Project no. 152
Blockchain Pilot for the Palm Oil Industry
Shane Lieberman1 and Mathias Kirkegaaard2
1Innovation Management, Copenhagen Business School
2Supply Chain Management, Copenhagen Business School
Introduction and problem:
Palm oil is receiving increasing attention due to the detrimental effect its cultivation has on the environment and human
rights. As a result, there is a wish in the industry to promote more sustainability through increased transparency. One salient
way of increasing transparency is by fostering traceability; however, due to the complexities of the palm oil value chain, this
is no mean feat. An estimated 40% of the world's palm oil derives from smallholder plantations with fewer than 50 hectares,
with Indonesia alone accounting for more than one million plantations with such small-scale characteristics. The resulting
complexity arises from the sheer number of actors, and the fact that smallholder plantations often use a web of intermediaries
to get their product downstream in the value chain. Despite the efforts of certification schemes in the industry, the European
market is still pushing for better transparency of sourcing, mainly because these schemes only offer traceability of certified
material, leaving the uncertified material untraced. Therefore, downstream actors in the industry impose their own traceability
systems and sustainability policies to allow for the demanded transparency needed to convince stakeholders that the palm
oil was grown according to a certain standard.
Blockchain technology can potentially improve traceability for both certified and non-certified palm oil. At the same time, it
can decrease transaction costs by lowering the risk of opportunism along the value chain. Such a system can be
implemented through a tokenized blockchain where a digital asset is created, which follows the physical flow of goods along
the value chain. Tokenization ensures traceability from plantation to potentially the retailer. The benefits of implementing
such a system are the following:
Allows downstream actors to monitor their value chains easier and to make sure that upstream actors can be held
Allows the industry to consolidate traceability efforts into one industry system, rather than duplicating efforts through
self-imposed traceability systems.
Palm oil mills will experience increased extraction rates from the palm fruit through time-stamps of transactions
between plantation and agent.
Allow plantations to become connected to international markets thereby allowing downstream actors to support
more sustainable practices.
We propose a pilot project consisting of three plantations, one agent, one mill, one refinery and one retailer. Over the course
of our research, we garnered interest from Deloitte, Golden Agri Resources (GAR), GeoTrace and the Roundtable for
Sustainable Palm Oil (RSPO). In the context of this proposal, Deloitte has the in-house technical capabilities to code a
blockchain and has expressed an interest in creating a use case for the palm oil industry. GAR repeatedly expressed a
desire to enhance their current traceability system and proposed an in-depth plantation tour to strengthen our assumptions
further. To set the rules of the blockchain, we rely on the code of conduct instigated by the RSPO to give the blockchain
credibility regarding sustainability. For the first-hand experience, we can turn to GeoTrace who can consult us concerning
on-the-ground challenges. The blockchain application relies on plantation owners to insert data onto the blockchain using
text message on their mobile phones, GeoTrace already works extensively with plantations for traceability and expressed
an interest in piloting a substantiated blockchain system. Therefore, the logistical practicalities of this can be further tested
with their expertise.
In sum, we propose to provide a service which can benefit most actors across the palm oil value chain. In effect, over the
course of our nine-month research endeavor, many players expressed interest in a blockchain application, albeit for
company-specific use. We believe that the real benefits are derived from network effects on the blockchain, which can allow
for industry-wide traceability and ultimately connectivity to the uncertified plantations which make up 80% of the industry.
To test this assumption, the technical feasibility must be validated. If we can prove that a digital asset can adequately follow
the physical asset along the palm oil value chain in a pilot, we can effectively substantiate the value of blockchain for supply