contributed to that batch. In that instant, we can say, 'The fair trade payment is now this,' and literally click one button, and suddenly all those phones would beep with their payments."