Food & drink industry supply chain open to exploitation by criminals, warns specialist insurance broker

Continued growth in the size and complexity of the global food chain could see the food and drink industry become an even greater target for criminal activity in 2017.

That’s the warning from Arthur J. Gallagher, one of the UK’s largest insurance brokerage and risk management companies, to those managing risk in one of the largest industrial sectors in the world. “With more than 700,000 companies and the biggest production concentrations in China, the US and the EU, opportunities for criminal activity across the food production chain are enormous and companies will need to ensure they implement robust supply chain management to tackle the threat and deal with the issue of regulatory non-compliance,” warns Garry Moseley, who leads Gallagher’s specialist Food & Drink team within the company’s Major Risks Practice.

An operation between November 2015 and February 2016  by Europol resulted in seizures ranging from nearly nine tonnes of counterfeit sugar contaminated with fertilizer in Khartoum, Sudan, to Italian officers recovering more than 85 tonnes of olives which had been ‘painted’ with copper sulphate solutions to enhance their colour.

In February 2014 Interpol took action against criminal networks which recovered 1200 tons of fake or substandard food and 400,000 litres of counterfeit drink across 33 countries.

These are just a few examples of the types of criminal activity putting companies — and consumers — at risk, according to Garry Moseley, who adds: “Criminal attacks on the food chain can occur at any stage, whether that’s in production, logistics, retail or disposal.

“Food crime comes in a range of different forms. as shown by the illustrations above including adulteration — for example, methanol in vodka; misrepresentation — making out a product it is something it isn’t; and substitution — such as the swapping of beef for horse meat as we saw in the ‘Horse gate’ scandal. Diversion is also a problem, which occurs when foodstuff is turned away from its intended use — for example, animal waste sold in food.”

The growth in size and complexity of the global supply chain means that food organisations need to acknowledge that crime stretches across time zones and different regulatory systems across the globe and co-ordinated action from the world’s regulatory bodies is required to deal with the issues.

Garry says: “As many manufacturers have integrated supply chains, sourcing materials from one country, processing in another and selling in the UK there is an opening available to criminals to exploit this chain, as was demonstrated in the ‘horse gate’ incident a few years ago.”

As well as the continued criminal threat, Gallagher also highlights the impact of Brexit on the food industry workforce as a key issue for 2017 with the potential loss of seasonal labour for the crop picking and processing sector.

Garry says: “With around 29% of food industry workforces being non-British EU nationals and Brexit implications beginning to take shape, there will be a need in the UK to further train and develop existing workforces. An additional burden is likely to flow from the UK government’s plans for mandatory gender pay gap reporting, which it has been consulting large employers on this year.

“Finally, the continuing trend of mergers and acquisitions resulting in further consolidation in the food sector will likely be another key issue in 2017. Businesses face the twin challenge of needing to protect themselves in an ever more competitive environment while simultaneously having to become more efficient and find new routes to market. This trend is being fuelled by private equity interest in the sector and demand for well-established brands, particularly from Asia — as we have seen with the recent acquisition of UK-based Chaucer by Nagatanien, a Japanese-based manufacturer of premixed and instant food.”