Cornhusker Economics

Optimal Regulatory Response to Food Fraud

By Konstantinos Giannakas


Food fraud refers to the deliberate substitution, addition, tampering, or misrepresentation of food for economic gains. In this context, food fraud can be divided into two broad categories: food adulteration and mislabeling. While food adulteration can be defined as the intentional substitution or addition of substances in a food product to reduce its costs of production, mislabeling refers to acts of misrepresentation of the type or quality of food products. Food fraud is motivated by economic gains and is enabled by the fact that information about the nature of credence goods is typically asymmetric – while product suppliers know the type/quality of their offering, this information is hidden to consumers even after purchase and use of the product in question. While certification and labeling can resolve the information problem faced by consumers, imperfect enforcement of labeling and/or certification requirements creates opportunities for producers to mislabel or adulterate food products.

Although food fraud is as old as commerce itself, its intensity and frequency have been on the rise in recent years due to the globalization and growing complexity of the multi-tiered agri-food marketing system. In the United States, for instance, the total number of confirmed food adulteration incidents in 2011 and 2012 was 60% higher than those between 1980 and 2010. Between December 2018 and April 2019, Interpol and Europol launched a massive food fraud investigation, called the OPSON VIII operation, in 78 countries in Africa, Asia, Europe, and North America, which resulted in the total seizure of around 16,000 tons and 33 million liters of adulterated food and beverage, respectively. While the actual cost of food fraud is unknown (since at least some fraudulent behavior goes undetected), recent estimates suggest that food fraud may cost the global food industry $30 billion to $40 billion per year.

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2021 Cornhusker Economics

2020 Cornhusker Economics