Food industry ‘$49bn opportunity' for fraudsters

The online brand protection company found sophisticated fraud exploiting the digital world.

NetNames commissioned an investigation by Cebr, an economics and business research consultancy, and brought together various studies.

Foods position in counterfeit market​

The largest counterfeit markets are pharmaceuticals ($200bn), electronics ($169bn) and food ($49bn), according to Cebr research.

“Counterfeiting drains sales from legitimate firms while requiring them to spend more defending their intellectual property − lowering wages and destroying jobs. Meanwhile, companies are less able to invest in future innovation and must elevate their prices – crushing creativity as much as profitability​,” said the report (which is here​).

NetNames advised companies to develop an anti-counterfeiting strategy to safeguard customer confidence, brand equity, sales and revenues.

“While some counterfeiting poses little danger, such as relabeling legitimate sparkling wine as Champagne, other fake foods can contain deadly ingredients – such as anti-freeze, cleaning products and nail polish remover in counterfeit alcohol. Additionally, unregulated counterfeit producers also increase the risk of foodborne illnesses reaching consumers​,” said the report.

Jackie Healing, consulting and technical services director at NSF International, said the report emphasises the impact of fraud on the legitimate food and drink supply chain as well the potential for cybercrime to develop.

However, work already being done by industry to address the issue should be recognised, she told FoodQualityNews.

“​Approaches taken by industry have shifted away from conventional detection ‘after the event’ to a more proactive risk-assessed approach aimed at predicting and hence preventing fraud in the first place.​

“Transparency, traceability and data sharing among government, industry, and third-party organisations worldwide have all now become major themes in addressing these global food fraud threats.​

“Big data and predictive analytics can also assist businesses in managing their risks more proactively and improved horizon scanning techniques are playing an increasingly important role.”​

Healing cited the establishment of the National Crime Unit within the Food Standards Agency as providing focus on the issue.

“​Other steps being taken include additional fraud and culture controls within the GFSI certified standards which, for example, now cover agents and brokers - previously unregulated in the supply chain - and new forensic testing techniques that can identify place of origin more quickly and cheaply than previously.”​

Undermining consumer trust​

However, there is always more to be done, added Healing.

“Government and industry are inevitably one step removed from the latest criminal thinking, but there is no doubt that tackling fraud is a high priority for all responsible operators in the supply chain. The more open and transparent we can be in our findings, the greater our chance of reducing the risks and thus protecting our own brands and our consumers.”​

NetNames said sales of counterfeit food defraud consumers of money and undermine trust in the grocery sector − potentially driving down sales and increasing prices as supermarkets and restaurants are forced to invest in greater supply chain security.

“While food and drink counterfeiting often has more to do with substituting cheaper ingredients or faking brand labels, origin fraud is also used. This includes activities such as renaming South American beef as European, Chinese wine as French, and American olive oil as Italian – all of which can hugely increase the prices commanded.”​

However, the brand protection company added as much food and drink fraud concerned infiltrating legitimate business-to-business supply chains, the Internet has played a less direct role in facilitating counterfeit sales than in some other FMCG categories.

Bill Cummings, SVP, corporate communications at Thin Film Electronics, said food and beverage firms - particularly those focused on premium-type products - are researching smart-packaging and related technologies to combat counterfeiting.

“More forward-thinking firms are already making preliminary investments in on-package intelligence, engaging in joint development agreements with technology firms to proactively address key factors such as label/package integration and software support,” ​he told us.

“Existing and emerging technologies are being considered to mitigate rampant fraud, reduce related losses, and protect brands. The solutions, however, must make sense from an economic, implementation, and usability standpoint.” ​

NetNames found globalization and the booming online economy has created an ‘ideal environment’ for counterfeiters, allowing them to sell goods to customers worldwide with virtually no barriers to entry, low overheads, easier distribution and fewer risks of being caught.

Growth of international brands has provided an environment to target and take counterfeit versions to market, with consumers using the web to hunt down big names at small prices, it added.

Europol crackdown​

The findings come as a Europol-coordinated operation seized more than 4,500 domain names that were illegally selling counterfeit products to consumers online.

Operation In Our Sites (IOS) VII involved more than 25 countries and tackled copyright-infringing websites and third-party marketplace listings selling luxury goods, pharmaceuticals and other products.

Rob Wainwright, director of Europol, said it saw a ‘significant increase’ in the number of seized domain names compared to last year.

“Through its Intellectual Property Crime Coordinated Coalition (IPC³), Europol will continue to work closely with its partners to strengthen the fight against intellectual property crime online and offline.”​

Europol told us around 400 pharmaceutical domain names were seized, according to preliminary figures.

Among the illicit domain names were life-style drugs, potential enhancers and performance enhancer drugs (e.g. steroids).

Europol and the European Union Intellectual Property Office (EUIPO) launched the IPC³ in July to fight against counterfeiting and piracy online and offline.