The Digital Supply Chain podcast

Bringing Fairness And Transparency To The Food Supply Chain - A Chat With GrainChain Founder And CEO Luis Macias

August 27, 2021 Tom Raftery / Luis Macias Season 1 Episode 154
The Digital Supply Chain podcast
Bringing Fairness And Transparency To The Food Supply Chain - A Chat With GrainChain Founder And CEO Luis Macias
Show Notes Transcript

Food supply chains are some of the most complex supply chains that exist. And demands from the end consumer are growing day by day, adding to the complexity.

One company working to address the complexity, adding transparency for the consumer, while easing access to fair and pricing and capital is GrainChain.

To find out more I invited Luis Macias, founder and CEO of GrainChain to come on the podcast to tell me all about it. We had a truly fascinating conversation and, as is often the case, I learned loads, I hope you do too...

If you have any comments/suggestions or questions for the podcast - feel free to leave me a voice message over on my SpeakPipe page or just send it to me as a direct message on Twitter/LinkedIn. Audio messages will get played (unless you specifically ask me not to).

If you want to learn more about how to juggle sustainability and efficiency mandates while recovering from pandemic-induced disruptions, meeting growth targets, and preparing for an uncertain future, check out our Oxford Economics research report here.

And if you want to know more about any of SAP's Digital Supply Chain solutions, head on over to www.sap.com/digitalsupplychain, and if you liked this show, please don't forget to rate and/or review it. It makes a big difference to help new people discover it. Thanks.

And remember, stay healthy, stay safe, stay sane! 

Luis Macias:

In the US as a general public, if we want real food safety, if we want real sustainability and we want real growth in the agricultural community, we have to support the data that comes along with it the cost that comes along with it and and the work that comes along with creating these types of, of great products that we're eating every day.

Tom Raftery:

Good morning, good afternoon, or good evening wherever you are in the world. This is the digital supply chain podcast, the number one podcast focusing on the digitization of supply chain. And I'm your host, global vice president of SAP. Tom Raftery. Hi, everyone. Welcome to the digital supply chain podcast. My name is Tom Raftery with SAP. And with me on the show today I have my special guest, Luis Luis, would you like to introduce yourself?

Luis Macias:

Sure. My name is Luis Macias, I'm the CEO of GrainChain, I focused for the last 20 years in creating business automation, whether it was in the finance insurance or government and agriculture, we have focused on digitizing the process of getting a product from the field, or from origin all the way to the final state by not only creating easy to use products, but by focusing on replicating or enhancing existing processes. And taking the human element out of data collection. We have been extremely excited to be in the agricultural field for the last 10 years. Mainly working on dry commodities such as corn, coffee, soybean, sunflower seed, and today we are truly changing the way farmers do their business one little step at a time.

Tom Raftery:

Okay, super. And just to clarify for people who are listening, it's not that the farmers are your end customers, it's rather that they are using software that has been created that adds information to the platform you have created correct. Let's take a step back. Who Who are your customers and what are you providing for them?

Luis Macias:

Sure are our target customers are the cooperatives, the processing Mills, the facilities, the banking institutions and insurance companies who work in the agribusiness, they, they have a large list of customers and are sellers, who they create a buying relationship with. But as as the world is changing, we are requiring more and more real data where our food is coming from. We are trying to figure out not only who produced our food, but did they do it properly. There's a strong focus on sustainability, there's a strong focus on food safety. And there's a strong focus on fair practices to our small to medium sized farmers. When a facility or a cooperative is creating bags of coffee, or they're processing different types of grain for human consumption and products. Our customers have really understood that they need to understand where everything is coming from, who is producing it, what actual location is it coming from and, and if it's a specialized product like today, where a lot of a lot of us are going towards organic products, or products that aren't using certain type of chemicals or even ensuring that our products aren't using child labor. This is become a an interesting task for these larger corporations and institutions, when we need to understand that but our producer base is in the 1000s. Creating that type of data is something that's quite challenging. You know, over the last over the last 10 years, we have truly seen that data collection is not the best way to get the information when you when you task somebody in your company to go and collect this data, it becomes a very, very strenuous task. But we have focused on the producers, the farmers using our applications to be able to push the data and that's the most accurate kind of data you're ever going to get. We we focus on IoT integrations and process automation to generate the type of data that is going to be real. So when you go and you buy your your coffee, and you're paying a premium for really special coffee or you're paying a premium for an organic type of food, you want to make sure that that that's real and and so we have really focused on creating those types. products, the same thing goes for our customers were banks or insurance companies, the largest risk in lending out there is agriculture, a farmer can go get a TV with zero a problem at a store on finance, but if they want to finance that same amount for their agricultural operation, it becomes extremely difficult. So what we do is we create software and applications that allow these individuals to have historical data on their production, to be able to show and, and, and implement real information, to be able to create smart contracts with the the individual entities to be able to ensure that not only are we lowering the risk for these entities, but we're increasing and lowering the increasing the amounts of loans, and lowering the interest rates because there's clarity and efficiency within the process.

Tom Raftery:

Okay, so the incentive for the farmers to use the applications provided by your customers is that they get historical data, which makes it easier for them to get access to capital, is that the idea?

Luis Macias:

Absolutely. When, when, when, when an individual who uses our applications and and and, and runs through the process, can can prove to an entity that for the last three years, they've produced a certain X amount of dollars, or an X amount of product, the banks can now underwrite that in a more efficient manner. But even more when you start de risking by creating a an automated contract that states to the farmer, that the bank is going to get paid first. So there's an automatic lien on on the farmers property, he's able to borrow a little more money, and he's able to lower his interest rates. So they have they have extensive incentives for doing that. Why would a corporation do business with us by by by pushing that type of application, they're receiving true real machine generated data, which means that when a farmer is out on the field, and he uses one of these applications and geo fences, his his property, and he registers the fertilizers that he's using, and he registers the logistics of the movement of the product, and and the bank gets automatically notified when that product gets turned in, and gets automatically paid. Everyone wins. So there's, there's there's a large incentive, our general public is is is requiring, is demanding that, that our food processors use best practices that they use sustainable practices. So if we, if we put those rules in the in the automation of these applications, then then we can ensure that that these products are done well. And in reality, the agriculture industry is not very technified there's there's some real issues, you know, there's, there's connectivity issues, you know, when you're out in the middle of a field, your cell, your connection may not be proper, you know, when when you're working with 10,000, farmers and, and 4000 of them aren't even part of the formal financial system, things get a little complicated. What we do is we provide the products for them to start integrating into these types of ecosystems, we give them the tools that allow them to not only borrow and increase capital, but also we like to call it here green chain is we're giving the farmers a sword and shields, you know, the the shield is that that automated contract that ensures that they're going to get paid if they if they provide the products and the quality that they want. The shield is giving them capital to be able to do the right things because you know, no matter how much we want it, to produce an organic product is expensive. It requires the right types of inputs that are requires the right products, even even on standard grade products. Doing the right thing is more expensive. And and so when you have these tools that help you capitalize so that you can do the right thing so that at the end result you produce higher yields or a higher quality product that fetches more money, then you're in a much stronger position, you're in a position where we are satisfying the needs of the end consumer by producing the correct data that comes from these products. by them being able to market a higher quality, higher quality data payload, they get paid more so the farmer gets paid more so that the bank gets paid on time and the cycle works. So a broken supply chain is not just, hey, I need to buy more and we need to supply more, it has to start at the beginning. And, and the beginning is the sustainability. And when you have a lot of small farmers who are barely making it, the sustainability starts becoming a little a little weaker. And, and, and, you know, we focus in, in Latin America and Mexico, Central America, South America, and, and capitals expensive. So when you want to start reducing that risk, you start reducing the cost of capital, and you start increasing the amount of data flow,

Tom Raftery:

okay, and for your customers, it's a matter of de risking, is that they know what they're going to get. Absolutely,

Luis Macias:

when when when, when our customers employ in start using our applications, they've got two main focuses, they've got to lower the risk of the capital that they expend, you know, a lot of our customers don't even go through banks, some of them loan money themselves to farmers. And there's a high risk in that, even though you've been working with somebody for a long time, if the farmer doesn't give you the product, with the correct certifications, and you can't sell it properly, or you can't use it. But even even going further from the de risking, which is which is a huge, huge win for our customers. Now, our customers are also really focusing on on data, because they need to provide that data to the to the end processing facility or the end customer. And and in some areas, it's because they want the data and they want to ensure that sustainable practices are happening, that things are correct, that they're getting the right product. But some areas, it's regulation, where countries are banding together and saying, Hey, if you're going to feed our country, if we're going to import your product, we need to ensure that this is being done properly. Today, in many different instances, this is a very manual, a very slow and sometimes inaccurate process. But it It also could lead to fraud. Where if if if you require this product to be documented a certain way, and it wasn't, are you going to throw away the crop, or you're going to modify your documents to make it to make it appropriate. So it starts at the beginning. And I think we're we're very much on the ground. And it's not, it's not an overnight sensation. It's not an overnight change. But it is a slow and meticulous process, when you have to go out and train individual farmers to use these applications. And it's the first time they use a smartphone, or maybe they don't even have cellular connectivity in their area, you have to create applications that work in those environments that are extremely simple to use, and that aren't cumbersome. Because if one thing we all know, if we can't do something easily, we're not going to do it again. And and so what we do is we have kind of a twofold encouragement for the adoption of the product. One is incentives, right? lower cost of capital, higher Security of Payment, a higher increase in the price of your product, because you can ensure certain things. And the other the other side of it is the adoption into being part of a community that is providing that sustainable practice. There's there's a tremendous amount of encouragement through NGOs, and through different organizations around the world that are encouraging and pushing larger corporations to ensure that, that that these that these farmers are being paid properly that that they're being used, they're not using child labor. And and so I'm not saying this is this is the end all be all solution to the process. But it is a very easy way for a small stakeholder to push information into a larger upstream of the supply chain that is extremely accurate and easy to use.

Tom Raftery:

Sure, sure. That makes sense. And as you say, a lot of these farmers probably aren't used to this technology. So making it simple and easy for them to use is hugely important.

Luis Macias:

Absolutely. I mean, and I think I think one of the one of the biggest things we found in in Central America is individuals want to do better, they want to grow, they want to make more, they want to be part of a bigger marketplace. when when when you know I've seen many situations where interest rates are in the 50 to 100% it's impossible to work. It's it's very difficult to make a living and and and when when you don't have that assurance that you You're going to get paid, and you have that kind of debt. That's where the defaults come. And that's where that's where the product doesn't work. At the end, we're relying more and more, you know, our population is growing tremendously, and relying more and more on these on these types of environments to be able to feed, you know, all the people that we have. So I find, I find that even though they're not as technified, their kids are, even though they may not have connectivity, they understand that if they start using some of these tools, that things are going to get a little better. And I found that even the most remote and leave and non technified communities know that things need to change for them to survive. You know, one of the big, big things we see in Central America, and I've toured many, many of these farms is that people are abandoning their farms and walking to the United States instead of continuing to work. And, and they're doing this because they can't afford that 50% interest, they can't afford the the the price that they're being paid for their product. What happens when we inject a 7% or a 5% loan for them to buy the right seeds and the right fertilizer, and we guarantee them a higher payment, because they're using the applications. In I'll give you just a real easy example. Sure, when when a small coffee farmer starts going into a specialized organic field, and they do they take the right pictures, and they do ever all the right process, you know, the the the standard price that is at $93, for 100 pounds, goes up to 170 to 190. Now, that's sustainable. But when when you create your product, and you've got to pay this 50% or 100% interest, it doesn't work. But if you get a lower interest rate for your for your capital, and you you you go through the process with with a lot of the help with some of our tools, and you turn in this product with this huge data payload, then the the the cooperative that is using our products can market that and sell that to the larger coffee buyers, they can prove that there's they're paying their their farmers, the right amount, that they've got all the certifications. And it's not just a piece of paper, it's it's it's a it's a geo geo located data record with a picture of what's going on. It's a it's a it's a it's an audit that can be proven and tracked. And all of this information is being is being recorded on to a blockchain that can't be modified, they can't be altered, they can't be nudged, then everyone starts winning. And and and it's it's it's not a solution that's going like I said, it's not a solution, that's going to be an overnight success. But it is going to create a larger incentive for growth and for sustainability. And that's that's our that's our overall goal. And and I think that a lot of our a lot of our customers are seeing that as the absolute future of where things are going. And and they're and they're focusing on it. You know, they they know that, that if they don't start changing their practices, then then they're going to be they're going to be outsold by the people who are.

Tom Raftery:

Okay, you've mentioned Central America a couple of times now. Can you tell me what markets you are operating in?

Luis Macias:

So right now we're in Mexico, we're an under us. We just launched in Brazil. We have facilities in the United States. We have 24 different products, and we're currently negotiating in Peru and Colombia. those are those are most of our focus areas.

Tom Raftery:

Okay. And you mentioned as well, that it's a blockchain solution. You mentioned are you alluded to smart contracts on the on the blockchain? Can you tell me a little bit about what kind of smart contracts you're operating?

Luis Macias:

Absolutely, we have, we have a fully integrated, smart contract solution that's running on the hyper ledger fabric network that allows us to not only create a very easy to execute buyer seller contract with the facilities that contract with us and their individual producers. But these smart contracts allow for the banks and insurance companies to be fully integrated. So what what we end up with is we've got a very, very robust network that allows for banks to participate for the insurance companies versus participate the exporters and and the logistics companies and the actual sellers. And what it is, what it what it creates is, is a very simple questionnaire where a buyer can fill out a contract by answering You know what, what product They're gonna buy when, when do they want it for? What are the conditions of the purchase. So if you look at quality, if you look at when they're going to deliver, if you look at, you know, what are the conditions of the of the loans, and they can ensure that they are non predatory loans, and they can also include insurance products that aren't very well implemented in the areas when we start creating, you know, micro insurance products that allow us to ensure that not only are they going to turn into certain quality, or protect the farmer, when when a lot of our produce a lot of our customers can push that down to the at the farmer level, then everything starts flowing in, when these contracts get executed, they they get approved by all the different participants, so the the buyer can, can can approve there and the seller can very easily in the format that they've seen before can see there, all of the conditions, and the banks can see it. And so can it do insurance companies, all of that gets written into our chain code on our network. So when a farmer goes out and borrows the money, we can we can we can specify what products they can buy with that money. So you know, they this, this, this specific loan is for a certain types of fertilizer or inputs. And they're able to use our platform to go in and buy the product, it registers what type of product it is, it writes that to the to the to the network. And then when they go turn in the product, our systems have IoT devices, they're connected to the laboratories, the receiving mechanisms, the just scales, the tank sensors, and all of that information is instantly collected as it's being turned in. When that information is collected, it pushes it up to the to the network, the smart contract is executed, and the payment is immediately pushed down to the individual farmer. But if there's a lien, then the lien gets paid out first, and the rest gets paid to the individual farmer. In the United States. Today, we have farmers who were taking their product at 11am. And by 2pm, they have money in their bank account, which is something that's absolutely impressive. And all of this is done automatically through the smart contract, if the farmer takes a product that is not of quality. And you know, let's say it's there's a there's a there's a lot of different variables that we can include into the smart contract, then it can automatically calculate the deductions that are being implemented into that product. So a farmer doesn't feel that this is a subjective deduction, it's an automatic deduction that gets taken out, let's say the humidity is too high in the product, or there's a certain amount of toxins and it's rejected, then that's automatic, and they know that scenario is is real, you know, it's not just somebody putting a piece of a number on a piece of paper, it's a, it's a, it's a an IoT laboratory device, that gives a quite a great quality, that grade quality gets pushed to our network that gets analyzed, authenticated, approved through the consensus mechanism, and paid if the individual you know, and I've seen this in different parts of Latin America brings a product, and they don't have a smart contract, they just have a regular written contract, and that buyer decides they don't want to pay for it, you know, they don't they, they they, maybe the markets changed or whatever it is, then then they don't have a lot of recourse with these contracts, the recourse is the the the kind of the smart contract, and it pays, and it pays air in. And we find that the majority of the people who want our system who want to work on our network, want to do things, right, they want to do things correctly, they don't want a middleman or a person that they employed maybe have other motives to change the deal when the product gets to the door. So it works really well at a at a global level, where the company has very, very good ideas and they wanted good practices. And maybe in a certain employee doesn't and and and you know we've seen in the in, we've seen in the global press where some of the main huge corporations get in trouble because of one bad actor that works for them did something incorrectly or, or forged a piece of paper and nobody wanted that the company didn't want that. But but the systems weren't in place to catch that information, or the systems weren't in place to stop that type of activity. You see it more in more undeveloped countries, but it happens in developed countries too. And and so when you start automating the process, creating smart contracts, creating systems that feed real data, to to the overall contracts, you start eliminating that human element. And when you start eliminating that human element, the A lot of the corruption goes away a lot of the overall feeling of I'm a CEO of a huge multinational company. And I want to make sure that my people are being paid properly. And I want to make sure that everything's being done fairly. But I don't have control over my 40,000 employees, my 40,000 employees, I want them to do the best, but sometimes they don't. And so this starts taking that element out. And and you know, when you have, you know, jumping back into the overall implementation of our software, when you have people collecting data, and they're going out into the fields, and they're being paid $10 a day to go collect information, how easy is it to manipulate that collector, you know, how easy it is to manipulate that information. If you have systems that automatically collect that data that ensure that that auditor went to that field, because he's been geo located. And when you when you have the system that makes sure that we're capturing the right information. And we have farmers who are pushing the information, who, you know, in my experience, in the last 10 years, I've met very few farmers who don't want to do the right thing. I'm most of them are handshake guys, they're people who work the land, they're honest people, they're going to push the right data. And and when you have larger systems that are analyzing that data, and triggering, when things are kind of off, then you have a strong data set that you can push to a consumer and feel very safe, that that cup of coffee you just drank is organic, that that cup of coffee that you just paid, you know, $5 for that the farmers getting, you know, two cents on the dollar for is is is is correct. And everything is the way that it said.

Tom Raftery:

Excellent. Excellent. Luis, we're coming towards the end of the podcast. Now, is there any any question I haven't asked you that, you know, you wish I had, or any topic we've not addressed that you think it's important for people to be aware of,

Luis Macias:

I think in this world, it's important to understand that while there are a tremendous amount of options in in software, that are coming out in the agricultural industry, it's important to understand that usability and and and on the ground information is extremely vital. The fact that you have a system that collects information, doesn't mean the information that's going to it is real. And I think it's extremely important to focus on companies like grain chain, and there are many others that are doing an amazing job around the world who are trying to change the on the ground information. And that is the key to creating real supply chain data. The the the tools that we push to the individuals that collect up into massive data is extremely important. And I think that, you know, SAP is doing an amazing job working with a lot of different startups around the world. And they've realized that, that kind of data and that kind of implementation, they're they're an amazing company that's doing great things, but they realize that even with 90,000 employees, they don't have the reach to get down to the ground. And I think that the focus that they're doing is incredible. In the US as the general public, if we want real food safety, if we want real sustainability and we want real growth in the agricultural community, we have to support the data that comes along with it the cost that comes along with it and and the work that comes along with creating these types of of great products that we're eating every day. Super.

Tom Raftery:

Super Louis, that's been fantastic. If people want to know more about yourself or about green chain or any of the things we discussed in the podcast today, where would you have me direct them?

Luis Macias:

Green chain.io is the best place to get information. We have great plans to expand all over the world. And and we we what we found is that our need is is everywhere. I just did a conference in India today where where we we've been able to talk a lot about what the necessities are, the food necessity of green china.io is the best place to give us a locker or info at Green chain.io if you want to just shoot us a question. Brilliant.

Tom Raftery:

Thanks a million for coming on the podcast today. Thank you very much for your time. Okay, we've come to the end of the show. Thanks everyone for listening. If you'd like to know more about digital supply chains, head on over to sap.com slash digital supply chain or, or simply drop me an email to Tom raftery@sap.com. If you'd like to show, please don't forget to subscribe to it and your podcast application of choice to get new episodes as soon as they're published. Also, please don't forget to rate and review the podcast. It really does help new people to find the show. Thanks. Catch you all next time.