Jared Lynch, Mark Hawthorne
How counterfeiting is hurting Australian food here and overseas.
Australian businessman and counterfeit specialist John Houston sat back in his Beijing hotel room on Thursday and looked at the two small bottles of tattoo ink on his desk.
The growth in fake produce, we saw this coming five or 10 years ago, but the deluge is upon us.
Counterfeit specialist John Houston
The two bottles were absolutely identical in every way. “I have been in this business for years and cannot spot a single difference on the labels,” he told Fairfax Media. “A very good counterfeiting job.”
Except of course, the danger lay beneath. Toxic tattoo ink out of China has swamped markets from San Francisco to Sydney, bearing the brand names Intenze, MOM’s, Starbrite, Immortal, Kuro Sumi and Skin Candy.
Thanks to online retailers and auction sites, the bootleg inks have found their way to Australia in recent months. Tests have shown the Chinese fake inks contain artificial black henna, a cheaper substitute to natural red henna, as a pigment.
Some samples have contained such high levels of bacteria and dangerous heavy metals that the US Food and Drug Administration has issued health warnings.
“We get the lab report back in a week on the fake ink,” Houston said. “But it scares me what we might uncover.”
Major corporations and fashion houses have lived with the spectre of Chinese counterfeiting for decades, but the latest trend towards fake foods and consumables is proving a nightmare for Australian businesses and consumers.
At least it is providing decent business for Houston, His company, YPB, is listed on the Australian Securities Exchange and sells a product called “Tracer” , a nano-particle that can be embedded in ink and labels.
It provides a unique security “signature” that can be picked up by dedicated handheld scanners. His clients range from wine producers to the makers of tattoo ink.
“The growth in fake produce, we saw this coming five or 10 years ago, but the deluge is upon us,” Houston says. “For any Australian company that wants to sell in China, the message is simple. You will be copied. Your trademark will be copied. Your intellectual property will be copied. Just accept it as fact.”
The value of fake goods is expected to soar to $US1.7 trillion ($2.3 trillion) worldwide in 2015, according to US security and authentication company Sekuworks – a 10,000 per cent increase from 20 years ago.
“Most troubling is the widespread threat counterfeit poses to public health and safety,” said Sekuworks’ Asia commercial operations director, Gabriel Dukes.
“These counterfeit products are found in the supply chain of many companies and not only on the streets, as we assume.”
One who learned the hard way was wagyu beef farmer David Blackmore, whose beef takes pride of place on the menu of Neil Perry’s Rockpool restaurants and other high-end eateries across the globe.
Mr Blackmore was having lunch with some Chinese businessmen at Jardin Tan, Shannon Bennett’s restaurant at the Melbourne Botanic Gardens, when he realised the scale of food counterfeiting.
“They said ‘we have just been offered three container-loads of Blackmore wagyu beef’ a day,” Mr Blackmore said.
“While they were talking, I quickly said to my son, ‘how much beef is there in a container?’ and he said ‘more than we can produce in a month’. At that stage we realised this was out of control.”
Mr Blackmore first became aware people were knocking off his produce when fake Blackmore’s wagyu found its way into a five-star restaurant in Shanghai. There, a chef who had used Mr Blackmore’s beef while working in Dubai noticed something was wrong.
He asked Mr Blackmore’s son, who manages the company’s marketing, what he was doing different to the beef.
“We weren’t doing anything different,” said Mr Blackmore, adding they soon found the restaurant was buying fake meat.
“The biggest, scariest thing for me is it could have been buffalo from India … it could have been camel or anything. Somebody was sticking our label in [a cryovac bag] with no quality control.”
Mr Blackmore has cut shipments to Asia as a result. He deals with only one family-owned company in China, which distributes his beef to five-star restaurants in Shanghai.
“It’s really out there that if you’re not buying from this distributor, it’s not Blackmore wagyu.
“We are really small, so we can control that easily.”
Tightening the supply chain is not just about protecting profits. It’s about the maintaining the brand’s integrity, and health and safety, Mr Blackmore said.
“If someone got sick and people died, that’s huge … especially when you’re a high-profile, small brand like us. If someone died from eating Blackmore wagyu, I’m sure it would be newsworthy by somebody.”
Tasmanian cherry grower Reid Fruits is also concerned about health risks of counterfeit goods.
Reid’s marketing and business development manager, Lucy Gregg, calls the company’s products the “Louis Vuitton” of cherries, because of how often its fruit is counterfeited.
Ms Gregg said Reid was looking at introducing different technology on its packaging and stricter verification methods. But she conceded if its efforts failed, Reid would consider withdrawing from the Asian market.
“The longer-term scenario is if it keeps occurring, then potentially you will extract yourself from that market and look at other markets where it is not happening,” Ms Gregg said.
“It’s detrimental not only to the quality of the brand but also food safety. That’s one of the issues we have is that potentially the product that they put in the box is not safe.”
It’s hard to determine which cherries are fake. Ms Gregg said the counterfeit cherries were being sold for the same price as the authentic fruit, unlike fashion. A knock-off designer bag could be bought from a market at a fraction of the price of the genuine product.
A Chinese online retailer even set up a website from Sydney, passing off Chilean cherries as Tasmanian-grown, Ms Gregg said.
“I guess this is potentially one of the downfalls of online retailing, because there are many, many platforms for online retailing in China.
“Last year there was a company based out of Sydney who set up a Chinese online sales platform, purporting that the cherries were bought directly from us and shipped to the customers in Shanghai.
“We have never been able to get to the bottom of it, we believe that the fake boxes were made in China and the Chilean cherries were sourced in China and then they were delivered to the Shanghai customers.”
Some online retailers, however, are hoping to crush rogue traders. China’s second biggest e-commerce company, JD.com, has a policy of only dealing in authentic products, the majority of which are sourced from growers and suppliers.
The company, which has a market capitalisation of $US47 billion, launched an “Australian mall’ this year, partnering with several ASX-listed companies, including a2 Milk and Treasury Wine Estates, to secure the integrity and supply of the products it sells to its Chinese customers.
“From the first day of our operation we have assured that we will not sell any fake or counterfeit products on our website,” said JD.com’s chief executive and founder Richard Liu.
“It is an utmost important issue for JD.”
The company also has third-party sellers, similar to eBay, but with a stricter criteria.
“Not everyone can become a seller,” Mr Liu said.
“We have only allowed 60,000 sellers onto our site,” Mr Liu said. “Those sellers are mostly large businesses. They are very credible and they have a very long history of operation. They are not like personal sellers.”
The Australian Competition and Consumer Commission (ACCC) has no power to stop overseas counterfeiting. But it’s doing its best to stop fake products hitting Australian supermarket shelves.
“Truth in advertising is at the heart of consumer law,” said ACCC chairman Rod Sims, who has made tackling counterfeit and misleading labelling one of the commission’s biggest priorities since he began his tenure four years ago.
Cases have included a Victorian butcher being fined $50,000 for falsely claiming that product came from King Island, and several food companies claiming to sell honey, when their products were mostly made from plant sugars in Turkey.
Carlton & United Breweries has also been fined $20,400 after the ACCC found it misrepresented its Byron Bay Pale Ale as being made by a small brewer in the seaside town, when it was brewed about 630 kilometres away at CUB’s brewery in Warnervale.
A more extreme example was Independent Liquor Group’s “Aussie Beer” . The product’s green and gold packaging said it was made from “Australia’s finest malt” when it was made in China.
The ACCC also targeted celebrity South Australian cook and businesswoman Maggie Beer in 2014.
It found her company’s slogan, Maggie Beer: A Barossa Food Tradition – which figures on the packaging of her ice-cream, aged red wine vinegar, rosemary-and-verjuice biscuits and extra-virgin olive oil – suggested that the products were made in South Australia when they were actually made by other companies in Queensland and Victoria.
The action raised the ire of MasterChef judge Gary Mehigan, who said the ACCC should have “a lot more things to worry about”.
Mehigan said at the time the issue of provenance, and having perfect supply chains and labelling, was a “minefield” confronting the entire food industry, and something only the affluent were focused on. “This is a First World problem.”
But Mr Sims said the ACCC had “just enough resources to be effective” and targeting bigger players sent a message that the commission was serious about quashing labelling that could mislead consumers.
“The essence of consumer law is don’t mislead consumers. That’s just so important in a market economy where people are trying hard to make money by increasing sales.
“You need good laws and good enforcement of those laws in relation to truth in advertising so you do get the benefits of a market economy.
“If we don’t have such laws and enforce them then the benefits we thought we were getting from a market economy just won’t be there because you’ll have too much consumer misinformation and consumers won’t choose the product most suitable to them, which drives signals about [what] producers’ produce.
“Instead they will be producing things that are based on misleading information, and that’s just an inefficient outcome.”
But at least the fakery is starting to line the pockets of people like Houston, whose firm is just one of several developing technology to fight counterfeiters. The biodegradable nature of Tracer means it is safe for use in the food industry and has FDA approval.
“My plea to Australian companies is just do something, anything, to fight the counterfeiters,” Houston says.
“At the moment, we do nothing. The Europeans and Americans are far more willing to fight to protect their IP. It’s your brand, it’s your customers and it’s your product that’s at risk. Even if you go to one of my competitors, I don’t care, but do something. Only then can we beat this.”