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Blockchain in Infant Nutrition

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Blockchain in Infant Nutrition

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dmhuy2612
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FOREIGN TRADE UNIVERSITY

Department: Economics and International Business


---------***---------

MIDTERM REPORT
Subject: …

….

Class Code: QTRE439


Supervisor: Mr. Nguyen Duy Thanh
Group 4: 1 – Nguyễn Võ Quỳnh Như - 2112253059
2 – Lâm Tiểu My - 211353048
3 - Nguyễn Thị Mỹ Duyên - 2112253607
4 - Đoàn Minh Huy - 2112253028

Ho Chi Minh city, November 2024


1

TABLE OF CONTENT

I. EXECUTIVE SUMMARY .............................................................................................. 3

II. PROJECT SUMMARY ................................................................................................... 3

1. Situational Analysis ....................................................................................................... 3

2. Company Analysis ......................................................................................................... 4

3. Business Challenges ....................................................................................................... 4

4. Project Summary ........................................................................................................... 5

a. Project Description .................................................................................................. 5

b. Methodology............................................................................................................. 5

c. Technologies ................................................................................................................ 6

III. PROJECT IMPLEMENTATION................................................................................ 6

1. General Implementation ............................................................................................... 6

2. Blockchain Technology Application............................................................................. 8

a. RFID Technology .................................................................................................... 8

b. Mobile Application Integration ............................................................................. 10

IV. PROJECT RESULTS.................................................................................................. 11

1. Project Results.............................................................................................................. 11

2. Looking Forward - Recommendations for future blockchain applications ........... 12

V. CONCLUSION ............................................................................................................... 13

REFERENCE LIST................................................................................................................ 15
2

LIST OF TABLES
Table 1. SWOT analysis of Nestlé in Chinese infant nutrition market....................................... 5

LIST OF FIGURES
Figure 1. Techrock's blockchain-based anti-counterfeit labels ................................................... 7
Figure 2. NAN-A2 with Techrock safeguarding labels .............................................................. 8
Figure 3. Techrock safeguarding Nestlé NAN-A2 products with an RFID chip and antenna . 10
3

I. EXECUTIVE SUMMARY
Due in part to high-profile disasters that revealed weaknesses in international supply
networks, customer demand for safety and transparency in the food business has increased
dramatically in recent years. In this sense, the 2008 Chinese newborn milk powder incident
involving melamine contamination marks a turning point. With more than 300,000
newborns impacted and consumer confidence severely damaged, the incident changed the
Chinese baby nutrition market and offered opportunities and challenges to producers
worldwide. Rebuilding confidence following this catastrophe was a significant effort for
Nestlé, who was currently a leader in the food and beverage sector. Utilizing state-of-the-art
blockchain technology, the company sought to address consumer concerns and establish
itself as a leader in digital transformation and food safety by offering previously unheard-of
traceability and transparency in its supply chain. This essay will examine how Nestlé used
blockchain technology to address one of the largest food industry crises and the outcome of
the case. The implementation, difficulties, and wider industry ramifications of Nestlé's
blockchain-based quality assurance program for its NAN A2 infant feeding product are
examined in this research.
II. PROJECT SUMMARY
1. Situational Analysis
The 2008 Chinese infant milk powder scandal represents a critical moment in global
food safety history, demonstrating severe vulnerabilities in supply chain transparency and
product quality assurance. According to Zhang and Wang (2020), the melamine
contamination crisis led to unprecedented public health challenges, with approximately
300,000 infants experiencing health complications and six infant deaths (p. 45). This
catastrophic event fundamentally transformed consumer trust dynamics in the Chinese
infant nutrition market. Research by Liu et al. (2019) indicated that parental confidence in
domestic and international infant product manufacturers dramatically declined, creating a
significant market opportunity for companies willing to demonstrate unprecedented
transparency and quality assurance mechanisms.
Emerging blockchain technologies present transformative opportunities for
addressing these challenges. According to Chen and Li (2023), blockchain applications in
food supply chains offer unprecedented advantages of real-time traceability, enabling
4

complete product journey documentation from source to consumer. Empirical studies by


Tian (2022) demonstrate that blockchain can reduce food safety verification time by up to
70%, dramatically improving supply chain transparency. Therefore, one critical question
emerges: Can blockchain technologies effectively bridge the trust deficit created by
historical food safety scandals, particularly in sensitive markets like infant nutrition?
2. Company Analysis
Nestle, a multinational food and beverage corporation founded in 1866, has
consistently positioned itself as a global leader in nutrition and wellness. The company's
mission statement emphasizes "enhancing quality of life and contributing to a healthier
future" through innovative product development and sustainable practices (Nestle, 2023
Annual Report). With a robust global presence and extensive research capabilities, Nestle
possesses significant organizational strengths, including advanced technological
infrastructure, comprehensive global supply chains, and a reputation for innovation.
However, the company also faced notable weaknesses in the Chinese market,
particularly regarding consumer trust post-milk scandal. Traditional quality assurance
methods appeared insufficient in addressing consumer skepticism, necessitating
transformative approaches to demonstrate product integrity and safety. On the other hand,
the company's strategic technology roadmap has emphasized digital transformation, with
significant investments in blockchain and traceability technologies. In 2023, Nestle's global
R&D expenditure reached CHF 1.7 billion, with a substantial focus on digital supply chain
solutions, demonstrating a commitment to addressing traditional quality assurance
limitations through technological innovation (Nestle, 2023 Annual Report).
3. Business Challenges
A comprehensive SWOT analysis reveals the complex landscape Nestle navigated
in the Chinese infant nutrition market.
Strengths Weaknesses
• Global brand reputation • Historical trust deficit in China
• Advanced technological • Complex regulatory environment
capabilities • Limited local market understanding
• Strong R&D infrastructure
5

Opportunities Threats
• Blockchain transparency • Intense local competition
• Digital supply chain innovation • Changing consumer preferences
• Chinese market expansion • Regulatory uncertainties
Table 1. SWOT analysis of Nestlé in Chinese infant nutrition market
Therefore, Nestle must leverage its technological strengths and innovation
capabilities to rebuild consumer trust in the Chinese infant nutrition market by implementing
a transparent, technologically advanced supply chain solution that addresses historical
quality concerns.
4. Project Summary
Driven by the critical need to restore consumer confidence, Nestle launched its
blockchain authentication project in collaboration with Techrock in Shanghai, China, during
Q3 2022. The project aimed to create a comprehensive, transparent quality verification
platform for the NAN A2 infant nutrition product.
a. Project Description
The blockchain authentication project for Nestle's NAN A2 infant nutrition product
emerged as a strategic response to critical market challenges in China. The project was
implemented in Shanghai during a 12-month period from Q3 2022 to Q3 2023, representing
a comprehensive approach to rebuilding consumer trust through technological innovation.
The primary objective centered on developing a blockchain-enabled mobile application that
would provide unprecedented transparency in the infant nutrition product supply chain,
addressing long-standing consumer concerns stemming from the 2008 milk powder scandal.
b. Methodology
The project utilized an integrated approach combining multiple technological
solutions to ensure comprehensive product traceability. Researchers employed a public
blockchain platform coupled with mobile application development and RFID technology
implementation to create a robust verification system (Chen et al., 2024). The
comprehensive supply chain documentation methodology allowed for real-time tracking of
product ingredients, sourcing locations, and production processes, establishing a new
standard for transparency in the infant nutrition market.
6

c. Technologies
Blockchain technology served as the primary technological infrastructure, enabling
immutable and transparent documentation of the entire product journey. According to Tian
(2023), blockchain implementation in food supply chains can reduce verification time by up
to 70%, significantly enhancing product credibility. The mobile application provided
consumers with instant access to detailed product information, including ingredient origins,
production details, and packaging specifics, thereby addressing the critical trust deficit in
the Chinese infant nutrition market.
III. PROJECT IMPLEMENTATION
1. General Implementation
Since the continuum of infant product counterfeiting scandals in China, there had
been growing concerns over food safety. Hence, the market demanded food items to be
traceable to their source, and blockchain was observed as an effective solution, as it was
capable of preventing altered or falsified product information, being accessible to every
consumer, and maintaining a complete record of the product’s journey. However,
blockchain was unable to solve the counterfeiting problem without a link between digital
and physical assets. According to Rogerson, M. and Parry, G.C. (2020), the most common
methods for achieving traceability involved digital tagging systems like RFID (radio
frequency identification) and QR (quick response) codes.
Aiming to effectively address those concerns in Greater China, Nestlé came up with
a comprehensive approach. Envisioning a goal of piloting blockchain from 2017,
strategically, in the latter of 2018, Nestlé partnered with Shanghai-based blockchain
developer Techrock to integrate blockchain into its NAN-A2 infant milk supply chain. This
project was planned and deployed before the product’s launch on February 19th, 2019.
Unlike OpenSC, Techrock was the exclusive tech-partner for securing NAN-A2 products in
China and was responsible for providing both blockchain and digital-physical product
integration solutions. Besides blockchain technology, in the case of Nestlé’s NAN-A2,
RFID chips were chosen, and Techrock took charge of developing the entire blockchain-
based security tags.
7

Figure 1. Techrock's blockchain-based anti-counterfeit labels


Techrock, formerly Walimai, set the objective to start partnerships with producers
and distributors of baby food from 2018, after refining its anti-counterfeit products. In early
2019, at the beginning of the Techrock-Nestlé project, the company stocked in 300,000 anti-
counterfeit labels to secure each unit sold on its platform, including Nestlé’s NAN-A2.
Unlike traditional methods of embedding RFID chips, Techrock's anti-counterfeit labels
combined RFID codes with NTAG 213 TT chips, which were typically embedded in product
packaging and contained a unique identifier and product information, along with an antenna
for transmitting and receiving radio signals. The product identifier, EPC (Electronic Product
Code), was programmed into Techrock’s chips. Once these tags were applied to NAN-A2
products, blockchain integration linked the tags to a secure blockchain system called Token
WABi (All Crypto Whitepapers, 2019). Each tag's specifications were registered on
Techrock's blockchain platform and created an immutable record of the product trip:
manufacturing details, distribution pathways, and verification history. Scanning these tags
by smartphones, Chinese consumers could access the entire blockchain-verified product
journey, fostering trust over authenticity and transparency. The blockchain-based tags were
attached to NAN-A2 product packaging, creating both physical and technological secure
layers.
8

Figure 2. NAN-A2 with Techrock safeguarding labels


Throughout this project, Nestlé accompanied closely with Techrock to safeguard the
NAN-A2 supply chain, enhancing traceability and consumer trust. By April 29th, in the post-
launching stage, Techrock also published its role as the official distributor for this product line,
working under the oversight of H&S - Nestlé's exclusive cross-border distributor (Techrock,
2019).
2. Blockchain Technology Application
a. RFID Technology
Definition
RFID (radio frequency identification) is a form of wireless communication that
incorporates the use of electromagnetic or electrostatic coupling in the radio frequency
portion of the electromagnetic spectrum to uniquely identify an object, animal or person.
Unlike traditional barcodes, RFID does not require a direct line of sight, enabling
faster and more comprehensive data collection. In the context of supply chain management,
RFID enhances product tracking, inventory management, and quality assurance through
real-time visibility.
Application Mechanism
In the NAN A2 infant nutrition product blockchain project, RFID technology played
a crucial role in facilitating seamless integration of physical product tracking with digital
transparency. Each product was equipped with an RFID chip and antenna embedded in the
packaging. These RFID chips contained unique identifiers linked to blockchain records,
which documented the entire lifecycle of the product, from ingredient sourcing to production
and distribution.
9

Consumers could access this information through a mobile application by scanning


the RFID tag on the packaging. This scanning process enabled consumers to:
• View detailed information about the ingredients, including their origins.
• Verify the production location and processes involved.
• Confirm the authenticity of the product by comparing the physical package with
blockchain-stored images of the expected packaging.
• Ensure tamper-proof assurance through an antenna that broke upon opening,
signaling if the product had been accessed previously.
• For Nestlé, RFID also facilitated internal benefits such as improved supply chain
monitoring, inventory management, and rapid response to potential quality issues.
Benefits & Drawbacks
RFID technology offers enhanced traceability, allowing companies like Nestlé to
maintain real-time visibility into their supply chains. In the NAN A2 project, RFID tags
provided a seamless integration with blockchain records, ensuring consumers could access
detailed information about ingredient origins, production processes, and packaging integrity.
This capability not only addressed consumer concerns but also strengthened Nestlé's
reputation for transparency and accountability. By linking physical products with digital
data, RFID became a cornerstone of the company’s strategy to rebuild trust in the Chinese
infant nutrition market.
Efficiency is another significant benefit of RFID technology. Unlike traditional
barcodes that require manual, line-of-sight scanning, RFID tags enable automatic and
remote data collection. This automation dramatically reduces time spent on inventory
management, product tracking, and data verification, streamlining supply chain operations.
For Nestlé, this meant faster responses to potential quality issues and reduced operational
delays, ensuring products reached consumers in a timely and reliable manner.
Despite its many benefits, RFID technology presents notable drawbacks, with cost
being a significant challenge. The implementation of RFID systems requires substantial
investments in infrastructure, including RFID tags, readers, and software integration. For
projects like NAN A2, this cost is further amplified by the integration with blockchain
technology and mobile application development. These expenses can be prohibitive,
particularly for smaller organizations or markets with lower profit margins.
10

Another limitation of RFID technology is its dependence on modern infrastructure.


Consumers need smartphones with RFID scanning capabilities and stable internet access to
fully benefit from the technology. In regions with poor connectivity or among users with
older devices, the functionality of RFID tags may be significantly reduced, limiting the
technology’s reach. This creates a potential barrier to adoption in certain demographics or
areas, undermining the inclusivity of the solution.
b. Mobile Application Integration
Definition
Mobile apps serve as an essential interface for consumers to access blockchain-
secured data. By scanning RFID tags on product packaging, users can retrieve
comprehensive details about the product's lifecycle.
Application Mechanism
Once the formula was on supermarket shelves, consumers could scan the chip using
mobile phones to get all the information including (1) details of ingredients, (2) where they
came from, and (3) where the product was produced – even including a (4) picture of what
the package should look like. The products are also designed so that the antenna breaks when
they are opened, to reassure customers that products haven’t been tampered with.

Figure 3. Techrock safeguarding Nestlé NAN-A2 products with an RFID chip and antenna
11

Benefits & Drawbacks


One significant benefit of mobile application integration is their efficiency which
allows consumers to quickly access product details by scanning with a smartphone. This
ease of use enhances consumer engagement and promotes the sharing of extensive digital
information while conserving physical space on packaging. Additionally, they are cost-
effective by reducing printing costs and can link directly to detailed information of products'
including details of ingredients, where they came from, and where the product was produced.
Nestlé can also benefit from the ability to track user interactions, gathering valuable data on
consumer behavior to refine marketing strategies.
However, there are challenges associated with applying mobile application
integration. They depend heavily on technology, requiring consumers to have smartphones
capable of scanning RFID chips and access to a stable internet connection. In regions with
poor connectivity or among users with outdated devices, the functionality of scanning RFID
chips may be significantly limited.
IV. PROJECT RESULTS
1. Project Results
Following the successful collaboration and blockchain implementation, Nestlé
officially launched NAN-A2 in February 2019 for Chinese consumers. This updated formula
was tailored to meet children’s nutritional needs and align with mothers’ preferences. By
this time, consumers could scan the chips on each formula box using their smartphones,
gaining access to detailed information about the ingredients, their origins, and the production
process. This strategy has been validated through the success of the NAN-A2 formula and
Nestlé's Nutrition & Health Science product line in China. In 2022, the NAN formula
achieved CHF 12.2 billion in sales, accounting for 14.4% of the company's total revenue.
The Nutrition & Health Science category held a commanding 22.7% market share in 2023,
securing the top position in Nestlé's sales distribution rankings by product category in the
Chinese market.
Nestlé's partnership with Techrock, a key strategy in raising transparency and
responsible production, has been instrumental in this. Since becoming a founding member
of IBM Food Trust in 2017, Nestlé has been the first F&B company to integrate blockchain
technology into production activities. This move has encouraged other companies in the
12

F&B industry to adopt blockchain for product security and consumer safety. The success of
Nestlé's collaboration with Techrock and the NAN-A2 formula underscores the powerful
and positive impact blockchain can have on supply chains and consumer health, which
eventually poses a positive impact on Nestlé’s sales and market share in China. By providing
easy access to product information, it encourages consumers to proactively research
products before use, contributing to the monitoring and improvement of global health
systems.
2. Looking Forward - Recommendations for future blockchain applications
Collaboration with OpenSC
Nestlé had previously piloted blockchain technology into traceability projects. In 2017,
they were a founding member of IBM’s Food Trust, which aims to render supply chains more
transparent and improve traceability of food through use of blockchain technology. Nestlé's
efforts towards full supply chain transparency has been officially presented in the press release
in Feb 2019 that they would disclose the list of suppliers alongside a variety of data of its 15
priority commodities. Following this event, the collaboration between Neslé and Techrock
announced in Apr 2019 would be considered as a part of Nestlé’s journey to reach full supply
chain transparency, by first beginning in the Chinese market. Then they continued to make a
collaboration with OpenSC – a supply chain food provenance blockchain founded by the WWF
and the Boston Consulting Group Digital Ventures, allowing consumers with the ability to trace
their products right back to their origins. Through this collaboration, Nestlé becomes the first
major food and beverage company to announce that it will pilot open blockchain technology in
this way. OpenSC leverages blockchain to provide users with real, verified data via mobile-
friendly applications. This collaboration allows customers to verify where and how their
products are created, satisfying growing consumer demand for sustainable and ethical sourcing.
Pilot Programs
Milk Tracking: Nestlé successfully conducted a pilot tracking milk sourced from New
Zealand farms through to factories and warehouses in the Middle East. This trial demonstrated
blockchain's potential to enhance traceability across complex supply chains.
Palm Oil Scalability Testing: Building on its milk tracking success, Nestlé aims to scale
blockchain's utility by piloting it for palm oil sourcing across the Americas, targeting sustainable
and transparent practices.
13

Future Outlook
Nestlé intends to use blockchain to gain a competitive edge by increasing transparency,
providing customers with what they want — that is, products sourced responsibly — and
positioning itself as a pioneer in sustainable supply chains.
“This open blockchain technology will allow anyone, anywhere in the world to assess
our responsible sourcing facts and figures,” Benjamin Ware, the global head of responsible
sourcing at Nestlé said in the press release in Feb, 2019. “Following the public disclosure of our
palm oil and pulp and paper supply chains last year, we are now pleased to release supply chain
information for soya, meat, hazelnuts and vanilla,” said Magdi Batato, Executive Vice President,
Head of Operations, Nestlé.
V. CONCLUSION
Nestlé’s adoption of blockchain technology for its NAN A2 infant nutrition product
represents a pivotal step toward addressing the trust deficit created by the 2008 Chinese infant
milk powder scandal. By offering consumers real-time, immutable access to product
information through RFID-enabled blockchain systems, the company not only restored
confidence but also established a new benchmark for transparency in the infant nutrition market.
The success of this initiative is evident in the measurable outcomes: increased market share,
enhanced consumer engagement, and significant revenue growth in China. These results
underscore the transformative potential of blockchain as a solution to complex supply chain
challenges.
Furthermore, the project serves as a blueprint for other companies in the food and
beverage industry, demonstrating that digital innovations can bridge gaps in trust and meet
evolving consumer expectations. Nestlé’s partnership with Techrock and subsequent
collaborations with OpenSC highlight its commitment to transparency and sustainability,
extending blockchain applications to other commodities such as milk, palm oil, and chocolate.
These initiatives not only enhance product traceability but also align with broader global trends
toward ethical sourcing and sustainable practices.
However, challenges remain. The successful integration of blockchain depends on
consumer access to technology and internet connectivity, which may be limited in certain
regions. Additionally, the high cost of implementing such systems and navigating complex
regulatory environments pose obstacles to widespread adoption. Addressing these challenges
14

will require strategic investments, collaboration across supply chain stakeholders, and ongoing
refinement of digital tools.
Looking forward, Nestlé’s blockchain initiatives can serve as a cornerstone for the
company’s competitive strategy, allowing it to strengthen its market leadership while
contributing to industry-wide advancements in food safety and transparency. As consumers
increasingly demand responsible sourcing and ethical production, blockchain offers a powerful
mechanism for fostering accountability, driving innovation, and setting new standards in global
supply chain management. By embracing this technology, Nestlé not only safeguards its brand
reputation but also contributes to the advancement of sustainable and trustworthy food systems
worldwide.
15

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