An Assessment of Agro-food Frauds in the Italian Economy: A SAM-based Approach

Building on the Italian input-output table, and using structural information on agro-food production sub-sectors from several sources, a Social Accounting Matrix (SAM) model for the Italian economy has been developed, disaggregating the agro-food sector into agricultural production activities and ten different agro-food value chains (VCs). Then, using primary data by the Central Inspectorate for Quality Protection and Fraud Repression in Agro-Food Products (Ispettorato Centrale per la Qualità e la Repressioni delle Frodi, ICQRF) of the Italian Ministry of Agriculture, we assessed the economic size of fraudulent agro-food output, estimated the size of the economy depending on fraudulent production, and simulated the impacts of agro-food frauds on the national economy in terms of GDP, employment and income distribution. The analysis shows that the wine value chain is the sub-sector most exposed to frauds accounting for 88% of the total value of seized agro-food outputs. Second ranks olive oil value chain (6% of total seizures), while the other VCs accounts for only the remaining 6% of total seizures. The shares change slightly when the values of irregular products were expanded to the population levels. The results of the SAM simulations shows that the share of economy directly and indirectly linked to supply of irregular food products accounts for 0.5% of total value of output, while in terms of value added the share of irregular food products ranges between 0.1% and 0.4% of total value added. This corresponds to a value of 1.9 billion euro (considering only seizures) to 13.9 billion euro (including all irregularities) and is able to activate a up to 156 thousand labour units in the worst-case scenario. In terms of the share relative to the agro-food sector, the total output "driven" by irregular products is much higher accounting for 3.2% of output and 5.8% of employment. Results from the counterfactual analysis shows that agro-food frauds caused a losses of 1.8 billion euro in terms of total output, corresponding to about 20 thousands of full time labour units. The net impact on GDP is positive though very small since the earnings feed rent-seeking activities instead of strengthening linkages with the rest of the economy. Household incomes are reduced by only 0.01%. However, considering that consumers build their own perceptions on the basis of a mix of quality and health considerations, the potential losses in cases of food scandals would be much more tangible. These results show that fighting agro-food frauds is justified on efficiency as well as equity ground.