Counterfeit Food

We recently published a study sizing up the risks of counterfeiting that indicated a tenth of all food purchases in the developed world are in some way contaminated by counterfeit ingredients. That equates to about $49 billion in market value that retailers and consumer packaged goods companies need to identify and control.

We're all aware of the usual suspects: olive oil, alcohol, honey and seafood. Recent estimates suggest that up to 80 percent of olive oil sold in the U.S. is fake, along with 33 percent of fish. In the U.S. alone, products regulated by the FDA come from more than 300,000 facilities in 150 countries. With food imports projected to grow by up to 15 percent annually, this amounts to a constant opportunity for counterfeiters to slip their wares through the cracks.

While some counterfeiting, for example relabeling sparkling wine as Champagne, poses little danger to consumer health, other fake foods often contain deadly ingredients. Counterfeit food can contain toxic substances—two examples that have been found are sugar mixed with fertilizer and olives soaked in copper sulfate to modify their color. Horrifyingly, some counterfeit alcohol products have been found to contain antifreeze, cleaning products and nail polish remover.

While food and drink counterfeiting often has more to do with substituting cheaper ingredients or faking brand labels, there's another type of counterfeiting known as origin fraud. This includes renaming South American beef as European, Chinese wine as French, and American olive oil as Italian—all of which are designed to deceive consumers and allow the products to be sold at higher prices. Criminal gangs tend to generate revenues not through the quality of their fakes, but through quantity, flooding markets with large amounts of everyday foodstuffs. However, in many cases, the presence of counterfeit ingredients cannot be confirmed without lab tests, making the challenge even harder to address.

To date, the internet has played a less direct role in facilitating counterfeit food and beverage sales in the U.S. than it has in some other CPG categories. This is largely because online grocery shopping has yet to gain traction here. However, with the rapid development of e-grocery offers and consumers becoming increasingly comfortable with online food purchasing, this situation is changing.

Counterfeiters have been quick to take advantage of the trend. With internet marketplaces stymied as to how best to oversee their third-party sellers, online is becoming the preferred channel for counterfeiters. For example, the Taobao Marketplace, which is part of Chinese e-commerce giant Alibaba Group, been under intense scrutiny, as some 80 percent of the platform's merchandise is estimated to be counterfeit. Closer to home, sales from Chinese vendors more than doubled on Amazon's marketplaces during 2015. Our research shows that more than 70 percent of counterfeit goods come from China, and some estimates have placed this figure as high as 87 percent. This has led some of Amazon's legitimate vendors to demand that the retailer act to stop fraudulent Chinese vendors from using the platform.

How can retailers and CPG companies start to fight back? Awareness of the extent of the problem, and not being in denial, is the best first step. Adopting vigilance and, even better, a food quality, traceability and safety plan that encompasses every point along the spectrum from food growing and manufacturing through supply chain and distribution comes next. And then, all-important to online protection is a program that identifies and takes down fake products. Firing on all these cylinders is the only way to keep fake food and beverages away from online distribution platforms. In doing so, good companies will not only protect their brand and reputation, but the health and safety of the unsuspecting consumer.

Stuart Fuller is director of commercial operations at global online brand protection firm NetNames, a CSC company.