Quantitative estimates of product fraud are elusive if not impossible to determine. The bad guys don’t submit annual reports and don’t share estimates of their activities – at least not outside their criminal organizations. We know what we caught but we have no idea what we didn’t catch. Did we only catch the sloppy or the unlucky? There are even legal and cultural debates on “what is fraud?”
My interest in the research question about the estimate of the economic impact of counterfeiting and piracy was sparked during an interview with the US Government Accountability Office (GAO) when they were developing its 2010 report on Observations on Efforts to Quantify the Economic Effects of Counterfeit and Pirated Goods. That report found that no quantitative methodology is in use and that the government agencies relied upon industry estimates of counterfeiting. It stated “it is difficult, if not impossible, to quantify the economy-wide impacts.” This report is an important starting point for estimating Food Fraud, and demonstrates the need for additional research, which we have begun through the Food Fraud Initiative.
There is definitely a perception implied by many authors that the product fraud or counterfeiting estimates are quantitative and based on precise, accurate, and certain data. To review this, we conducted a research project on the estimates… and they all kept coming back to just three core sources [see Spink, J. & Fejes, Z, (2011) A Review of the Economic Impact of Counterfeiting and Piracy Methodologies and Assessment of Currently Utilized Estimates, International Journal of Comparative and Applied Criminology]. Even though these estimates are often considered quantitative their authors were very clear that their findings were “educated guesses” and one even stated that there were “no methods known to develop an overall estimate.” While this research was for intellectual property rights violations of trademark, patent, or copyright, the findings also apply to Food Fraud.
It cannot be emphasized enough that any seizure data is based only on what we caught and that there is probably no way to correlate this with the actual incidents in the marketplace. That is a bold and important statement. In our article we stated: “The models being used to estimate the impact are being generated from extremely low-frequency events, or if the exact process and method of the counterfeiters is considered, events that have never occurred before.” We went on to point out that the data uncertainty was based on: “(1) the lack of historical data; (2) the incomplete and often inaccurate nature of available data; (3) the seemingly arbitrary infringements by the counterfeiters (data uncertainty created by the data generator which in this case is a human); and (4) the model uncertainty which is also referenced as formulation errors.” Thus, a survey of the marketplace can be valuable as a snap-shot of activity in a known, infiltrated, high-counterfeit activity setting… but a random sampling of the globe would require millions of samples to even approach being considered anywhere near statistically significant.
Even though the quantitative, statistically significant estimates are unknown or unknowable… we do know the vulnerabilities. We can assess how counterfeit or diverted product did get into a marketplace. Although that exact type of fraud may not occur again, we can assess whether the system is still vulnerable.
Although the estimates of product counterfeiting and product fraud lack accuracy and precision, this should not be an impossible hindrance to governments or companies taking action. It is important to note that governments do require more quantitative rigor when deciding which projects to fund, but this lack of data hasn’t hindered resource commitment in areas such as homeland security or human trafficking.
It is critical that the estimates be framed as based on “uncertain” data and be viewed more as an evaluation of the vulnerability rather than an exact estimate of the threat. Once we evaluate the vulnerabilities we can begin protecting the supply chain gaps. A first step in determining the appropriate, strategic, and efficient Food Fraud Prevention program – beyond what is technically required by law – is to evaluate the vulnerabilities that allowed past incidents to occur. JWS.