On the Money

Food fraud hurts your wallet and makes you sick

Food fraud

From olive oil that has been cut with cheaper ingredients to honey infused with banned antibiotics and ground coffee contaminated with corn and sawdust, the food you eat is ripe for fraud. Not only that, but it's costing consumers $30 billion to $40 billion a year worldwide, according to Michigan State University's Food Fraud Initiative.

The problem is only getting worse, highlighted by the woes of ice-cream maker Blue Bell Creameries. The Brenham, Texas-based company agreed to an $850,000 fine after its product was found to contain harmful bacteria.

"We have worked closely with the State of Texas Department of Health Services to ensure the safety of our products. We are pleased with the steps that have been taken in our facilities and confident that we are producing safe products that our customers can enjoy," Blue Bell wrote in a statement e-mailed to CNBC last month.

"The thing with food fraud is we don't know what's in there and we don't know what the processes is the bad guys used, the criminals, the fraudsters used to manufacture the product," John Spink, the director of Michigan State University Food Fraud Initiative told CNBC's On The Money in a recent interview. "So, there is always a vulnerability even if there is not an actual threat."

Food tampering "tends to be high-value items that you cannot easily discern with the naked eye," said Larry Olmsted, author of "Real Food, Fake Food."

Not only can food fraud hurt consumers' wallets, it can also make them sick.

"The best-case scenario with food fraud is that you're not getting what you paid for. You know, the worst-case scenario is that consumers become ill and sometimes have died from food fraud," said Karen Everstine, a scientific liaison at U.S. Pharmacopeia (USP), based in Rockville, Maryland. USP is a nonprofit that sets standards for foods and medicines.

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Food fraud affects dining out in addition to what you buy at the grocery store. An investigation by the Boston Globe in 2011 found a Dorchester, Massachusetts, restaurant serving $23 flounder that was actually Swai, a species native to Southeast Asia and which costs around $4 a pound.

"Very few people realize that the restaurants are sort of the Wild West. They don't have to adhere to the same kind of labeling rules retailers have," Olmsted said.

While some restaurants may claim they are serving authentic Japanese wagyu beef, which costs around $250 a pound for filet mignon and $167 a pound for strip steak, Olmsted claims those cuts are actually domestic wagyu—which costs a considerably lower $20 a pound.

Who exactly is committing the fraud? "There's organized crime involved. There's rings. They're smuggling," Olmsted said.

Europol, the European Union's law enforcement agency, recently conducted a multi-country seizure, taking in more than 10,000 tons of fake food. Their aim was to identify and disrupt the organized crime networks behind it.

What's really in your food?

Meanwhile, the food industry is starting to pay more attention. If a manufacturer is known to be duped by a supplier, they can suffer brand damage, according to Everstine. "Industry has taken upon themselves to help prevent this problem," she said.

USP recently updated its database, which helps companies prevent fraud. Using the example of a frozen pizza topped with meat, the mostly likely suspect ingredients were paprika and beef.

"If you're a pizza manufacturer and you're sourcing 30 ingredients to make your pizza, you can put those ingredients into the database and you can quickly identify which ingredients are prone to fraud," Everstine said.

Meanwhile, many are calling for more oversight from the government. The Food and Drug Administration and U.S. Department of Agriculture are just two of the many agencies that regulate food.

"We have very lax oversight when it comes to our food supply. I wouldn't say regulation because in a lot of cases the regulations are in place ... but they're not enforced," Olmsted said.

The FDA said "combating food fraud is the responsibility of both industry and regulatory authorities. The FDA inspects manufacturers to make sure that they are meeting requirements for good manufacturing practices and also conducts label reviews during these inspections," in a statement e-mailed to CNBC last month.

The USDA said its Food Safety and Inspection Service "works every day at establishments ensuring that meat, poultry, and processed egg products entering commerce are safe, wholesome, and correctly labeled," in an e-mail statement.

The silver lining for Americans is that some foods, like milk, are more regulated in the U.S. making it tougher for fraudsters.

"We've seen reports in India where milk has been adulterated or diluted, up to 60 percent of the milk. But in the U.S., we have really tight supply chains where there is a lot of monitoring. So for us, milk is really an exponentially safer here than there," Spink said.

What you can do

There are steps consumers can take to protect themselves from food fraud.

  • The first is to buy products in their whole form, such as blocks of cheese or an entire fish. "Americans don't typically buy, cook or eat whole fish. Once you cut up most fish, they all look the same in the fillets," said Olmsted.
  • Be wary of highly processed foods. "Sourcing ingredients come from all over the world and putting them together into a finished food product increases the opportunities for fraud," said Everstine.
  • When dining out, ask questions. "If you go in [to a restaurant] and say, you know, 'Where does your Dover sole come from?' And they say, 'I don't know,' that's not an acceptable answer. That means it's probably not good stuff," Olmsted said.