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Consumers across the world are demanding to know when and where their food comes from, increasing the pressure on producers to invest in new technology to stay ahead of the pack.
But the food industry is grappling with product safety and fraud, especially with the rise of China’s middle class increasing the demand for fresh, safe produce.
With customer expectations for quality and value increasing, supply chains are expanding, and this is making it less transparent and harder to control.
PwC national agribusiness leader Craig Heraghty says new technology is a game changer. For example, customers can track the milk from dairy cows in Murray Bridge in South Australia to the supermarket shelf in Shanghai.
He says some producers are even using temperature sensors or RFID tags on products to show consumers where the product has been and how it has been stored.
With food and agriculture emerging as the third pillar of the Australian economy, alongside mining and services, food as a commodity is growing in value.
This has led to fraud, which costs the global food industry between $40-$50 billion a year.
It is estimated that there are around 40,000 sellers in Australia making anywhere from $40,000 to $100,000 every year buying vitamins and dairy products and shipping them to China on the grey market.
In 2013, it was revealed a parmesan cheese being sold to customers didn’t actually contain parmesan; rather, it was a cheaper cheese and even included wood pulp.
Later that year, frozen “beef” products being sold in the United Kingdom and Ireland were found to contain traces of horse DNA.
In 2015, $US483 million of smuggled meat was seized by Chinese authorities, some of it found to be up to 40 years old.
Currently, the Commonwealth Department of Agriculture is working with Chinese authorities to investigate reports of non-compliance in relation to nine Australian pasteurized milk batches in 2016, which is a big deal given China is the second largest export market for Australian dairy producers.
During Chinese Premier Li Keqiang’s visit to Australia in March, retail giant Alibaba Australia announced a memorandum of understanding (MOU) with PwC (Australia, New Zealand and China) to build a framework based on blockchain technology to reduce food fraud.
The retailer also signed an MOU between Alibaba, Blackmores Limited and Australia Post to work together to build the framework.
When customers are choosing between an item and they don’t know where it’s from, and one where they can track its life span, they will always choose the one with more transparency
Heraghty says Australians have been relatively immune from the contaminated food scandals that plague the industry globally. “But with the supply chain being longer than ever, our reputation sits outside of our control now,” he says.
For many Australian native products, he says, “the horse has bolted”, with other nations such as Vietnam producing products that they claim to be a species of barramundi, devaluing the native product.
Australia’s agriculture industry is estimated to be worth $256 billion, with $45 billion in exports. It is a vital contributor to the nation’s GDP and economic prosperity.
Any failure to effectively manage food safety risk has seen companies face disruption, regulatory compliance issues, a drop in financial performance and brand deterioration.
Earlier this year, PwC established a new food safety business, which is able to provide advice to companies on compliance with the International Organisation for Standardisation.
“When customers are choosing between an item and they don’t know where it’s from, and one where they can track its life span, they will always choose the one with more transparency,” Heraghty says.
“It also gives the producer the opportunity to see what in the supply chain is adding value. From our own research we estimate a grain of wheat from Australia is traded 200 times over. I’m sure a lot of this ‘clicking the ticket’ is not adding value. Each of these represent an opportunity for substitution, addition and tampering.”
Heraghty says Australia needs to be laying the foundations for a food economy that plays a high-end premium game. “We can’t compete with the high-volume, low-cost commodities like wool and milk powder. We’ve done that and failed.”
Instead, he says, Australia needs to rethink about supplying the masses with food and focus on strategic export opportunities.
Australia, he says, has intangible value as a brand.
“We’re not going to feed the world,” he says.
“We are producing less than one per cent of the total market need. What it does mean, though, is that we need to make really good choices about what we want to produce. And we need to figure out and find the people willing to pay the highest price for what that is.”
Food trust is a fundamental pillar for premium products. "It's a verification of an underlying promise of what the product is. The truth is not just in the labelling but what the actual product is and where it's come from,” he says.
There are four ways the life cycle from paddock to plate can be tracked to increase the level of trust in food, he says.
Heraghty says there still needs to be work done to make the use of new technologies feasible.
He says China’s growing middle class will pay more for a product they can trust.
“We have the opportunity to solve two sets of problems at the same time,” Heraghty says.
“You’re collecting the intelligence to deter the fraud and at the same time facilitate the means to ascertain who is creating value in the system and change the reward for that. It’s the ability to change the power balance.”
The Press is a publication by PwC Australia, aimed at sharing expertise, capturing insights and working together to solve important problems.
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