TRACEABILITY IS EVERYWHERE

While it is logical to associate traceability issues and processes with food supply, traceability is rapidly becoming an issue for almost all commodities to some degree. For example, is green power, for which the consumer may pay a hefty premium truly generated in an environmentally friendly way? Traceability now impacts areas like jet fuels, refined products, timber, and many other commodities outside of food for a variety of reasons. New regulations are emerging on a consistent basis that continue to create the need to properly track and account for commodities and products through the supply chain.

Implementing proper traceability is an expense and complexity for all participants involved in the supply chain. Investment is required in technology and processes aimed at tracking goods along the supply chain. Despite that, there is often a premium or penalty aspect to pricing associated with commodities and products that can be shown to have been produced in a certain way whether that is environmentally friendly, socially acceptable, or some other criteria that consumer’ s value. Furthermore, there is a brand aspect to the ability to conduct proper traceability that is extremely valuable.

According to the United Nations 1, there are three main approaches to tracking sustainability claims and each involves different methods of tracking a claim and assuring at each point in the supply chain( Table 2). The UN also points out that further investment and work is required in the area of traceability to improve it both generally and for specific commodities.

Each of the three approaches involves some degree of cost and complexity, and the more rigorous the approach, the more costly, and complex it will be.

As traceability is mandated or required by more and more consumer groups, industry associations, regulators, and governments, there are several other factors to consider. The commodities business is founded upon trust and verification such that, for example, the physical metals at a warehouse actually exist and ownership is clear. Without this trust and verify mechanism, commodity finance would suffer. There would be no confidence in trades and banks would have issues financing companies involved in the supply chain. In some commodities, repo financing where the bank takes ownership of the commodity for a period of time releasing cash to the owner with a provision to sell the commodity back at a certain point in time, for example, is a key aspect of this. Traceability then can also be seen to have other uses and benefits.

1. A Guide to Traceability, United Nations, 2014

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TRACEABILITY IS EVERYWHERE