Letter from Italy: Slippery Business

Dear son

My friend Vikram Doctor shared this with me. As you know we cook with olive oil assuming that its nice and healthy. As it turns out, the world of olive oil is full of dodgy characters. And extra virgin is not so virginal at all

So why am I sending this to you? For you to see how government subsidies and rules distort the marketplace. And why a dis functional government can really screw up basic operating principles of a good society and economy. 

Fraud and crime is not stoppable. But incentives like subsidies etc will always encourage crime. And think of one statement. You can make more money and be punished less by stuff like this than by pushing drugs!

Fascinating. 

Love 

Baba

Letter from Italy: Slippery Business : The New Yorker
http://www.newyorker.com/reporting/2007/08/13/070813fa_fact_mueller

---

On August 10, 1991, a rusty tanker called the Mazal II docked at the industrial port of Ordu, in Turkey, and pumped twenty-two hundred tons of hazelnut oil into its hold. The ship then embarked on a meandering voyage through the Mediterranean and the North Sea. By September 21st, when the Mazal II reached Barletta, a port in Puglia, in southern Italy, its cargo had become, on the ship’s official documents, Greek olive oil. It slipped through customs, possibly with the connivance of an official, was piped into tanker trucks, and was delivered to the refinery of Riolio, an Italian olive-oil producer based in Barletta. There it was sold—in some instances blended with real olive oil—to Riolio customers.

Between August and November of 1991, the Mazal II and another tanker, the Katerina T., delivered nearly ten thousand tons of Turkish hazelnut oil and Argentinean sunflower-seed oil to Riolio, all identified as Greek olive oil. Riolio’s owner, Domenico Ribatti, grew rich from the bogus oil, assembling substantial real-estate holdings, including a former department store in Bari. He bribed two officials, one with cash, the other with cartons of olive oil, and made trips to Rome, where he stayed at the Grand Hotel, and met with other unscrupulous olive-oil producers from Italy and abroad. As one of Italy’s leading importers of olive oil, Ribatti’s company was a member of ASSITOL, the country’s powerful olive-oil trade association, and Ribatti had enough clout in Rome to ask a favor—preferential treatment of an associate’s nephew, who was seeking admission to a military officers’ school—of a high-ranking official at the Finance Ministry, a fellow-pugliese.

However, by early 1992 Ribatti and his associates were under investigation by the Guardia di Finanza, the Finance Ministry’s military-police force. One officer, wearing a miniature video camera on his tie, posed as a waiter at a lunch hosted by Ribatti at the Grand Hotel. Others, eavesdropping on telephone calls among Riolio executives, heard the rustle of bribe money being counted out. During the next two years, the Guardia di Finanza team, working closely with agents of the European Union’s anti-fraud office, pieced together the details of Ribatti’s crime, identifying Swiss bank accounts and Caribbean shell companies that Ribatti had used to buy the ersatz olive oil. The investigators discovered that seed and hazelnut oil had reached Riolio’s refinery by tanker truck and by train, as well as by ship, and they found stocks of hazelnut oil waiting in Rotterdam for delivery to Riolio and other olive-oil companies.

The investigators also discovered where Ribatti’s adulterated oil had gone: to some of the largest producers of Italian olive oil, among them Nestlé, Unilever, Bertolli, and Oleifici Fasanesi, who sold it to consumers as olive oil, and collected about twelve million dollars in E.U. subsidies intended to support the olive-oil industry. (These companies claimed that they had been swindled by Ribatti, and prosecutors were unable to prove complicity on their part.)

In 1997 and 1998, olive oil was the most adulterated agricultural product in the European Union, prompting the E.U.’s anti-fraud office to establish an olive-oil task force. (“Profits were comparable to cocaine trafficking, with none of the risks,” one investigator told me.) The E.U. also began phasing out subsidies for olive-oil producers and bottlers, in an effort to reduce crime, and after a few years it disbanded the task force. Yet fraud remains a major international problem: olive oil is far more valuable than most other vegetable oils, but it is costly and time-consuming to produce—and surprisingly easy to doctor. Adulteration is especially common in Italy, the world’s leading importer, consumer, and exporter of olive oil. (For the past ten years, Spain has produced more oil than Italy, but much of it is shipped to Italy for packaging and is sold, legally, as Italian oil.) “The vast majority of frauds uncovered in the food-and-beverage sector involve this product,” Colonel Leopoldo Maria De Filippi, the commander for the northern half of Italy of the N.A.S. Carabinieri, an anti-adulteration group run under the auspices of the Ministry of Health, told me.