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Insights supply shortages food fraud

Food fraud: Looking at the bigger picture

Food fraud has always been a part of life; ever since the first miller started adding dust and pebble straw back into wheat flour.

The difference now is that we live in a world where demand is increasing ahead of capacity to produce, and supply chains have become longer and more complicated. Managing this vulnerability means there is an inevitable risk of food fraud.

What is food fraud?

The European Commission defines food fraud as “any suspected intentional action by businesses or individuals to deceive purchasers and gain undue advantage therefrom, in violation of the rules referred to in Article 1(2) of Regulation (EU) 2017/625 (the agri-food chain legislation)”.

Three things define food fraud:

  • Intent: Fraud requires a concerted and planned intention to represent products as something they are not.
  • Commercial motivation: What fraudsters do is pass off inferior goods as the real deal and charge the full market value.
  • Legality: Food fraud is committed in the complete and certain knowledge that it is illegal, and for good reason.

At worst, food fraud can cause severe illness and even death. A recent example was in 2008 when a Chinese dairy producer adulterated powdered milk with melamine to cover up the fact that they had been diluting the milk with water. Melamine has a high protein content, enabling them to fool the testing regime. Melamine can also cause kidney damage in humans. Three hundred thousand infants in China became sick. Six babies died.

From a business perspective, food fraud can be damaging, both directly and in terms of reputational damage.  In 2020, the Guardia Civil in Spain broke up a whisky fraud network. They seized 300.000 whisky bottles, all of which were counterfeit imports. That scam was valued at over US$1 million. The damage to the injured party was estimated at just under US$5 million. These are big, big numbers.

Another area for concern is the unsustainable nature of food fraud. Many of us make a conscious decision to purchase ethically and responsibly. For example, we may choose to buy seafood that is harvested sustainably. Therefore, it’s disappointing to learn that In March this year, Chinese Customs arrested 18 people accused of smuggling $390 million worth of frozen seafood. Those fish were almost certainly caught in illegal catch areas or in excess of quotas, so the environmental and sustainability impact shouldn’t be underplayed.

Supply chain shortages

Supply chain shortages tie in with more significant food fraud risks. We live in a world where supply chains have become longer and much more complicated. This allows bad actors to exploit the potential for profit. Therefore, it’s about looking at supply-side risk. As a rule, tier 1 suppliers can be classed as low risk; it’s expected that they have a robust approach to food safety and risk management. However, the risks increase as you move to tier 2 and tier 3 suppliers because they don’t have a direct relationship with you or you with them.  So that creates distance, and with that distance comes a decrease in visibility and a problem in clearly seeing all the potential risks. And, particularly when the supply chain is squeezed, this inevitably increases the risk of food fraud.

Supply chain shortages create many consequences, including a very evident one: not being able to get the ingredients you need when you need them or receive the quantity you ordered, thus leading to a significant rise in cost. This supply-side disruption may lead you to reformulate your product or products. However, you’re not making a change which has a positive outcome to offset the potential commercial risk. For example, when reformulating to address supply issues, you probably won’t want to change the amounts of fat, sugar, salt or calories. You’re being driven to make a change that could impact taste, mouth feel, or shelf-life simply because you don’t have that surety of that supply.

In simple terms, everyone is affected by the implications of food fraud. Some might say that the simple solution is to test everything that comes into your processes; however, this simply isn’t feasible and would introduce an unimaginable level of complexity, delay, and cost.

Therefore, the more realistic approach to navigating these challenges would be for businesses to start looking at their risk profiles, taking a wider and more holistic view of their risk management environment. The emphasis should be on suppliers, firstly shifting from cost to focus. Secondly, relationships and the need to understand not only what they provide but the constraints and challenges that affect them would mean we can dive deeper into identifying potential concerns.

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