Where is the national fix to food fraud?



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Andrew Parker is a Partner at PwC where he leads the Australian firm’s Asia Practice. Mr Parker joined PwC in 1985, became a partner in 1999 and spent 12 years in PwC’s London, Moscow and Jakarta offices. Mr Parker has had a long association with Asia; he has lived and worked in Indonesia, and was the leader of PwC’s Asian telecoms industry team until 2012, a role he held for nearly 10 years.

PwC Partner, Andrew Parker discuses whether it's possible for Australian companies to insert themselves into Asian food supply chains without risk to food fraud.

When it comes to food, Australia’s got what China wants. Our produce is clean, green and of high quality – exactly what the country’s forecast 850 million middle class consumers in 2030 will be looking for. 

And because we make more than we need to feed ourselves, there’s plenty to go around. In fact, Australia exports more than two-thirds of its agricultural and food outputs, generating $45 billion annually.

Technology is also accelerating the trade; e-commerce platforms like Alibaba now allow suppliers large and small to sell their produce into China without the need for expensive and complex supply chains.

So with market access easier than ever before and demand for premium goods expected to continue to grow well into the next decade and beyond, the economic opportunities for Australia are significant.

But how seamlessly can we shift from being China’s mine to China’s farm, and enjoy the spoils such a transition would deliver? Unfortunately, it’s a future that’s far from guaranteed.

First, we’re not the only country vying for the appetite of Asia’s increasingly discerning consumer; Europe, North America, even New Zealand have all benefited from surging demand for quality food in the region.

Second, our food is not cheap. High labour costs, poor infrastructure and extensive regulatory frameworks mean Asian buyers pay a premium for ‘made in Australia.’

Fraud is sophisticated, organized and on the rise

But perhaps the biggest threat to building a long-term, sustainable trade around food is the problem of food fraud. It’s estimated that fraud costs the global food industry between $US40bn -$US50bn every year.

In Australia, we take it for granted that the meat, milk or vitamins in our supermarkets are the real deal – genuine products, packaged and delivered the way the producer or manufacturer intended.

In China, however, food fraud is a significant and growing problem. With demand high, supply low and a regulatory regime that’s still developing, it has all the ingredients for crime to thrive.

For example, there’s a vibrant market for second-hand milk powder tins and vitamin jars, which fraudsters fill with inferior quality goods and then pass off as authentic brands.

Contrary to popular belief, these counterfeit operations are very sophisticated and run by well-organised and well-financed actors. In many cases, their business operations match the sophistication of the companies they are stealing from.

Trust is a fragile thing – are you managing it?

As the adage goes, it takes years to build trust, but just moments to destroy it. And never is this truer than about food.

The damage to your brand that comes from exposing consumers to substandard product is one thing, but the impact of tampering, substitution or contamination that leads to actual harm is an order of magnitude greater.

The issue of food fraud in China is exposing companies to a range of risks that most are not equipped to deal with. The fact that goods were in perfect condition when they left the factory or farm in Australia is little consolation when an incident happens, and it’s front page news.

Technology can make a big difference

Fortunately, technologies exist that can help restore and protect trust.

One of those is blockchain, often referred to as the ‘internet of trust’. Blockchain was originally developed to publically and irrefutable track the transfer of Bitcoin and other cryptocurrencies. It’s designed to authenticate, verify, permanently record and provide ongoing reporting about the transfer and provenance of goods.

Blockchain technology is being applied in a range of industries, including food. For example, using their mobile phone, a distributor could scan a package of Australian meat in China and find out information about the farm it came from as well as how long it’s been in transit and the different parties that have handled the product.

On the other hand, the blockchain would alert the user if there were any anomalies in the supply chain, such as whether the product sat on a wharf for longer than planned or diverged from it’s expected route.

A national approach is required

Ensuring trust in ‘brand Australia’ is vital to the ongoing success and sustainability of our trade in food with China. But it’s a complex issue that cannot be solved by companies or industries acting alone.

The recent decision by Alibaba and their supply chain partners Blackmores, Fonterra, Australia Post and NZ Post to appoint PwC to deliver services and advice to reduce food fraud using blockchain technology is a welcome and important step.

Australia though has much more to do.  We need a coordinated, national approach to ensure that state legislation is aligned and optimised, and that industry group’s work together, not at cross purposes.

It’s in Australia’s national interest that overseas consumers trust our safe, clean and green food and continue to pay a premium for it. The issue of food fraud, therefore, warrants nothing less than a national response.
 
Hear Andrew Parker speak at the launch event of CEDA’s policy perspective on Outbound investment in Melbourne, and report releases in Sydney, Perth, Adelaide and Brisbane.


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