The new role of blockchain for supply chain traceability in the light of the 'made in Italy' Law
by Angelo Rainone
Law No. 206 of 27 December 2023 entitled 'Organic provisions for the valorisation, promotion and protection of Made in Italy' introduced a heterogeneous body of rules that affects numerous topics, ranging from education (with the introduction of the much-discussed 'Made in Italy High School') to the fight against counterfeiting, linked by the common thread of the promotion of the concept of 'Italianity' and the enhancement of the cultural identity and excellence of national production processes.
Consistently, even the illustrative report accompanying the bill, approved in December 2023, indicated as the objective of the regulation 'the support for the development and modernisation of production processes and related activities functional to the growth of the qualitative excellence of Made in Italy', emphasising how the Government, in drafting the Bill intended to enhance the needs of the national entrepreneurial system on the basis of what emerged during the survey on 'Made in Italy: valorisation and development of the Italian enterprise in its various productive spheres', carried out by the “Attività produttive, commercio e turismo” Commission of the Chamber of Deputies.
In particular, of great interest for the agri-food sector is Article 47, entitled 'Blockchain for the traceability of supply chains' and focused on the possibility of using technologies based on distributed ledgers (or DLT, an acronym derived from the English expression distributed ledger technologies and indicating the family of technologies to which the blockchain belongs) to ensure the traceability of the supply chain; this is a topic perhaps little known to the public debate, but of extreme interest, partly because of the importance that the food industry plays in the national economy.
The notion of 'traceability' can be found within EU law in the “Regulation (EC) No 178/2002 of the European Parliament and of the Council of 28 January 2002 laying down the general principles and requirements of food law, establishing the European Food Safety Authority and laying down procedures in matters of food safety”. In Article 2, the Regulation defines traceability as “the ability to trace and follow a food, feed, food-producing animal or substance intended to be, or expected to be incorporated into a food or feed, through all stages of production, processing and distribution”; and in Article 18 it provides as a rule of principle (hence not directly binding) that Member States must ensure the traceability of “food, feed, food-producing animals, and any other substance intended to be, or expected to be, incorporated into a food or feed shall be established at all stages of production, processing and distribution” and that in turn business operators in the agri-food sector should be able to “to identify any person from whom they have been supplied with a food, a feed, a food-producing animal, or any substance intended to be, or expected to be, incorporated into a food or feed.” The EU legislation itself, in laying down this general principle, shows its awareness of the importance of keeping track of the production stages of a food in Recital 28, which emphasises that “experience has shown that the functioning of the internal market in food or feed can be jeopardised where it is impossible to trace food and feed. It is therefore necessary to establish a comprehensive system of traceability within food and feed businesses so that targeted and accurate withdrawals can be undertaken or information given to consumers or control officials, thereby avoiding the potential for unnecessary wider disruption in the event of food safety problems”.
However, traceability of the supply chain remains a largely unresolved issue; hence, art. 47 of the 'made in Italy' law metaphorically takes up the invitation of EU law by relying on Distributed Ledgers Technology, thereby authorising the budget of EUR 4 million for the year 2023 and EUR 26 million for the year 2024 so that the “Ministero delle imprese e del made in Italy” (MIMIT, the new name assumed by the Ministry of Economic Development) promotes applied research, development and the use of blockchain technology for the traceability and valorisation of the 'made in Italy' supply chain.
The rule, actually, does not only concern the agri-food sector, but is more wide-ranging and potentially involves all sectors of industry; however, the link with the food sector is evident, both because of the special importance of traceability in this sector, and because a reading of the parliamentary work reveals a number of proposed amendments - such as the unapproved Article 47-bis, entitled 'Measures for the promotion of modern digital systems in the food sector' - that reveal a clear link between this rule and the agri-food industry.
The reason for turning to this technology lies in its intrinsic ability to make the data it contains essentially immutable, and in the impossibility for agents outside the operators of the distributed platform on which the blockchain is based to intervene on such data. By virtue of this characteristic, DLTs present themselves as a particularly efficient certification system for the archiving of data relating to production processes, since once entered they are no longer manipulable a posteriori, thanks to cryptographic hashing; technologies based on distributed registers, therefore, meet the needs of certainty, transparency and traceability necessary for end consumers to have full knowledge of the characteristics and 'history' of the product purchased.
The possibility of applying blockchain for supply chain traceability has, in fact, already been theorised for some years and is, in the opinion of many, one of the most promising case studies. In this regard, the OECD study entitled “Blockchain for SMEs and Entrepreneurs in Italy”, commissioned by the Ministry of Economic Development in 2020, confirms that “the large and diversified Italian manufacturing sector offers interesting opportunities for developers of blockchain-based solutions, for the protection of Made in Italy and the quality and sustainability of products, as well as for the protection of intellectual property and copyright. There are numerous projects and use cases developed by Italian start-ups and innovative SMEs aimed at responding to the needs of the machinery, agri-food, textile and art sectors, in which the characteristics of transparency, immutability, decentralisation, security and efficiency are of particular interest' and that therefore this technology should be used 'for the provision of services in the sectors of excellence identified with the Made in Italy label (e.g. the machinery, textile or food sectors”'.
Using data collected by the Ministry for Economic Development and the Blockchain & Distributed Ledger Observatory of the Politecnico di Milano, the study identified a large group of companies that develop blockchain platforms for the market (excluding cryptocurrency exchange platforms, such as bitcoin), of which 21% operate in the agrifood sector.
Among the projects identified, we can certainly mention the one carried out by Barilla in relation to the famous “Pesto di basilico”, perhaps one of the most iconic products of the historic Parma-based company's production, realised through the “Connecting Food” platform, managed by the Milan-based innovative start-up of the same name, which provides traceability services through technologies based on distributed registers. This initiative aims to guarantee the traceability of the basil production chain from which pesto is made, using DLT for this purpose. The basil is thus traced from cultivation to processing and each jar of pesto is marked with a QR code, allowing the consumer to view the entire supply chain.
The blockchain is therefore becoming an increasingly attractive option also for PDO/PGI product protection consortia, as it is also used, inter alia, by Aceto Balsamico di Modena PGI, Cioccolato di Modica PGI, Pomodoro Pachino PGI, Parmigiano Reggiano PDO and Pecorino Toscano PDO to verify the compliance of local producers with the requirements set out in the specifications. There are also numerous initiatives carried out independently by companies belonging to the consortia for the protection of PDOs/PGIs, which exploit blockchain to demonstrate to the market the reliability of the supply chain of their products. Examples are the initiatives of Spinosa, a leading producer of Mozzarella di Bufala campana PDO, BioItalia, a producer of Pomodorini del Piennolo del Vesuvio PDO, and Caseificio Pallavicina, a producer of Grana Padano PDO.
However, also due to the absence of coordination mechanisms for the various projects that have arisen '”spontaneously” over the years, the framework of blockchain platforms in Italy is currently extremely fragmented, as there are numerous platforms, in addition to the now well-known “Bitcoin” and “Ethereum”, with structures and characteristics that are also very different from each other and not always able to guarantee the security of the data recorded within them. To rationalise this scenario, Paragraph II of Article 47 establishes within the MIMIT a national catalogue for the census of technologies based on distributed ledgers that comply with the provisions of Article 8-ter of Decree-Law No. 135 of 14 December 2018, i.e. the regulation that gives the definition of blockchain and regulates the legal value of the information contained therein within our legal system. The definition of the technical standards that these technologies must possess for the purposes of inclusion in the catalogue, as well as the methods of maintenance and operation of the same, will be the subject of a future decree of the MIMIT, which will be adopted after consulting the Agenzia per l’Italia digitale.
The national catalogue will also provide for the census of nodes that meet the requirements laid down by the “European Blockchain Services Infrastructure” - a partnership set up in 2018 comprising 29 countries with the aim of exploiting blockchain to create cross-border services for public administrations and businesses - in order to connect this European project with national initiatives and, in particular, with the “Italian Blockchain Service Infrastructure”, a project in turn promoted by the Agenzia per l'Italia Digitale (in collaboration with CIMEA, CSI Piemonte, ENEA, INAIL, INFRATEL ITALIA, INPS, Politecnico di Milano, Poste Italiane, RSE, GSE, SOGEI and the University of Cagliari), which aims to test the design and development of an ecosystem based on distributed ledger technologies.
Article 47 therefore does not have a truly binding scope, but is rather a programmatic rule, aimed at innovating the country's production systems and dealing, albeit on a voluntary basis, with the age-old problem of the opacity of the supply chains, which is ill-suited to the excellence and quality of our agrifood tradition. The experimentation of blockchain therefore represents, together with the introduction of the “made in Italy” mark referred to in Article 41 of the law in question, a tool aimed at strengthening the reliability of our products and consequently their attractiveness, offering the market and consumers concrete proof that the entire supply chain of an Italian product has taken place in Italy.