Can blockchain help Scotch whisky fight counterfeiters?
Counterfeit Scotch whisky has long been an issue, posing a serious threat to an industry that brings in billions of pounds in revenue to Scotland’s economy.
Blockchain provides the solution to the problem, offering a way to track the exact journey of each bottle of whisky from distiller to end consumer.
Last year, a Chinese man grabbed the headlines after paying an eye-watering SFr9,999 ($10,160) for a small measure of Scotch whisky at the Waldhaus Hotel in St Moritz, Switzerland. It was purported to be a super-rare Macallan Scotch whisky, distilled in 1878.
Just a few months later, however, scientific tests using carbon dating revealed conclusively that the whisky from the bottle was counterfeit.
The laboratory tests showed it to be a worthless, blended whisky from the early 1970s.
Earlier this year, a 60-year bottle of Macallan whisky was sold for a record $1.1m at an auction in Hong Kong. With such high stakes, it’s no wonder there are concerns that the counterfeiting problem could get worse.
The Scotch Whisky Association is currently fighting more than 60 cases involving counterfeit Scotch whisky all over the world. Exports of Scotch whisky reached £4.36bn last year, the equivalent of 1.23 billion bottles.
Reflecting the ease with which criminals can fraudulently substitute whisky bottles within the global supply chain, the problem is not just affecting Scotch whisky.
Earlier this month (August 2018), two men were arrested in Japan on suspicion of selling fake Hibiki whisky. Japan’s 30-year old Hibiki can sell for $3,000 to $4,000 per bottle, making it an obvious target for fraudsters.
In the UK, whisky brokerage Rare Whisky 101, claims the average price of a bottle of rare Scotch reached a record £328 during the first half of this year.
With an eye on reducing the risk of counterfeits, Scottish Highlands whisky maker the Ardnamurchan Distillery has mounted its own fightback against fraud, teaming up with blockchain platform arc-net. Arc-net describes itself as a cloud-based, data analytics and supply-chain security platform for the food and drinks industry.
Ardnamurchan has become the first distillery in the world to place a limited-edition whisky on the platform. Arc-net’s platform enables individual items to be tracked through a Unique Universal Identifier (UIID), creating a cryptographic, digital DNA marker. This allows food and drinks producers as well as retailers to assure customers of the provenance and authenticity of products.
Consumers can use their smartphones to read a Quick Response (QR) code that is displayed on packaging, which enables them to access the information on product history and provenance held on the platform.
Arc-net says it can deploy a private blockchain network dedicated to each of its customers. Although it typically uses the open source Multichain blockchain, Arc-net says its platform is essentially “blockchain agnostic” and can be configured to whichever blockchain suits its clients most.
Ardnamurchan is using the platform to capture and share production, process and product data with its customers. Alex Bruce, managing director of Adelphi, the company that owns Ardnamurchan, believes the platform can bring transparency and authenticity to a rapidly growing single malt whisky market.
“It’s essential that consumers can understand the craftsmanship of making Scotch whisky, and for the producer to ensure the security of their route to market,” said Bruce.
Arc-net’s model is also gaining traction in the craft beer sector, with the blockchain firm having recently partnered with brewer Ireland Craft Beers to place a beer on the platform. Customers can instantly trace the new beer, known as Downstream, through a smart code label on each bottle.
Every Downstream bottle is assigned a unique identity, so it can be traced through the entire supply chain, from brewery down to individual supplier. Ireland Craft Beers believes the move can enhance the value of its brand.
“More than ever, consumers want to know where their food and drink comes from, so capturing and sharing production, process and product data with customers is central to having a brand that is trusted and respected. Consumers want transparency, they want authenticity, and blockchain enables that,” says Liam Brogan, co-founder of Ireland Craft Beers.
Arc-net believes its platform can eliminate fraud across the supply chain for the entire food and drink industry. Last year, arc-net signed a partnership deal with PwC in the Netherlands to promote its platform as a solution for traceability in the food industry.
A report from PwC claims food fraud is costing the global economy over $40bn a year. The problem does not just result in direct financial losses and inconvenience; World Health Organisation research shows that around 10% of the global population falls ill as a result of eating contaminated food each year.
UK-based blockchain software firm Provenance claims to have signed up 200 retailers and producers for its service to track food and drink products throughout the supply chain.
Provenance has made a special effort to link origin of food and drink products to social and environmental impact, claiming millennials in particular are prepared to pay more for this greater level of visibility.
“Powered by mobile, blockchain and open data, our game-changing software enables retailers and producers to open product data, track the journey of goods, and empower customers with access to knowledge,” says Provenance.
Arc-net is also emphasising the potential to add value to food and drink brands through its platform. On the one hand, arc-net is selling its proposition as enhancing food safety and eliminating fraud. On the other, it is pointing to the marketing benefits that come from being able to present consumers with the complete story of the journey products make through the supply chain.
Undoubtedly, consumers are more likely to place importance on this journey if it’s the story of a craft beer or craft whisky. Customers are happy to be reassured that they are getting something special, brewed or distilled in a traditional way, with high-quality natural ingredients.
But that’s not to say that blockchain doesn’t appeal to the mass-market food supply chain. Supermarket giant Walmart, for instance, has been pioneering the use of blockchain to help it quickly trace the origin of fresh food products.
If issues arise with the quality of produce, blockchain can enable large retailers like Walmart to quickly isolate the affected consignment, reducing the need to remove large numbers of products from their shelves in a less targeted way.
Arc-nets’ initiatives illustrate how blockchain can be used to enable individual consumers to map the entire provenance of food and drink products. Firms are increasingly waking up to the marketing benefits this brings, as well as the improved safety and the potential to eliminate fraud.
“The arc-net platform will give us the opportunity, as a nascent distiller, to share and communicate our love for the brand and ensure our customers have the ability to visualise and validate our products as they move across the globe,” adds Ardnamurchan’s Bruce.