Rising Food Fraud in Global Supply Chains

Food Fraud is an already exceeding avenue in deceiving consumers worldwide — accounting for around $50 billion annually, says IBM Food Trust. As a result, it has become a global concern for brand owners to closely inspect the supply chains, particularly for products savoured through the mouth.?

Food fraud protection and detection in the supply chain can be difficult, costly, and research-intensive. However, if not taken seriously, it can have disastrous consequences that any stakeholder in the supply chain would not like to be accountable for.

Food fraud, generally known as Economically Motivated Adulteration, has existed since the commercialisation of food products occurred. It is now that we can identify the adulteration present with the use of effective mechanisms and developing technologies.?

According to Alma Delia Hernández, a food safety professional at the supply chain consulting company AIB International says, “It is not a new problem either, as the practice of adulterating food for economically motivated reasons has been going on for years”. However, she adds, “It has been in the spotlight recently because better technologies are being developed that allow it to be more easily identified.”

The most common adulteration and deception methods are substitution, omission, dilution, falsification, deception in the production method or its origin, intentional mislabeling, or masking a defect or contamination.

Although there can be multiple variations to food fraud, it is essential to define the term collectively.?

What is Food Fraud?

Food fraud can be described as a deliberate act committed by a food supplier or a fraudulent business owner to deceive consumers into purchasing food of substandard quality and/or content, purely intended for an unfair advantage, commonly flourishing economic gains for themselves.?

Some common examples of food fraud include adding sugar and/or artificial sweeteners in honey, selling regular beef and Kobe(Wagyu) Beef, or injecting gel inside shrimps to increase their weight and make them look bulky.?

Food fraud or infiltration of unknown (or non-standardised products) in supply chains is a rising problem that the global industry is actively concerned about, especially after the pandemic.?

Food fraud in supply chains is identifying products that do not meet the regulatory standards or as per a company’s claims.?

Locating and finding any contamination, substitution, or adulteration of food in any stage of the supply chain (involving production, supply, manufacturing, wholesale, or distribution) can be toiling enough for executives and requires much more time and effort than identifying any other consumer product. Therefore, the rising problem of food fraud in the supply chain has become a burdensome task for supply chains worldwide, eventually affecting the smooth flow of management and operations.?

However, before we know about the motive of fraudsters behind food fraud and its repercussions on the global supply chain and other stakeholders, it is vital to be aware of the types of food fraud and their corresponding consequences.

Types of Food Fraud

As per regulatory authorities, food fraud can not only be associated with one type of fraudulence. Instead, it involves various kinds of fraudulent activities that can cause differing harm to multiple stakeholders.?

Here is a classification of the fraudulent activities that fall under the types of food fraud -?

1. Adulteration

A component present inside a finished food product is fraudulent and potentially harms the consumer.?

Example - Milk containing melamine

2. Tampering and Mislabelling

Legitimate products and packaging, in some instances, have misrepresented information or misleading product ingredients than those present inside the package. As a result, it can eventually dupe consumers into purchasing a sub-standard or non-standard product for the same retail value, thus harming them physically and financially.

Example - Mislabelled method of production or origin; or altered expiry date

3. Excess Produce

Food fraud is sometimes also related to producing and storing food products more than actually required demand and later claiming less quantity in the inventory.?

Example - Under-reporting of production

4. Theft

When a legitimate food product is procured through fraudulent means: stolen from a transportation lorry and then claimed as legitimately shelved, it is known as theft.?

Example - Stolen products shelved with legitimate products, eventually stealing finances from legitimate brand owners.?

5. Diversion

Diversion is the sale and distribution of food products outside the regulated or intended markets it is supposed to be sold.?

One such example of such an operation is - selling area-specific, locally originated and regulated drugs that are illegal outside a particular border.

6. Counterfeit

A food product is claimed to be counterfeit when every aspect, from components to packaging, is imitated/replicated with fraudulent materials and unknown substances.?

Example - Food products produced with no quality regulation and the components inside but sold as genuine pieces.

This classification of fraudulent activities shows how potent fraudsters are duping the brands and consumers into purchasing counterfeit food products by unethical means.

However, what is the motive of Fraudsters to get involved in such activities?

The motive behind food fraud

Fraudsters who deliberately inject fraudulent ingredients, diverge products from the intended area, misguide with tampering and mislabelling, and produce counterfeit products conduct fraudulent activities in the proliferating, lofty food industry with one sole motive – to acquire hefty financial gains.?

The counterfeiters and fraudsters entirely understand brands' intention to introduce a food product in the market and how they would react to any disruption. Therefore, they try to gauge how they can steal the sales of genuine products from market shelves or online marketplaces. Moreover, even if brands find solutions to detect counterfeit food products on the supply chain, fraudsters are active enough to discover the countermeasure and find a way to avoid detection and interceptions.?

The ultimate goal of fraudsters is to dupe consumers and eventually brands by stealing money from their accounts to procure hefty amounts in their accounts. So that they can produce and operate more such fraudulent activities in the long run.?

How and why food fraud affects Global Supply Chains?

Any Global Supply Chain consists of three components acting together to fulfil the demand and supply of a product: Producers, Consumers, and “The Market”.?

These three components reside at the three vertices of a triangle affecting each other for the continuous functioning of a supply chain. While the producers and consumers orchestrate the demand and supply of a product, “The Market” is dependent on the geographic variations of any particular country or state; which also controls the availability of a product.?

Fraudsters and Counterfeiters are present in the same regulatory environment where producers and “The Market” intersect, tampering and infiltrating the supply chain in different verticals such as production, sourcing, manufacturing, distribution, etc.?

To understand this clearly, look at this Triangle of Fraud and Counterfeit in the Food Supply Chain sketched in the A Case Study of Melamine as a Counterfeit Food Product Additive in Chinese Human and Animal Food Supply Chain Networks.

Food Fraud in Supply Chains has become more prevalent since the pandemic, and there is no halt to the fraudulent actions.?

“Food fraud is a massive issue that many countries and companies are grappling with. The biggest risk to consumers due to this issue is health – and some very serious consequences to the global economy,” says Sumit Chopra, Director of Research Analysis and APAC Commercial Director for GlobalData.

“Formulas may include harmful ingredients that damage consumers’ health. Illicit products with identical appearances to genuine ones will not have gone through necessary and sufficient checks for quality control before being released in the market. Pack design is stolen to create copycat brands, which can potentially steal market share and undermine the image and reputation of legitimate brands. Financial losses are caused by brands paying to produce legitimate products but find that their sales are depressed due to illegal copycats,” says Chopra.

“Apart from the long-term effects to our health, it is also damaging to consumer trust and longer-term, government trust, as they are who we look towards to create a legal process around food production and sale,” says Paula Kirwan, General Manager, Australia (East) at Brunel Australasia.

“There is usually a commercial benefit to food fraud and by the time one fraud is detected the fraudsters will have moved to another scam. With so many opportunities to commit food fraud, the industry is seriously exposed to the devaluing of its product – and brand.”

Ultimately, losing consumer trust can massively impact the brand's reputation, says Chopra.?

“If it emerges that the claimed product benefits are not what the consumer is getting, this will massively impact consumer loyalty. Public health risks will also be a fallout. If non-approved food products or ingredients or lack of transparent information on the use of various undeclared substitutes cannot be controlled or tracked, then all of this can cause massive problems.”

As to why food fraud affects Global Supply Chain, it is because -?

1. The Food Supply Chain still operates on obsolete practices

The increasing complexity and fragmentation of the food supply chain is the major cause of fraudsters committing these fraudulent activities. While the world is moving towards complete digitalisation, the food supply chains still rely on outdated mechanisms to identify and trace products.

2. Intricate supply chains create blind spots

While the supply chains become more complex and intricate, witnessing the worldwide demands of online ordering mechanisms has created blind spots for counterfeiters and fraudsters to infiltrate and inject their evil actions.?

These effects on the supply chain can have severe repercussions on both businesses' and consumers' health. Let us see the repercussions that have occurred in the past years and in recent times.?

Repercussions of Food Fraud

“Fake and dangerous food and drink threaten the health and safety of people around the world who are often unsuspectingly buying these potentially very dangerous goods.” This was stated by Michael Ellis, head of INTERPOL’s Trafficking in Illicit Goods Unit, commenting on Operation Opsen V, which saw the interception of more than 10,000 tons of hazardous fake food.?

This statement determines the bleak reality of food fraud and how it can cause harm to a brand’s reputation and other rights holders. The damage caused by reputation subsequently poses more significant threats to revenues and credibility of a brand in the market. However, a sinister threat to the reputation that food companies must consider is the health risk caused by the consumption of unregulated, non-verified, or contaminated food items unwittingly consumed by the people. This involuntary action of consuming food that contains hazardous toxic ingredients is a matter of acute concern.?

Other than mislabeled or misrepresented food items that are usually known as “diverted products” do not pose an immediate health risk. However, a purely counterfeit product formulated, manufactured, and supplied under no regulations and verifications is a potential risk to consumers' health. Therefore, fake food that poses health risks is determined by these factors:

1. A food product made with no consideration of safety standards, quality, or efficiency.
2. A food product that may contain the right ingredients but from an unspecified source or region; or a lower quality ingredient depicted as matching the high-quality ones usually altered by one or the other means.
3. A food item lacking certain important ingredients may have been substituted for cheap constituent ingredients.

It is not in the proximity of consumers to identify the threats in any of the terms mentioned above. These threats and indications can only be deciphered with the help of specialised equipment and processes, only acquired by brands. If that is the case, have there been any reports that surfaced incidents of counterfeiting in food items?

In the past years, brands and other enforcement bodies and organisations have conducted drives such as Operation Opsen V to trace and intercept the counterfeiting in food items.?

1. A study conducted by the University of California found that 69% of all store-purchased extra virgin olive oil on the shelves in the U.S. were fake.?
2. In March 2016, when Interpol conducted its Operation Opsen V, it announced the largest seizure of counterfeit foods and drinks altogether. The seizures included the interception of 9 tonnes of fake sugar and 85 tonnes of olives painted with copper sulphate solutions to enhance the appearance in terms of colour.
3. In the same year, on February 27, 2016, the Food Safety News reported that some of the defunct cheese companies were selling “parmesan cheese” containing wood pulp instead of parmesan across the stores for three years.
4. A rising problem in some Asian and Pacific region countries is the injection of gel into shrimps to increase the weight and make it appealing for purchase. However, since the fluids or products injected into the shrimps are not intended to be used in food products, the consequences are likely to be dangerous.
5. According to The News (2019), milk producers from Pakistan (which is the world’s fifth-largest producer of milk), as reported by authorities, found that milk was commonly confiscated with urea and contaminated water.?
6. Another instance of adulterating substances was reported in the Australian Market as 20 per cent of honey available in the market substitutes cane sugar or corn syrup as primary ingredients rather than naturally produced honey.

Taking into account such massive repercussions has motivated and compelled governments, authoritative organisations, and brands to come together and give a strong fight against these criminal activities in the food industry. Therefore, there are some effective and stringent measures opted by the stakeholders to stop the spread of Food Fraud.?

Let us see what are the measures and initiatives put forward to reduce the deceitful activities in food fraud.?

Measures to reduce food fraud?

Governments, organisations and brands have come forward with many ways to tackle food fraud in the supply chains — which definitely have reduced the fraudulent activities to some extent.?

According to Chopra innovative packaging is an effective method to avoid imitation attacks from fraudsters. Taking the same into account, he says, “In essence, smart packaging is one of the best solutions that companies have started adopting to counter food fraud. If we consider the adulteration issue, a good track and trace system becomes a must-have feature should supply companies wish to reassure clients about the quality and source of their goods, as well as fight against counterfeits”

Similarly, in the case of counterfeiting, simple scanning mechanisms will allow consumers to check the product's authenticity before purchasing. To this, Chopra adds, “Anti-counterfeiting packaging solutions for consumers should be kept simple and unsophisticated”

Affordable and easily accessible consumer-oriented anti-counterfeiting technology is the key. “Consumers are the biggest victims of counterfeiting in consumer goods, facing financial loss, damaged health, or even life-threatening consequences. As product safety awareness rises among consumers around the world, the demand for consumer-oriented anti-counterfeiting technology and services will go up. The growth is driven by consumers taking the initiative to protect themselves from counterfeits. Such technology should be made affordable and easily accessible to avoid consumers being put off by the price.”

What can we as consumers do to deter food fraud?

With the increase in scalable technologies, counterfeiters are becoming more sophisticated and advanced in their approach to dupe brands and consumers. Therefore, one must be attentive enough to identify the fake food to prevent ramifications.?

Some of the methods to avoid food fraud are:

1. Read the labels and names of brands carefully. Counterfeiters often hide their vulnerabilities and mistakes in precision compared to a brand.?
2. Verify the product's origin following the product's PGI (Protected Geographical Indication) or PDO (Protected Denomination of Origin). If you find any variations in these identifiers, then the product you are holding in your hand is likely to be counterfeit.?
3. Take into consideration the value provided for the money spent. For example, a product usually available at a specific price should not lure you with its heavily-dropped price — conforming itself to a fake.
4. Ask or take assistance from the regulatory authorities or the retail stores by reporting the product's irregularities to prevent buying a counterfeit food item.?

Moreover, to identify if a food product is genuine or counterfeit, here is a list of labels will help you determine the authenticity of different food products.

To conclude our discussion, it has become essential to introduce innovative technology into the food supply chains across the world to block counterfeit food, and its provenance spread worldwide.