#35: Re:co Podcast – Daniel Jones on the Evolution of Innovation (S5 E3)

Today, we’re very happy to present the third and final episode of “Evolution of Innovation: How New Ideas Will Shape Specialty Coffee,” a session recorded at Re:co Symposium in April 2018. This session offered a glimpse of new ideas in coffee from some leading thinkers in specialty coffee and a discussion of how they are likely to shape the future of our industry. If you haven’t listened to episodes #33 and #34, we strongly recommend going back to listen before you continue with this episode.

On this episode of the Re:co Podcast, we are pleased to welcome Daniel Jones, CEO and Founder of bext360. His company provides traceability and financial solutions for the coffee, palm oil, cotton, seafood and timber industries utilizing blockchain, AI, and traceability markers. At Re:co Symposium, Daniel argued that there’s a huge opportunity to improve traceability in our supply chain using innovations in technology.

Special Thanks to Toddy

This talk from Re:co Seattle is supported by Toddy. For over 50 years, Toddy brand cold brew systems have delighted baristas, food critics, and regular folks alike. By extracting all the natural and delicious flavors of coffee and tea, Toddy Cold Brew Systems turn your favorite coffee beans and tea leaves into fresh cold brew concentrates, that are ready to serve and enjoy. Learn more about Toddy at http://www.toddycafe.com.

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Table of Contents

0:00 Introduction
2:45 Introduction to Bext360 by Ever Meister and Daniel Jones explaining how valuable more traceability would be when sourcing coffee from DR Congo
5:15 The coffee industry now has access to technologies that can transform our supply chain. It also come at a great time as demand for coffee globally goes up and consumers demand more transparency
10:00 How blockchain, cryptocurrencies, AI machine learning and markers can all be used to revolutionize the coffee supply chain
16:45 Detailed examples of ways these technologies will benefit coffee producers financially
22:00 Technologies that deliver transparency are important because they also promote sustainability
24:15 Outro

Episode Transcript

0:00 Introduction

James Harper: Hello everybody, you’re listening to the Re:co podcast, a special episode of the SCA podcast. I’m James Harper, filling in for Peter Giuliano for this episode. The Re:co podcast is dedicated to new thinking, discussion, and leadership in Specialty Coffee, featuring talks, discussions, and interviews from Re:co Symposium, SCA’s premier event dedicated to amplifying the voices of those who are driving specialty coffee forward. You can find videos of these talks on our YouTube channel – just follow the link in the show notes.

This episode of the Re:co Podcast is supported by Toddy. For over 50 years, Toddy brand cold brew systems have delighted baristas, food critics, and regular folks alike. By extracting all the natural and delicious flavors of coffee and tea, Toddy Cold Brew Systems turn your favorite coffee beans and tea leaves into fresh cold brew concentrates, that are ready to serve and enjoy. Learn more about Toddy at toddycafe.com. Toddy: Cold brewed, simply better.

I want to give you a head’s up that the Re:co Symposium and the Specialty Coffee Expo are coming to Boston this April. To learn more or to purchase tickets, visit recosymposium.org.

So today, we’re very happy to present the third and final episode of “Evolution of Innovation: How New Ideas Will Shape Specialty Coffee,” a session recorded at Re:co Symposium this past April. This session offered a glimpse of new ideas in coffee from some leading thinkers in specialty coffee and a discussion of how they are likely to shape the future of our industry. If you haven’t listened to episodes #33 and #34, we strongly recommend going back to listen to them before you continue with this episode.

On this episode of the Re:co Podcast, we’re are pleased to welcome Daniel Jones, CEO and Founder of Bext360. His company provides traceability and financial solutions for the coffee, palm oil, cotton, seafood and timber industries utilizing blockchain, AI, and traceability markers. He has over 20 years of experience living and working in frontier markets including China, DR Congo and India. He has professional roots in technology, finance, electronic commerce and emerging economies.

At Re:co Symposium in April, Daniel argues that there’s a huge opportunity to improve traceability in our supply chain using innovations in technology.

2:45 Introduction to Bext360 by Ever Meister and Daniel Jones explaining how valuable more traceability would be when sourcing coffee from DR Congo

Ever Meister: To close out this session, I’d like to introduce Dan Jones. He’s the founder and CEO of Bext360, a company that’s using technology and artificial intelligence to not only streamline supply chain dynamics, but also to push performance and reward quality, as well as create a system of accountability that will be documented and unalterable from the first point of contact to the last.

And I’d like to tell you more about the technology specifically, but frankly, I understand it about as much about blockchain as I did about quantum physics in high school. Which is to say not terribly much. And that’s why I’m in coffee today. So I don’t have to thankfully, Dan’s right here and he’s probably the better person to do it anyway.

So I please join me in welcoming to the innovation stage Dan Jones of Bext 360.

Daniel Jones:  Well, thanks everyone and good morning. It’s great to be here. I’m honored to be here and I start off with a question: how many of you were naked last night? Let’s hands in the air.  How many of you wanted to be naked last night hands in the air?

But how many of you woke up this morning and stood in front of a mirror and stared at yourself naked for 5 minutes, let’s say?  I did just so I could raise my hand.  I challenge you to say that’s what your customers are doing right now to your supply chains. They’re trying to see that type of detail.

I start this off by really thanking SCA. I mean we’ve had some great collaboration and great acceptance from people like Sarah Mason and Anahil Mario from Shift Social, from GLC, to Coda, to Jay. It’s just been the most accepting industry I’ve ever worked in, honesty. And I think events like this talk about collaboration and they bring us into the mix. And I really appreciate that.

This all started about five years ago or seven years ago. We started a conflict-free supply chain out of the Eastern Congo and what we found was that there’s a huge opportunity to change the way these supply chains work by using innovative technology. And we were shot at in those cases. We haven’t been shot at and the coffee industry yet. But I’m sure there are bad actors out there and there are reasons why traceability would really help.

5:15 The coffee industry now has access to technologies that can transform our supply chain. It also comes at a great time as demand for coffee globally goes up and consumers demand more transparency

And I like to view collaboration, innovation…This has been a big subject. I’d like to say Innovation is the enabler of efficient calculation. You think about all the technology that’s around us, it brings us together and enables us to collaborate even faster. Whether its technology like this or whether it’s cameras or whether it’s the blockchain and artificial intelligence.

We drive towards this responsible company – I don’t know if you know the book by the Patagonia founder? I love the phrase that he says, that “31 percent of our supply chain is good.” And just the fact that we can have that kind of metric I think is really important for Industries and to drive change throughout the industry.

We think about Innovation and what’s changing. Uber right? I mean, can you imagine life without Uber at this point? What happened to Blockbuster?  Netflix came along. Barnes and Noble, Amazon.

And now we have these supply chains: coffee, cocoa, palm oil, timber. All kind of industries that have a huge impact on global warming, on the individuals that serve these industries. The numbers are staggering of how many people get their sustenance from just these industries.

What’s going to happen is what I want to talk about today a little bit. Is it really technology? I think Meister touched upon it. Like is it the technology that Uber implemented or is it just the right time to implement those technologies?

I would say it’s not technology itself, but it’s the infrastructure. And we’ll talk a little bit about the infrastructure that’s available, not only in the country of origin, but what’s been developed for autonomous cars, etc.

When you think about these industries, it always has to do with some kind of financial payment system. It always has some way of changing the way in which we pay or the way the goods are moved or the way that we can interact with the suppliers of the goods.

And finally, it’s consumer demand. Can you imagine going back to a non-Amazon world or driving to Blockbuster? It’s just not going to happen.

So once people can see that this type of transparency is available or these types of business systems are available, they won’t go back. And I will talk a lot about the ultimate collaboration which is between the consumers of the goods and the producers of the goods.

Everything we do and everything that has shown to be effective in the business sense has always been the collaboration between the big groups of people, which are: consumers and the producers of the goods.

So the macro trends:

Market demand. I thought was great yesterday, just the statistics in the coffee industry. 50% increase by 2030. This huge supply and demand gap. Which is both an opportunity and an obviously a liability.

If the producers of coffee can see this type of supply-demand fundamentals, it puts them in more control of the supply chain. Which I think technology can help them deliver more goods.

Farm-to-table, Bean to Brew, whatever you want to call it, it’s the idea that people want to have this experience with where their food comes from. Whether it’s a tomato or whether it’s coffee or whether it’s organic cotton. They want to know that that is real. They want to know they’re not being greenwashed.

And the country’s origin. You think about the changes – this is what happened in DR Congo – is that we would go source coltan at an artisanal mine and we’d come back and pay cash. And we’d come back to our place where we were staying and we’d see people interacting on the street with phone credit. They’d be exchanging phone credit for their goods.

And lastly, technology. And the technology that’s out there – the blockchain, whether it’s been developed for Bitcoin or whether developed for us –  the IOT, the machine vision. All these things, none of it got developed for us. It was developed for autonomous cars.

But it’s all there for the taking right now. I think it’s the perfect kind of combination of scenarios to really fundamentally change the way these supply chains work.

Country of origin. These old business models, they’re all based on lack of electricity, limited access to phone service, cash payments, limited capital, only foreign markets for their goods – which is rapidly changing.

They kind of formed this essence of these supply chains. And some of these supply chains that we’ve all seen in the field are based in the 50s, 60s, 70s spreadsheets, carbon copy pieces of paper. And now there’s a whole different way of looking at business on the ground.

So this fundamental change in the country of origin allows these technologies to take hold. And to be able to provide payments. It’s not going to happen in one year or two years. We always say that we’re looking 10/20 years down the road as we as we develop these technologies implemented in the field.

Back to the naked analogy. I know a lot of you have heard the palm stories obviously out of Indonesia. But your customers, really in some senses, no matter where you are in the supply chain, probably know more about your supply chain than you do. And often you don’t wake up and stare at yourself naked, or look at your partner’s naked, to find those flaws in your supply chain. But I would encourage us as a resolution, not just an SCA resolution, but to do this every day. Is really dig down into those supply chains and really take an honest look of what your suppliers are doing, what your NGOs are doing, what your cooperatives are doing, everyone involved in your business and take responsibility for that. That’s why we’re developing what we’re developing.

So, I won’t go too much into this but consumers are driving this traceability. They see it in other areas of their lives and they want to not get to that standard coffee page: it has a picture of a farmer, a picture of a farmer, a dot on a GPS map and they can’t click. You can’t go any deeper usually into that. I mean, people are innovating in that area.

But 8 out of 10 customers check the origin of their food, right? It’s no different in coffee. You know these stories. 72 percent of Millennials will pay more for companies that have positive impact. Sustainably sourced: 65% of people say they enjoy foods that are natural or organic.

The things that are important to people, they want to know. And they have a high level of what I call a BS meter. They know when they’re being greenwashed. They can go check to see if they’re being greenwashed.

10:00 How blockchain, cryptocurrencies, AI machine learning and markers can all be used to revolutionize the coffee supply chain

How do we do this? How do we actually start making a change in the way that we could analyze and track these supply chains?

So the blockchain. I mean everyone’s heard about the blockchain. It’s a great technology. We really think of it as a spreadsheet or as an ability for everyone to know the transaction that’s happened. So if two people had a transaction over here, everyone in the room would know that transaction and that’s a really powerful concept which I’ll demonstrate a little bit in terms of finance, smart contracts, traceability, transparency.

And separate from that is the cryptocurrencies, which are the digital payments. Which is the ability to take and use the blockchain in a very similar manner to the way that banks can value inventory. So we can take that type of technology – it’s inherent in the blockchain – and bring the real world into the digital world. Which I think is really important in terms of financing the supply chain.

AI and machine learning. I know Anukampa Freedom is not a big AI fan. She says she likes the blockchain. But we view machine learning as the ability to rapidly diagnose and do analysis of commodities at all levels, especially at the green level, at the cherry level, all the way through the supply chain.

And markers. This is something that we’ve talked about, but there’s the idea of putting markers into the field, whether it be a simple RFID tag, which most of us have experience with or be more sophisticated items like DNA sequencing, unique identification, putting a device to recognize bacterias in the air so that we could know that that that data that’s actually put into the blockchain is real, right? Because crap data in, is crap data out.

So the example is machine analysis. So a seller would bring 60 kilograms of coffee for sale and machine analysis and pay the farmer. It Doesn’t have to be a machine, it could be an individual, It could be a third party. But the idea here is that at the very origin of that coffee – I know everyone I talk about this people get a little upset – there is definitely a correlation between what that cherry looks like and the quality of coffee that comes out. And it’s specific to every region and it’s specific to every day and is specific to all these other factors, but there is a correlation.

So what we do is we analyze every cherry and what makes this possible is the technology, it’s the infrastructure that we’re talking about. From machine vision for autonomous cars, we’re able to actually analyze every single cherry, about 10,000 objects per minute, 166 objects per second, make an inference in under 10 milliseconds and have time to sort it in real time. The fascinating part about this technology is that all of this type of capability on our machines costs less than five hundred dollars.

So there’s no real limitation. We spend more on the aluminum and the other products we’re shipping that we do on the technology that allows this to happen.

So we analyze the 360-degree view of the cherry and then we assign it a score right? We actually assign it a cupping score, which I know is really controversial. So every cherry gets a cupping score as it comes through our machine.

I get calls all the time usually from like a landline, at Blockbuster, people saying “I’m going to tax the over there and this is not going to work.”

But we do see correlations. This correlation is really important.  So the machine analyzes, like I said, and every cherry gets determined. Then we’re able to sort as it comes through in real time.

So there’s been some great inventions.  Where does the blockchain fit into this whole sequence of things? These are obviously things that are important. There’s been cultural ones, which I would put coffee in. Some that are more important than others, depending on your situation.

There’s the light bulb obviously. There’s things that are intangible and not really relatable to most. And then what we all love which is part of the reason I got into this industry. The first place is that there is an invention here, but where is blockchain fit in?

So blockchain I would say has many pillars. The first is this idea of just a general ledger. Where you can exchange information, you lock those transactions in from step to step to step. The second would be applying that type of technology to cryptocurrencies. The third would be what IBM is touting, which is not so much cryptocurrency, but it’s the ability to track data as it goes through.

So a bunch of data gets collected and then it gets hashed and put into the blockchain so that, at the end of that sequence, we have that immutable record of the transactions going back.

And then there’s this commodity –  which is what we’re doing – which is the ability that instantaneously as we assign those scores, we give it a value. We actually turn it into a cryptocurrency that has an exchangeable value in the real world.

And the future of this I think is integrating this with IOT devices, integrating it with banking and other Industries.

So here’s a quick example. Farmer brings in 28 kilograms of cherry. It has a date, it has a transaction, it has all this data that we want to use to tell the story or you want to use to be able to prove to our customer that we sourced it ethically and sustainably.

We take that information and we put it through what’s called a “hash function” which reduces it into a very crypto level set of data that we can put into the blockchain.

The second piece would be the actual quality of the data. So, in this case, we have 11 kilograms of 82’s, and 17.5kg to keep it simple, a varietal, and we put that into the blockchain as well. We verify that and then we place that into the block. That’s just the first step, right?

It could go through all these other steps before it gets to either the green export or it gets to the consumer themselves. The other part of this is that we can put markers on there. We can have DNA markers that are inherent to that location. And then we could also have that verification at the roaster level to say that product did come from that location at that time.

16:45 Detailed examples of ways these technologies will benefit coffee producers financially

So, back to the naked analogy, it takes courage to look at yourself, right? And I encouraged everyone in this industry and across all these industries that we’re trying to serve, to really look at that.

So the farmers and cooperatives, all this data can flow through. Every node can have its own data. Whether it be fermentation time, whatever data you want, can be gathered in the blockchain. And then you can use that information at the cupping stage or at the consumer stage to draw those correlations back.

You can think of it as AI. If you’re buying something you don’t usually buy with your credit card, your bank flags you. But this will identify those types of things as well, all the way back to the source and the origin. And so you can provide that data as you see fit to your customers.

So here’s a quick example. When we talk about blockchain, we talk a lot about traceability. But what I saw in the field – I lived in Congo for seven years, in India for a year and a half – is that most of the people I’ve talked to at the conference that are small producers say capital is the key, right? If we can provide more capital to the farmer or more capital to the small producer or to the Co-operative, then we can improve the way that they can sell their coffee, increase their wages.

So whether it’s a bank or multilateral organization or an NGO, people want to have the exporters, the cooperatives, or small holders, want to have that loan. And so what the blockchain names us to do is have a smart contract, where that information can be locked in from the very beginning. So the bank is giving a working capital loan, for example, to buy coffee cherry. The bank wants to know that that borrower is really using that to buy coffee cherry. They don’t want them to buy a truck. They don’t want them to buy a house. They want them to buy coffee cherry because that asset will transition through the supply chain and become worth something.

So what we can do in the blockchain is we can establish our own Coffee Cherry Token – CCT – and those tokens can be given to that third party that analyzes the goods at the point of collection as the farmer brings in their cherry or their parchment or whatever it might be.

Those tokens can then be transitioned to that farmer. So now, as those cherries enter the supply chain, they have a value. They have a value that’s been determined by some subjective or objective means and they actually can be exchanged for real goods. So think about your balance sheets – because every bank wants to see your balance sheets. No longer is it just a number that needs to be verified, the bank has to come out and inspect your inventory. It’s right there, instantaneous. And as that translates, as it traverses the supply chain, it increases in value all the way to the end.

And then the roaster has to pay the accounts payable, right? So they have accounts payable, accounts receivable, that’s stored within the smart contract, and there’s 30 or 60 or 180-day payment terms. By the way, if your company has more than a 180-day payment terms, then you should change companies. That’s a controversial thing.  So that variable will enter into the accounts payable and then the smart contract will handle the distribution of those funds. So the bank doesn’t have to worry about the about the risk of the actual lendee. So the accounts receivable would receive their payment, the bank would receive their payment in terms of principal and interest, and the remainder can be transferred into fiat currency and returned to the person that borrowed the money.

So in this sense, we could we can inject more and more capital into the supply chain. There’s about a $2 trillion loan gap in small business, just in Africa. So this is where the blockchain really fits in.

The other element is complete transparency. Again, to this example, if these goods are coming along to that complete transparency to the bank and to the exporter, but who’s missing here? It’s the farmer. Or the producer. Whatever you want to call them. And the cupper would then determine the quality and maybe at that point the smart contract guarantees that they get that payment. We call this like a bonus payment, a premium payment.

At export, again if the goods are valued higher than or at a certain value, we can again have the smart contract guarantee that payment is made back to the farmer, or back to the producer and that’s a fair trade payment in essence.

And at the end, the consumers can, based upon their perceptions, either tip the community. And again, the smart contracts can handle that. All instantaneously, all without spreadsheets, all without carbon copy pieces of paper and provided by an objective third party, which is the blockchain.

We talked a little bit about bank lending. This can happen in the bill-of-lading. This is something that I think is a really interesting concept – if you’ve ever exported something you really loved the bill of lading. But digitizing that process and making that faster, obviously, and providing insurance during the transport of goods. It’s a really important concept.

Markers. I think this is the Innovation that will fundamentally change the way traceability happens. And whether it be tagging or DNA or what we call advanced markers, is the ability to capture that at a specific time and now back to the blockchain, you’ll be able to say this marker was added to this batch, at this time, by this person. And at the other end, we have this verification step. So we’ll be able to say that this was truly good data that went into the system.

22:00 Technologies that deliver transparency are important because they also promote sustainability

So transparency, I think a lot of this has to do with sustainability. And I think the challenge here is to use this type of data to prove that we are good actors in the supply chain.

So Transparency International says “the surest way of guarding against corruption is to have transparency.” So, whether we share that information with our customer, we wake up every morning and look at ourselves naked and look at our suppliers naked and really judge whether these are actors that we want to be involved with.

Because certainly our consumers, our buyers, are going to want to see this. And this has been shown over and over, whether it’s the palm industry, whether it’s the cotton industry, whether it’s the timber industry.

We are part of global warming, whether we think we are or not. This industry, along with a lot of others, is causing global warming. And that trend over the next 10 years will become a very important issue to our consumers. And so the ability to put non-subjective time series measurements and track those to do what they call “measurement and evaluation,” I think it’s a key part of how innovation in this industry has to happen. Whether it’s the NGOs, whether it’s the cooperatives, whether it’s the intermediates, whether it’s tech companies. Using technology to do this and providing that transparency becomes paramount.

Lastly is the idea of Contract Consumerism. What we try to say is that consumers and farmers are the ones that really need to collaborate. We like to say that we can provide data that says “this school was funded.” Six months later we can say “the school was built,” six months later we can say that “the first graduating class was from there,” and really allow those consumers to have that interaction with the communities their coffee comes from.

And lastly is the idea of trusted collaboration and consensus. We all have ideas of what a living wage should be or what transparency really means or what governance means. But I think the blockchain and other technology can enable this in a way when we can avoid the outliers,  people that don’t necessarily agree with the way the world should work, and come to a consensus standard that we all can agree with and see where everyone stands in that.

I think this is a really powerful tool to allow everyone, not just the people in this room, to participate in these standards. And that’s it. I appreciate your time.

24:15 Outro

That was Daniel Jones at Re:co Symposium this past April.

Remember to check our show notes to find a link to the YouTube video of this talk and a link to the speaker bios on the Re:co website.

This has been the Re:co Podcast, brought to you by the members of the Specialty Coffee Association, and supported by Toddy.

And don’t forget – Re:co Symposium and the Specialty Coffee Expo are coming to Boston this April. To learn more or to purchase tickets, visit recosymposium.org.

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