Pricing pressures could push food industry to commit fraud

Downward price pressures on the UK food industry could lead producers and manufacturers to cut corners, increasing the chance of food fraud and putting food quality and the supply chain at risk, a new report reveals.

According to the inaugural report from insurance brokers Lockton, 32 per cent of manufacturers already say they are unable to guarantee the ingredients they use aren’t fraudulent because of complexities or a lack of information in their wider supply chain.

The food and beverage report, which surveyed 200 food manufacturers and suppliers, examined the implications of cost-cutting pressures being placed on the industry from rising inflation and demands from retailers and consumers to keep food prices low.

Lockton revealed that three quarters of the manufacturers surveyed claimed they were under pressure to reduce their prices to meet retailer demands, and almost all (98 per cent) agreed that continued price pressures would have an effect on the end product. Already many manufacturers have resorted to reducing the size of products while keeping the prices the same.

“The report has found that the quality of food and drink and also efforts to improve safety

standards are next in line [to be cut] if low prices keep pushing manufacturers,” the report said, citing 36 per cent of manufacturers that claim quality will be the most significant impact of cost-cutting pressures.

“We all want to pay less for our trip to the supermarket, but we’re reaching a tipping point where increased price pressure could adversely affect the quality of our favourite food and drink. But worryingly for an already embattled industry, the safety of food production and the hard-fought relationships with retailers are also at risk as manufacturers and retailers alike are pushed closer to the edge.”

According to the report, nearly three in four (72 per cent) manufacturers surveyed would use cheaper raw ingredients in their products, with one in ten manufacturers already resorting to this. And 40 per cent agreed ingredient transparency and traceability was becoming harder to determine – a particular concern when 32 per cent said they had looked to international sources, which may have less rigorous standards, for cheaper raw materials and 53 per cent said they would consider this in the future.

These practices exposed manufacturers to the risk of product recalls or food scandals, the report said. “We have now reached a stage where the quality of ingredients used in food and drink products is at risk of being compromised,” said Ian Harrison, head of product recall at Lockton. “Manufacturers must be careful to ensure appropriate safety standards are being met by their suppliers. Using less reputable suppliers with cheaper raw materials in response to pressure from retailers to cut costs is a false economy if it increases the risk of recall.”

The report added that the cost-cutting pressures and past high-profile food scandals was causing a “sense of trepidation” and “looming fear” of food fraud within the industry. Lockton found that, as a result, retailers were requiring manufacturers and suppliers to take out increased liability insurance to meet contractual demands in order to shelter retailers from potential fallout from recalls and scandals.

Similar views have recently been voiced by Peter Whelan, director of audit and compliance at the Food Standards Agency Ireland, who said pricing pressures brought about by Brexit could push manufacturers to cut corners and commit food crime.

“It has been estimated there will be up to a 22% increase in food prices,” Whelan said at the recent Food Brexit conference. “Would this encourage some manufacturers and processors to cut corners? It may do, and if it does, it could be fraudulent events or bad practice – they could substitute product or they could adulterate product… There is the opportunity of fraud and deception of the consumer.”

Most food crime has previously been found to be perpetrated by legitimate food businesses looking to cut corners and preserve profits rather than organised crime gangs, the National Food Crime Unit (NFCU) said recently.