NFI Initiative To Address Fraudulent Activity

MATTHEW ENIS

Fraud is becoming widespread in the seafood importing industry, sources say, and in an effort to stem problems ranging from short-weighting and species substitution to illegal product transshipment, the National Fisheries Institute here will launch an Economic Integrity Initiative in the coming weeks.

These problems, sources told SN, have grown as the priorities of federal agencies such as the U.S. Customs Service and the Food and Drug Administration have shifted toward more pressing concerns such as terrorism and food safety. Emboldened by decreased oversight and lax enforcement, observers said many suppliers have begun short-weighting containers, shipping product through multiple ports to evade tariffs and anti-dumping statutes, or substituting less expensive species on shipment invoices.

“Any fraud is too much fraud in terms of the sustainability of our industry,” said John Connelly, president of the National Fisheries Institute. “We don't think it's rampant, but we are concerned that there has been an uptick in the amount of questionable and unethical behavior during the past two years.”

Connelly said that he had received emails, forwarded by concerned suppliers, with offers to pack product at 90% net weight, 80% net weight and, most recently, offers as low as 65% net weight. These shipments are packed with additional ice or other filler to prevent easy notice by U.S. Customs and, ultimately, by buyers who lack strong oversight procedures of their own.

“The real problem occurs at the retail and restaurant level,” said Randy Petersen, vice president of sales for San Francisco-based Berdex, a seafood and agricultural commodities importer. “They're reviewing line item-costs by delivered invoices, and when they're selling [short-weighted] product, they're coming up with huge, unexplained shrink numbers.” Petersen emphasized that his company has 100% of its products guaranteed by a third party, and, like the other importers who agreed to be interviewed for this story, Berdex has been working with NFI to develop the Economic Integrity Initiative.

Petersen noted that the problems are in large part a byproduct of the industrialization of foreign and domestic aquaculture operations. As these businesses have become more efficient, their products have become commoditized, and it has become more difficult to compete on price.

“The cost inputs into the system are known quantities,” he said. “They don't change. They may go up and down a little bit with fluctuations in fuel costs and feed costs. But everything is really mechanical at this point. The market for shrimp, tilapia and other mainstream aquaculture products has hit an equilibrium of efficiency, and pricing has been flat for three years as a result.

“In weeding out all of those costs [industrywide], there's no real place to cut line-item costs other than adulterating the product or short-weighting it.”

Drawing an analogy with how drivers on a freeway often speed to keep up with traffic flow, Connelly said that during the past 18 months the problem appears to have spread incrementally.

“We are concerned that a number of suppliers in the value chain are looking at competitors and saying, ‘They're doing these things, so I have to do them too in order to compete,’” he said. “They think, ‘If my competitor is [packing product] at 90% net weight, I have to go to 85% to offer a better price.’”

Connelly said that NFI has been working with federal agencies to address the problem, and has lobbied to get agencies such as U.S. Customs and the FDA to devote more resources to economic fraud and labeling issues. However, aware that these agencies are currently directing their budgets and manpower to issues such as avian flu, terrorism and food safety, NFI's leadership is making an effort to address the problem on its own.

All of NFI's members will be required to sign a commitment form and become part of its economic integrity program, Connelly said. The trade association is setting up a watchdog group called the Better Seafood Bureau, based on a Better Business Bureau model, which will log unresolved complaints between suppliers and their retail and food-service customers. Suppliers that receive several complaints will be required to undergo an independent, third-party audit. If they fail the audit, they will be kicked out of NFI.

“We've been looking at ways to address this issue for almost a year, and frankly, one avenue is to get the government to do this, because it is their job,” said Connelly. “At the end of the day, it's FDA's job or it's Customs' job. We would rather try to solve this problem with our partners along the value chain first, but for those companies that do not adhere to these standards, we do want government enforcement.”

Many suppliers have embraced the program.

“We truly believe in this concept,” said Christine Ngo, executive vice president of San Francisco-based seafood importer, wholesaler and distributor H&N Foods International. Ngo's father, H&N founder and President Hua Ngo, is a member of NFI's executive committee, she noted.

“We believe that [short-weighting and mislabeling] are not long-term scenarios that can continue. There's a law that says products have to be 100% net weight, but people find avenues to get around it, and there's not enough policing here in the United States to handle all of it.”

Others agreed, noting that NFI's efforts have already begun building awareness, encouraging distributors, retailers and food-service operations to inspect product more carefully.

“Suppliers who have been closely monitoring product have been seeing these issues sporadically for years,” said Mark Leslie, executive vice president of Danvers, Mass.-based Fishery Products International. “I would argue that other groups probably weren't aware of it, but were receiving out-of-spec products occasionally in the past. What's happening recently is that more [importers and distributors] are investing more effort to monitor products and ensure quality, and so they're seeing [short-weighting and mislabeling] more.”

In the meantime, Ngo said that retailers and other seafood industry customers could ensure fairness in the system by remaining vigilant with their own suppliers.

“NFI is setting the stage, but retailers should push back on that initiative to the suppliers that they're dealing with, and say that they want a contract or a commitment letter that they are bringing product in that's 100% net weight and is correctly labeled,” she said.