“There’s a Chinese restaurant on every block, and if you think mouths won’t water when you come strolling by, then you don’t know squat about Oriental cuisine. They prize the taste of dog, friend. The chefs round up strays and slaughter them in the alley right behind the kitchen—ten, twenty, thirty dogs a week. They might pass them off as ducks and pigs on the menu, but the in-crowd knows what’s what, the gourmets aren’t fooled for a second.” — Willy G. Christmas talking to Mr. Bones, his dog, from the novel Timbuktu, by Paul Auster
Europe is abuzz with the horsemeat scandal. After the Food Safety Authority of Ireland first discovered that a range of frozen beef products contained a large percentage of horse DNA, the story struck a viral nerve and spread like wildfire.
For consumers at the convoluted end of frozen food supply chains, the idea that you have been eating “Bessie” the horse probably comes as an emotional shock to the system. It is yet another nagging reminder of how distant we are from our original sources of food and how easy it is to be fooled by food appearances and masked tastes.
For the companies whose grocery store or packaged food brands are entangled in the horsemeat scandal, the damage to reputational interests can be profound. Affected companies took public relations repair action first and terminated supply chain contracts in a peremptory fashion. IKEA stopped serving its famous Swedish meatballs. Burger King changed to a different supplier of burgers. Tesco, a major European supermarket chain, dropped a major vendor after discovering its frozen spaghetti bolognese contained over 60% horsemeat.
Food Scandals and Enterprise Risk Management
The horsemeat scandal poses what economists and business school professors would characterize as a textbook case of “enterprise risk mismanagement.” That such a large quantity of fraudulently substituted horsemeat obviously made its way into such a plethora of frozen food products shows that our global food system is rife with opportunities for “industrial scale adulteration.”
Without fully appreciating it, companies whose reputations depend on the honesty and sincerity of an upstream chain of suppliers found that they had effectively lost quality control over their brand identities. They had externalized a brand risk that impacted company goodwill through layers upon layers of supply contracts and subcontracts. After their brand identity had already been tarnished, these companies reacted by cutting off perhaps wholly innocent suppliers at their proverbial knees.
Even with the contract cancellation triage efforts, the negative brand images generated by the horsemeat scandal may well persist and fester. For example, IKEA meatballs are now inextricably linked emotionally and psychologically with horsemeat. That taint does not fade easily once it has lodged in the minds of consumers. It defeats the “halo” effect that marketing departments desire in branding company products.
Under U.S. law, economic adulteration is defined as “the fraudulent, intentional substitution or addition of a substance in a product for the purpose of increasing the apparent value of the product or reducing the cost of its production, i.e., for economic gain. [It] includes dilution of products with increased quantities of an already-present substance (e.g., increasing inactive ingredients of a drug with a resulting reduction in strength of the finished product, or watering down of juice) to the extent that such dilution poses a known or possible health risk to consumers, as well as the addition or substitution of substances in order to mask dilution.”
The incentive for food adulteration is simple economics. Where the possibility of detection is small, dishonest food purveyors have long bamboozled consumers. In the 19th century, substituting margarine for butter was rampant and led to a host of governmental regulations.
More recently, the melamine scandal made news in 2007 when hundreds of pets died from renal failure after eating melamine-tainted pet food. Unscrupulous Chinese manufacturers had added melamine into pet food to save money that would be spent on purchasing more expensive vegetable proteins.
While it may appear initially that there is no food safety issue involved with the consumption of horsemeat, there are potentially two severe public health issues. First, there is evidence that some horsemeat contains phenylbutazone, commonly known as “bute”, a medication used in horses to treat pain, that in rare cases can cause aplastic anemia or bone marrow failure in humans, a potentially life threatening illness. Second, there is always a concern about potential allergic reactions to food. Where the potential allergen is in the food but the labeling does not reveal the presence of the allergen, a consumer sensitive to that food may unwittingly purchase it and consume it resulting in an allergic reaction.
Aside from any food safety issues, the scandal is culturally driven. Eating food verges on a sacred act. Eating horsemeat, like eating cats or dogs, is a deeply held taboo in the United States. Those companies or individuals who cause others to transgress food taboos should not be surprised when they are in turn subject to the most withering scorn and contempt imaginable in our viral Internet culture.
With the increasing enforcement powers granted to the FDA pursuant to the Food Modernization Safety Act of 2011, those who intentionally adulterate our nation’s food supply can expect to encounter civil and criminal liability for their fraudulent and deceptive conduct.
A Real American Food Scandal: Mislabeled Seafood
While Americans probably do not need to be concerned about the potential presence of horsemeat in our spaghetti sauce, Americans should be concerned about widespread fish mislabeling. It is likely the most prevalent form of economic adulteration in the United States. The seafood scandal plays off the inability of many consumers to distinguish between such things as farm-raised from wild-caught salmon.
A recent nationwide study conducted by Oceana, a non-profit group, tested over 1,200 samples of fish purchased in grocery stores, fish markets, sushi bars and restaurants. The study found that approximately one-third of the seafood sold nationwide is not what it purports to be.
Sushi is the biggest offender: 74 percent of it was a different species than advertised. Often, escolar and tilapia are substituted for more expensive fish species. In addition, fish with high mercury levels such as King mackerel—on an FDA “do not eat” list—has been sold under false labels.
One reason mislabeled fish is not easily detected is that by the time the fish is sold to a downstream retailer (e.g., grocery store or restaurant) it is often in a fillet form, making the original fish hard to identify. There is currently no nationwide system of tracing seafood from boat to plate. Thus, it is difficult to know if the mislabeling is occurring on the boat, during processing, at the wholesale level, or at the retail counter.
Mislabeling of fish may have serious health consequences in the case of mercury levels, and allergies.
Just How Risky Is Your Supply Chain?
More than ever, food retailers must ensure that their vendors and suppliers are trustworthy. The fewer steps that are involved in the supply chain, the less opportunity there will be for misbranding or outright fraud. In Europe, consultants estimated that there are approximately 450 points in which the integrity of the supply chain could break down and allow horsemeat to enter it.
Food retailers should pay special attention to the terms of their contracts with suppliers. Who is responsible when there is misbranding of a product? Economic losses are enormous in the horsemeat scandal—even though no consumer has gotten ill.
Food retailers cannot simply rely on government food inspectors to insure proper labeling of food products. Food integrity should not be an externalized risk for retail-facing companies; their brand reputations are coterminous with food quality. Contractual guarantees may not be worth the paper upon which they are written if your company loses all of its goodwill in the heartbeat of a headline-grabbing food scandal.