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Rising prices aid $15B food fraud problem

From meatballs made with horse to fake extra virgin olive oil and salmonella in peanuts, food fraud has been grabbing national headlines. And, according to experts, the problem is only increasing with rising food costs and more widespread importation of food.

The Food and Drug Administration says 15 percent of the U.S. food supply is imported and experts say food fraudsters are using the difficulty in tracing foreign imports to their advantage. The largest food fraud in U.S. history was when Chinese honey was shipped through other Asian nations to disguise its origins and evade import duties of $180 million, according to the Department of Justice.

The Department of Agriculture predicts food prices will rise between 2.5 and 3.5 percent this year. And while the consumer price index was up 0.1 percent in February, the food index rose more sharply, at 0.4 percent. The March consumer price index will be released on April 15.

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Food fraud, which the Grocery Manufacturers Association estimates costs the industry between $10 billion and $15 billion a year, occurs when products are adulterated or purposely mislabeled. Some of the most commonly tampered products are household staples like honey, olive oil, juice and seafood.

Customs and Border Protection uses high tech laboratory techniques to identify food species and ingredients.
Source: CNBC
Customs and Border Protection uses high tech laboratory techniques to identify food species and ingredients.

And food fraud could affect your health. Up to 59 percent of tuna is mislabeled, according to a study by advocacy group, Oceana. Customs and Border Protection chemist Matt Birck said escolar is often mislabeled as tuna and could cause digestive issues.

CNBC gained exclusive access to Customs and Border Protection field inspections, where specially trained officers inspect imports, and its laboratory, where scientists run sophisticated tests ,including DNA barcoding.

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Scientists showed CNBC chicken flavoring that was banned for containing remnants of chicken, a potential health hazard, and field officers quarantined a ginger shipment for having a fraudulent sanitary certificate.

Customs and Border Protection is not the only agency regulating food. The FDA, USDA and other agencies all have a role in stopping food fraud.

But a Government Accountability Office review found problems in the overlap between the agencies charged with stopping food fraud. For example, while the FDA regulates eggs in the shell, the USDA regulates them once they are in products.

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Laura Goldstein Customs and Border Protection's New York lab director, said the agencies work together. "I think because we've got so many hands that we actually get to cover those cracks more."

Still only a small percentage of the U.S. food supply is actually inspected. According to its 2013 annual report on food facilities and food imports, the FDA in fiscal year 2012 inspected 14 percent of domestic food facilities and far less foreign food facilities.

In a statement, the FDA said that "while FDA is not able to physically inspect a large percentage of food entries, all import entries are electronically screened using an automated system, which helps field inspectors determine which products pose the greatest risk and, therefore, should be physically examined."

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The grocery industry has taken food safety into its hands, according to the Grocery Manufacturers Association.

Whole Foods Markets, for instance, uses a multilayer approach to food safety.

Whole Foods Market does multiple tastings before new food products hit shelves.
Source: CNBC
Whole Foods Market does multiple tastings before new food products hit shelves.

"We have an entire team in global that's just dedicated to checking on the quality of the product and then the additional layers at the regional level," said Christina Minardi, Whole Foods' president of the northeast region.

Vendors go through rigorous testing to get their products on Whole Foods' shelves.

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"When we're developing a relationship with a vendor, we have them sign an affidavit that ensures that everything they say is in that product is in that product and nothing else," Minardi said.

Whole Foods also does third-party audits to check products on shelves.

"If there is a one-off, we immediately remove that product from the shelves," Minardi said. A popular cocktail mix was removed when it was found to contain preservatives, something Whole Foods does not permit.

Despite the checks already in place, government and industry need to remain on alert.

"The advances in technology have been a boon to us, but it's also been a boon to those who are trying to bring products in, misrepresenting them. So it's a constant battle of trying to keep ahead," said Customs and Border Protection's Goldstein.

By CNBC's Jennifer Schlesinger and Sheila Dharmarajan.

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