Image Credit: Mauro Alvarees and Q Costa Rica
Just when I thought I understood the vast extent of food fraud, FoodLawLatest reported about another one: rice made from plastic. Rice is one of the cheapest foods available, so I had not considered that it presented a risk of economic fraud.
If someone is making a profit from selling a food, then there is a motive and opportunity for someone else to sell a counterfeit version of it. This problem is worldwide — from fake bottled water in China, to counterfeit Smirnoff vodka in Europe, to mislabeled seafood in the U.S. And this problem is not limited to high-value products.
NPR recently reported that a sushi chain owner in Japan paid $1.76 million for just one (489 pound) bluefin Tuna. Per pound, that is more than the price of “the very best connoisseur cannabis” in California. With such strong economic motivation and weak criminal penalties, is it any wonder that 39 percent of fish sold in the U.S. is mislabeled?
“Do you really know what kind of fish you’re eating?” And why that’s such an important question?
As recently reported in Food Safety News, food fraud (by way of species substitution) presents more than a risk of ripping off consumers. Pregnant women may be unwittingly exposed to toxins, gastric distress, and allergens from consuming seafood that is not what it purports to be. Honest employees of fishing companies, distributors, and retailers that sell genuine products can lose sales and their jobs.
U.S. Senator Barbara Boxer (D-CA) recently asked the FDA to increase its efforts to reduce seafood mislabeling. For bad actors, increased “traceability and enforcement . . . from bait to plate” presents risks of criminal prosecution and civil damages from class action litigation. However, for seafood companies that adopt best practices, it also provides promotional and marketing opportunities.
At least three empirical examples demonstrate the real-world class action litigation risks for companies that allegedly improperly represent their products’ Kosher/Halal certifications. The manufacturer of Hebrew National allegedly falsely represented the Kosher status of its deli meats. Chipotle allegedly did not disclose the pork in its pinto beans. Nature Made supplements allegedly failed to identify the presence of pork or other animal products.
Food companies face huge risks from this litigation due to the enormous size of the potential plaintiffs’ classes. In the U.S., Halal-certified foods are a $20 billion market. Kosher consumers buy $12.5 billion in food annually, and the broader market for Kosher ingredients exceeds $300 billion. (Many non-Kosher consumers choose to buy Kosher foods due to their perceived higher quality, and Kosher is the “hottest word on food labels.”)
In addition to civil liability, fraudfeasors also face risks of criminal prosecution and conviction in the court of public opinion.
To manage some of these risks in the CPG market, some researchers are exploring the use of RFID technology to trace Halal-certified foods throughout the supply chain. Food companies in related market segments should consider developing plans to manage their risks of this emerging and costly litigation.
The latest reminder of the risks of perpetrating food fraud: on May 22, 2012, the U.S. government filed felony charges against a seafood importer for allegedly falsifying Country of Origin Labeling (COOL). According to the filing, Worldwide Shrimp Company and others conspired to violate the Lacey Act by labeling Mexican shrimp as a product of the U.S.
The defendants, of course, are innocent until proven guilty beyond a reasonable doubt. The purpose of this posting is not to suggest otherwise. Rather, it is to identify three (of many) underlying reasons why COOL laws are important to businesses and consumers.
Second, even if no one suffers personal injury from an imported food, in some states, economic injury is enough to provide standing for plaintiffs to sue, because labels matter. Consumers often are willing to pay more for foods from certain countries (or to avoid buying foods from others) for many reasons not directly related to safety, such as supporting local jobs or reducing energy use.
Finally, companies that are accused of violating COOL laws should keep in mind they risk conviction in the court of public opinion. Many consumers understand that companies willing to violate COOL laws may also be more likely to break other laws that affect food safety.
Food Fraud presents an emerging litigation risk in California and nationwide.
What is Food Fraud?
Food fraud occurs when someone sells a product that is not what it purports to be. A few examples include short weighting (e.g., including the weight of excessive ice glazing) of frozen seafood, species substitution, dilution of premium olive oil with inferior oil, and misrepresenting a product’s country of origin.
How do Fraudsters Get Away with It?
Many times, only minor distinctions differentiate competing products, so it can be difficult even for trained professionals to detect fraud. Almost two hundred years ago, British writer Cyrus Redding stated that consumers could avoid food fraud by becoming “perfect[ly] acquaint[ed] with that which is good.” But how can one become “perfectly acquainted” with the differences between conventionally-produced and “free range” eggs, other than by the price paid?
Why is this an Emerging Litigation Risk?
Food fraud is economic fraud, because labels matter, and customers want to get what they pay for. Some states have already seen food fraud class actions filed that allege honey laundering. Food fraud also presents a risk of food allergy personal injury litigation for companies that substitute cheaper finfish products like surimi for shellfish like crab. Food fraud also may result in criminal indictment and imprisonment. There are also the indirect costs of negative publicity arising from conviction in the court of public opinion.
What can be Done to Manage Food Fraud Risks?