If inflation is not the first topic that comes to mind when you read about food fraud, you are not alone. There is no immediate, intuitive connection between recent sensational headlines about horsemeat being found in so-called beef lasagnas and the concept of price inflation.
But in fact, it is price inflation that is causing food fraud. Everyone has experienced shrinking package sizes where price is maintained (quantitative easing), offsetting higher input costs.
However as per this recent Zerohedge article, quality and ingredient substitutions are now the rage:
As WealthCycles readers know, although the term “inflation” is commonly used in referring to rising prices, the true meaning of economic inflation is inflation of the currency supply. Importantly, we detail in Semantics Deception Illustrates Power of Words, that when you control the language, you control the argument.
“Undue expansion or increase, from overissue; -- said of currency” is the pre-2003 Webster’s Dictionary definition.
Adjunct scholar Frank Shostak at the Mises Institute explains the cause and effect:
A relatively benign example of “food fraud” is the steady, ongoing downsizing of quantities contained in standard packaging, reported a year ago by The New York Times, such as the can of green beans that used to contain 16 ounces but has eroded to 14.5 ounces over the years, or the 16-ounce package of pasta that now contains 13.5 ounces.
While intended to maintain profit levels without making it obvious to consumers they are paying more, package downsizing is not, for the most part, true fraud: the amount of beans contained in that can is clearly labeled. But labeling abuses are becoming increasingly common. Consider this qualitative easing. The National Consumer League recently filed a formal complaint with the U.S. Food and Drug Administration asking that four brands of lemon juice be taken off the market for mislabeling their product.
Other kinds of food fraud are much more serious, even dangerous, as with Chinese-produced dog food that resulted in pet deaths. Human health also is at risk, according to an April 2012 report by SmartMoney.com:
Ultimately it is the pressure on prices that is causing producers to engage in fraud in order to keep costs down. As the amount of currency increases, the value of each unit of currency drops, and it takes more currency to buy products, i.e. price inflation.
Producers have a vested interest in keeping costs as low as possible in order to maintain market share, as Zerohedge reports.
And there is the connection. In order to maintain their edge over the competition, producers substitute horsemeat for beef—what the consumer didn’t know wouldn’t hurt him. No one would be able to taste the difference, the horsemeat industry was in a significant depression so prices were attractive and, voila! Consumers continued to enjoy their frozen lasagna at prices they could afford. No harm, no foul, right? Of course, once the secret recipe leaked out, there was an inevitable dive in purchases of frozen lasagna, not only from the offending manufacturer but from all other lasagna-makers as well.
The trend is likely to continue as food manufacturers and retailers stretch to be the last to adjust to steadily rising prices. According to a January ABC News report, citing the non-profit watchdog organization U.S. Pharmacopeial Convention, or USP, incidents of food fraud are up by 60 percent in a year.
Although numerous government agencies are tasked with policing the food supply, one has to wonder whether their diligence is waning. After all, governments and central banks also have a vested interest in denying that price inflation is occurring. The same deceit that allows manufacturers to fool the public while keeping prices lower than they would otherwise be allows the watchdogs of the economy to continue denying that food price inflation is rearing its ugly head.