How Russia’s digital track-and-trace system could benefit consumers

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Ivan Streshinsky, Chief Executive Officer, USM

• Russia continues to develop its track-and-trace system that will make the majority of consumer good digitally traceable.
• The digital initiative now works with 14 product categories ranging from dairy goods, bottled water, medicines and cigarettes, to five light industry product categories.
• The technology aims to eliminate the market for counterfeit products, benefit businesses and the government, while giving power back to consumers.

Russia is continuing to develop its track-and-trace system, one of the most innovative approaches to digital economic ecosystems in the world that will make every single consumer good digitally traceable. The technology aims to eliminate the market of counterfeit products, as well as benefit businesses and the government, while giving power back to consumers in this age of digital change.

Integrating the system with other information frameworks will help to create digital twins for every item as well as digital copies of each industry sector, eventually allowing it to track national merchandise turnover in real time, with the ultimate goal of covering the entire consumer products spectrum by 2024. Over the past two years, the system has expanded to cover even more product categories, and its consumer-friendly smartphone application has risen in popularity, with over 72 million items scanned by individuals in total.

Tracking 14 categories in Russia and beyond

The Chestny Znak (“Honest Mark”) system, which was launched in 2018, is designed to validate merchant transactions by scanning unique IDs linked to actual products. In 2019, the public-private partnership agreement was concluded and IDs for the first group of goods, tobacco, were launched. The unique code contains information about the trademark, the manufacturer, and all available data on the item and its journey through the supply chain to the end buyer. In Russia, consumer goods are tagged with a DataMatrix code that is virtually impossible to replicate.

Each link in the supply chain must be connected to the national track-and-trace system, down to the Chestny Znak mobile application for consumers. Anyone can verify the authenticity of items and notify supervisory authorities about any violations with just a few clicks. Currently, almost 6 million users have downloaded the app.

The digital initiative now works with 14 product categories ranging from dairy goods, bottled water, medicines and cigarettes, to five light industry product categories: footwear, fur coats, perfumes, tires and photographic equipment. The Chestny Znak system already covers more than 12% of Russia’s non-resource GDP, with items worth approximately 9 trillion rubles ($130 billion). At the same time, almost 600,000 businesses have joined the system.

The tracing mechanism is used by Russia and by all Eurasian Economic Union (EAEU) nations, as well as by Uzbekistan. While Armenia, Kazakhstan, Kyrgyzstan and Uzbekistan use Russian software, Belarus applies compatible solutions. Integrating national labeling systems will boost economic growth, strengthen commercial ties between nations, and lower barriers to the movement of goods.

Russia introduced mandatory labeling for all medicines to prevent the spread of counterfeit drugs. This is especially true for all Russian vaccines intended for the domestic market. The DataMatrix code allows the state to manage the quantity of both components of vaccines, track expiration dates, and distribute vaccines rationally in an effort to help people in the most efficient way possible. Health officials actively use information from the Chestny Znak system to better manage vaccines and their supplies.

The technology is also having a positive impact on the state budget. Lowering the traffic of counterfeit goods benefits the state by increasing tax revenues. According to a study conducted by Russia’s National Research University Higher School of Economics, the system will contribute 121 billion rubles ($1.7 billion) to the country’s budget annually. The Russian government has already experienced an “explosive” monetary impact – the tobacco industry alone contributed 32 billion rubles ($446 million) to the state budget in 2020 and 77 billion rubles ($1.1 billion) in the first half of 2021. Furthermore, for the first time in six years, the volume of counterfeit goods in the tobacco sector fell from 15.6% to 7.0-10.5% in 2020.

The government has also gained a tool for a risk-based approach to business inspections — the tracing mechanism detects possible offenders automatically, which reduces the supervisory burden on lawful businesses.

Fairer competition

From a commercial viewpoint, the mechanism fosters fair competition, eliminates unfair advantages, and enhances customer faith in enterprises by ensuring that only legal goods stay on the market. Access to data is another significant advantage of the system for business. Pricing becomes transparent as the entire shipment chain is now visible. Regulators and enterprises also gain access to a vast array of product data, allowing them to make faster and more accurate choices, particularly in times of crisis.

According to projections from Russia’s Higher School of Economics, businesses can generate up to 200 billion rubles ($3.1 billion) in additional revenue, with the dairy, tobacco and confectionery industries seeing the biggest benefits. Most notably, the dairy industry would receive 53 billion rubles ($750 million).

Blockchain, Centre for the Fourth Industrial Revolution

What is the World Economic Forum doing about blockchain in supply chains?

The World Economic Forum has joined forces with more than 100 organizations and 20 governments to accelerate the deployment of blockchain for supply chains – responsibly, securely and inclusively.

The multistakeholder team, represents large shippers, supply chain providers and governments – including Maersk, Hitachi, Mercy Corps, Korea Customs Service, Llamasoft and Ports of Los Angeles, Oakland, Valencia and Rotterdam.

The group will co-design an open-source toolkit to guide supply chain decision-makers towards utilizing blockchain to maximize the benefits and minimize the risks of the technology.

Blockchain for Supply Chains

The World Economic Forum’s project, Redesigning Trust: Blockchain for Supply Chains, is part of our Platform for Shaping the Future of Technology Governance: Blockchain and Digital Assets.

Companies globally can join our efforts to streamline new and complex technologies like blockchain, helping to revolutionize sectors and ecosystems and build trust globally. Click here to find out more.

Experts have also determined that in addition to bringing higher revenues to the market and making it more transparent, the Chestny Znak system will also assist consumers in making informed decisions and purchasing the best products. Recent Deloitte research revealed that Russians are interested and confident in the labeling system: 81% of respondents anticipate that counterfeit items would either totally disappear from the market or considerably decline in quantity; 81% evaluate positively or neutrally the labeling of goods.

Respondents also feel that the mechanism should be expanded to include children’s products and toys, cosmetics, home appliances and electronics.

The Russian track-and-trace system is a unique example of a public-private partnership in the technology sphere and surpasses any comparable system globally. It is managed by the Center for Research in Perspective Technologies (CRPT), a joint venture founded by a group of investors spearheaded by USM, and has been financed with non-state investments only. Some 250 billion rubles ($3.5 billion) of investments are to be directed to set up and develop the system.