I’ve written about this topic before. Creedence based products are products whose supposed premium features are indistinguishable (from products without such features) in normal use. Consumers must rely on institutional trust (certification, logos, standards) rather than on relational trust to judge them. Organic foods are an example.
Organic foods are indistinguishable from their non organic alternatives. Consumers trust that the various players in the supply chain have acted (labeled) properly. Sometimes that supply chain is short and well controlled, like organic products sold at farm stands. More often, that supply chain is quite lengthy. From farmers, to distributors, to certification firms, to brokers, on to retailers, products are touched by many hands.
As Louise Manning and Aleksandra Kowalska note in their 2021 article: “Considering Fraud Vulnerability Associated with Creedence Based Products Such as Organic Food:”
“Relying on institutional trust makes consumers vulnerable to criminals who intentionally label conventional product as organic or develop sophisticated organized crime networks to defraud businesses and consumers.
The study finds that institutional trust is particularly vulnerable to fraud. Supply chain guardians need to recognize this vulnerability and implement effective controls to reduce the likelihood of occurrence. However, in some cases considered in the study, the guardians themselves were complicit in the illicit behavior, further increasing consumer vulnerability”
The US Organic certification system relies on 80 approved certifying agents. Typically, these agents perform once-a-year “audits” of organically certified facilities. The visits are focused on documentation, concentrating on record keeping like COAs, MSDS, and other certs to evaluate whether a firm meets the organic food certification requirements. Falsifying such documentation is a temptation that, history shows, has proven too great for many to resist.
How can that be, after all, these suppliers are being audited? The truth is that, no, they are not. Organic certification agents are not true auditors. They conduct no unannounced visits, the do no checking to verify whether certifications, test results, or other documents provided are truly what they seem. The organic food certification system in the US is a system entirely based on good faith.
Many times, that good faith is misplaced.
Organic food commands a premium price, one that varies by product, location, and season. That price premium has been estimated to be around 20% more than the price of non-organic equivalents.
So, with a few AI generated certifications, voila, my inorganic corn is now organic corn, commanding a much higher price. Think about that the next time you shop at Whole Foods.
Peter has spent the past twenty-plus years as an acting/consulting CFO for a number of small businesses in a wide range of industries. Peter’s prior experience is that of a serial entrepreneur, managing various start-up and turnaround projects. He is a co-founder of Keurig.
