Why companies must tackle the risk of food fraud
While the 2013 horsemeat scandal drew attention to the problem, such scams are not unusual. Whether it's melamine in baby formula, fake honey, impure olive oil, vodka laced with methanol, catfish masquerading as premium haddock – instances of different or low-quality food being deliberately mislabelled are commonplace.
The cost to the UK economy could be as great as £1.17bn per year, estimates the Food Standards Agency.
A third of UK manufacturers cannot guarantee the ingredients they use aren’t fraudulent.
A third (32%) of UK manufacturers cannot guarantee the ingredients they use aren’t fraudulent, according to Lockton’s survey of 200 UK-based food and drink manufacturers and suppliers*. In other words, they cannot offer assurance that the raw ingredients used in their products really are as advertised, due to complexities or a lack of information in their wider supply chain.
Retailers are anxious of further high-profile food fraud incidents, with many considering legal action as a case of ‘when’, not ‘if’. Thanks to social media and 24-hours news, food fraud cases can quickly gain national and international coverage.
The cost-cutting pressures imposed by Brexit and other factors compound these problems. At the same time, customers are expecting higher standards in terms of traceability, transparency and ethical sourcing of products.
So what can businesses do to improve their food fraud resilience and grow consumer confidence?
Companies need to think more proactively about food quality and safety.
New technologies could play a role in improving the traceability of products, thereby decreasing fraud at different stages of the product’s life cycle. For example, in April Chinese e-commerce giant Alibaba partnered with four Australian and New Zealand companies to trial its Food Trust Framework, an initiative that uses blockchain for supply chain tracking and the prevention of food fraud. (Blockchain technology records all transactions publicly and cannot be altered or falsified.)
More generally, companies need to think more proactively about food quality and safety. It is advisable to conduct a self-assessment, regularly evaluating your exposure to potential food fraud, identifying gaps and introducing risk mitigation activities as appropriate.
Where appropriate, re-examine relationships with suppliers and ensure you are aware of suppliers’ history in regard to audits, quality, safety and testing. Ensure they have a comprehensive food defence strategy, and request to see their supply chain vulnerability assessments. Take an enterprise-wide view by adding identified risks to your organisation’s enterprise risk management strategy. It’s also important to identify and incorporate regulatory controls and other industry best practices within your operations.
Food fraud is a growing risk; retailers and manufacturers that can buck this trend could well boost their marketshare and customer loyalty.
*These findings are from Lockton’s report: The tipping point: cost cutting pressure piles recall risk onto UK food and drink manufacturers.
For more information, please contact Ian Harrison on:
+44 (0)20 7933 2297
Market conditions for product recall insurance buyers are changing due to uncertainty around pandemic-related claims as well as a general push for profitability by some insurers.
Like many niche sectors, the product recall/brand damage market is nervously evaluating how it will be affected by the significant premium increases in parts of the property & casualty (P&C) insurance sector. Whilst we are seeing some rate increases in the short term, there are strong positive trends in the medium/longer term as insurers realise the comparatively strong growth potential and profitability of the recall/brand damage insurance market.
The product recall market saw a significant amount of renewals and new business coming into Lockton London for 1/1 and this has provided a good gauge on the state of this niche market which we would like to share with current and prospective clients.
While the product recall market overall remains fairly unaffected by the hardening insurance market, a major player’s strategy shift is requiring more risk sharing and syndication in this niche segment.