The Fight Against Food Fraud in Our 'Biggest, Weirdest Supply Chains'

The owner of popular artisanal cheese retailer Neal's Yard Dairy in London was shocked to discover in October that his business had been scammed out of £300,000 ($388,000) worth of award-winning cheeses. But, this is just one small slice of a global food supply chain described by the World Economic Forum as "notoriously complex," where instances of fraud like this lead to billions of dollars in losses each year. 

Initially "excited" to be getting such a large order, Neal's Yard Dairy owner Patrick Holden told BBC News that he was victimized by sophisticated scammers posing as intermediaries for a French supermarket, who took 22 metric tons of clothbound cheeses without paying. Holden says that the robbers had Neal's Yard send the cheeses to a separate warehouse in the London area before any money was exchanged, where the scammers picked the products up and then disappeared without a trace. It's believed that the cheeses will eventually be sold in less-regulated markets in Russia and the Middle East.

Operations such as the one Holden fell victim to are all too common, with the World Trade Organization estimating the global cost of food fraud to be anywhere between $30 billion and $50 billion each year. That number could be even higher when you factor in the scams that go undetected.

"The most successful food fraud initiatives are the ones you don't know about," says Paul Bradley, senior director of product marketing for supply chain management company TraceGains. "From an order-of-magnitude standpoint, it's a significant problem for the industry."

Read More: Food Fraud — A Fragile Food and Beverage Supply Chain Imperative

When it comes to procurement fraud in general, Bradley says that the food industry is especially vulnerable, as "one of the biggest, weirdest supply chains" on the planet. Food products typically move through a series of complicated stages before reaching a manufacturer, starting with production on farms or ranches, then onto handling and storage, next to processing and packaging, and finally distribution to retailers and supermarkets. That involves products moving through a second, third, and fourth tier of suppliers before they ever end up on a family's dinner table, and at each stage in that supply network, there's "an opportunity for something hinky to happen," Bradley warns, where fraudsters can replace expensive ingredients with cheap alternatives at the front end, or, in the case of the Neal's Yard scammers, run off with products they had no intention of paying for in the first place.

Bradley points out that the current geopolitical environment is also one that has created added risk for fraud, given the sheer number of disruptions brought on by situations like the ongoing crisis in the Red Sea, last year's drought conditions at the Panama Canal, and Russia's war in Ukraine. When the flow of trade is interrupted, businesses will often need to seek out new, unfamiliar buyers and suppliers, often forcing them to operate outside their trusted networks. Once that happens, fraudsters will target specific businesses they believe to be vulnerable. 

"All of the things that fundamentally amount to a less organized, less digitized, less well-run organization create opportunities for fraud," he says. 

For businesses, steering clear of scammers means making sure that a buyer or supplier is willing to be transparent and forthcoming with their documentation early on in the process, and if they're not, you need to ask why. Equally as critical is vetting potential partners through trusted, established networks rather than going with the first person who comes up in a Google search, Bradley adds, noting that there are systems and data resources businesses can pay for that provide due diligence on potential partners. Legitimate buyers can also establish trust on their end by running a tight ship in terms of their compliance documentation and the data they manage, demonstrating good, consistent processes.

Bradley believes that this all plays into the larger debate around supply chain visibility, where retailers and brands across a variety of industries are now being expected to keep meticulous, detailed records of where their products are coming from, how they were produced, and whether they were produced ethically. And while that's often associated with other issues such as forced labor and carbon emissions, better visibility can mean fewer opportunities for a would-be fraudster.

"That's all collectively very good for [combating] food fraud, because all of those things are driving us towards a common goal of really understanding where things are coming from," Bradley says. "It's a lot harder to do fraud in that kind of environment than it is in the sometimes very opaque and fragmented environment we have today."