Economically Motivated Adulteration in Farming Supply Chains

Abstract

Economically motivated adulteration (EMA) is a serious threat to public health. In this paper, we develop a modeling framework to examine farms’ strategic adulteration behavior and the resulting EMA risk in farming supply chains. We study both “preemptive EMA,” in which farms engage in adulteration to decrease the likelihood of producing low-quality output, and “reactive EMA,” in which adulteration is done to increase the perceived quality of the output. We fully characterize the farms’ equilibrium adulteration behavior in both types of EMA and analyze how quality uncertainty, supply chain dispersion, traceability, and testing sensitivity (in detecting adulteration) jointly impact the equilibrium adulteration behavior. We determine when greater supply chain dispersion leads to a higher EMA risk and how this result depends on traceability and testing sensitivity. Furthermore, we caution that investing in quality without also enhancing testing capabilities may inadvertently increase EMA risk. Our results highlight the limitations of only relying on end-product inspection to deter EMA. We leverage our analyses to offer tangible insights that can help companies and regulators to more proactively address EMA risk in food products. This paper was accepted by Charles Corbett, operations management.