International sourcing decisions in the wake of a food scandal

This research investigates whether and how the 2013 Horsemeat Scandal has altered European food retailers’ efforts to mitigate fraud in the international agri-food supply chain. We construct an econometric model that matches fraud alert data from the European Union (EU) Rapid Alert System for Food and Feed (RASFF) from 2006 to 2016 with annual data on bilateral trade flows. We find that—prior to the horsemeat scandal—detection of fraud along the supply chain induced a small amount of trade diversion toward third-country sources, but did not substantially affect total trade into the EU. In contrast, in the years after the scandal, the detection of fraud by international suppliers was substantially trade destructive. Detection of fraud reduced trade, not only with the country from which the fraudulent product originated, but also from third-country exporters of the same product. These findings extend beyond trade in meat products and to importing countries outside Western and Northern Europe.