ODI
The nexus of digital and sustainable trade is coming together given new traceability requirements across supply chains. But ensuring access across all types of producers is necessary to promote sustainability and value chain resilience.
Demand for digital
Digital traceability is the ability to track the origin, history, location of each product along its supply chain and more broadly, its lifecycle; digital technologies include blockchain, sensors, and cloud computing. Increasing digital traceability has the potential to make supply chains more sustainable, reliable, and predictable, contributing to circularity objectives.[1] For instance, blockchain technology can be used to track the origin of the raw materials used in the production of a product to verify the environmental and social impact of its suppliers.
Another possible use case is to trace associated greenhouse gas emissions, water consumption and waste generation along a value chain so measures can be taken to make them more “green” and sustainable[2]. Digital tracking can incentivize producers to adopt more sustainable practices, optimize their inventory and supply chains, facilitate recycling and reuse to reduce the demand for virgin materials, as well as reduce waste generation[3],[4].
These new systems are going to be increasingly important in the new era of sustainability standards being implemented, notably the European Union’s Deforestation Regulation and Corporate Sustainability and Due Diligence Directive, as well as the carbon border adjustment mechanisms being implemented now.
Because of a high degree of exposure to these new measures (based on the composition of exports and shares destined to the EU) and high vulnerabilities (based on weak domestic policy frameworks) the impact will be felt by poorer producers. For example, many African producers have highly concentrated export baskets that will be affected directly by the imposition of sustainability standards. However, most lack the compliance infrastructure needed to effectively adapt and achieve the desired sustainability outcomes.
Compliance infrastructure
Digital traceability requires technical infrastructure such as a secure internet connection, interoperability of data collection and storage methods across different value chain players, and digital skills. This infrastructure will need to be nested in harmonized digital standards on data protection, privacy, and ownership. There is a need for governments to invest in such technologies and create an enabling environment[5]. A recent survey shows that 68% of executives view traceability as extremely important for supply chains, but painfully complex to implement due a multitude of technological requirements, and need for collaboration across various partners across a value chain ecosystem.[6]
Agro-processing in Uganda
The United Nations Capital Development Fund (UNCDF), along with Hamwe East Africa developed a digital traceability platform to enable smallholder farmers in rural communities in Northern Uganda to adopt global traceability standards and practices[7]. It found that within the context of a large number of partners along a agribusiness supply chain, digital traceability can increase consistency across business practices, ensure food quality, sustainability, as well as food safety. However, investments are needed; not all firms have the required resources to upgrade or create new systems. This results in new demands for technical assistance.
Looking ahead Bridging the digital divide becomes even more pressing within the context of achieving sustainability objectives through new supply chain regulations. These new requirements are increasing shaping market access, particularly into the European market. But they must also be matched with support and technical assistance. Support for compliance increasingly requires the promotion of digital platforms to enhance traceability.
[1] https://www.weforum.org/agenda/2019/09/5-ways-traceability-technology-can-lead-to-a-safer-more-sustainable-world
[2] https://www.bain.com/insights/traceability-the-next-supply-chain-revolution/
[3] https://www.weforum.org/agenda/2021/12/digital-tracing-industrial-carbon-emissions-decarbonization/
[4] https://www.gov.uk/government/publications/digital-waste-tracking-service/mandatory-digital-waste-tracking
[5] https://www.forbes.com/sites/forbesbusinesscouncil/2022/11/03/challenges-and-opportunities-of-implementing-traceability-at-scale/?sh=275d62e04e3d
[6] https://www.bain.com/insights/traceability-the-next-supply-chain-revolution/#
[7] https://www.uncdf.org/article/7038/digital-traceability-in-agriculture
