Where profit beckons, a profession follows. Since the Food Safety Law introduced a punitive damages system – raising compensation from three times to ten times the value of goods – the once-unprofitable food sector has been flooded with professional counterfeit hunters. While professional counterfeit hunting has played some role in disciplining food-business practices, there are also cases of “making counterfeits in order to report counterfeits”.
An Alternative Food System has already taken shape abroad, while in China it is still in its infancy. It advocates building a direct link between consumers and producers, because the more intermediaries involved, the greater the food safety risk.
Small-scale household production and large-scale factory production are worlds apart. We hope that more accommodating standards and requirements can be developed for small-scale operators such as smallholders and small food workshops.
Food safety has recently attracted considerable public attention again – though not in the form of a food safety incident. On one side are the “hefty fines” that keep making headlines: a farmer in Zhejiang fined £50,000 (RMB 50,000) for selling RMB 700 worth of pork from his own home-raised pig; an elderly man in Luoyang, Henan, fined £110,000 (RMB 110,000) for making RMB 21 profit selling vegetables; multiple eateries fined RMB 5,000 for adding shredded cucumber to their liangpi (cold noodles)… These cases, so far removed from everyday experience, have led readers to ask: are hefty fines fair to ordinary farmers, market vendors and small eateries barely scraping by?
On the other side, the controversy has prompted positive responses in regulatory revisions. The State Administration for Market Regulation recently amended the “Administrative Measures for Food Business Licensing and Filing” and the “Measures for the Supervision and Administration of Quality and Safety in the Market Sale of Edible Agricultural Products”, giving a green light to practices like selling “smashed cucumber” and “dried goods” that had previously sparked disputes.
Even so, we can still see that some farmers face enormous difficulties in obtaining the necessary qualifications when producing processed goods. The strict penalty regime under the law also exposes street vendors, restaurants, shops and even online sales platforms to the risk of being targeted by “counterfeit hunters” – a problem that leaves both the regulated and the regulators equally “baffled”.
On 27 July, Foodthink partnered with Tencent News and its programme “Let’s Talk Science” to invite a panel of voices for a roundtable: anthropologist Zhong Shuru, who researches wet markets and sustainable food systems; lawyer and legal scholar Zhang Xueming, Executive Director and Deputy Secretary-General of the Beijing Research Society for Food and Drug Safety Rule of Law; and Li Jie, a rural entrepreneur. Together they explored the dilemmas and survival strategies of smallholders, small vendors and small eateries under heavy fines and professional counterfeit hunting, from the perspectives of legal regulation, professional counterfeit hunting and ecological agriculture.
This discussion also follows our recent involvement in the revision of the “Measures for the Supervision and Administration of Quality and Safety in the Market Sale of Edible Agricultural Products”. Our proposed amendments were adopted, meaning that “Dried Fish, Dried Vegetables and Dried Fruits” may continue to be sold, and we hope future regulations will be a little more “accommodating” of smallholder production made and sold by the farmers themselves.
Roundtable Guests
Zhang Xueming
Expert lawyer; Executive Director and Deputy Secretary-General of the Beijing Research Society for Food and Drug Safety Rule of Law.
Zhong Shuru
Anthropologist researching wet markets and sustainable food systems.
Li Jie
Head of a farming cooperative and rural entrepreneur who transitioned from being a village-stationed worker.
Moderator
Wang Hao
Foodthink editor.
I. Professional Counterfeit Hunters: Whistleblowers vs Profit Seekers
Wang HaoFrom an elderly man in Henan fined RMB 110,000 for making just RMB 21 selling vegetables, to a farmer in Zhejiang fined RMB 50,000 for selling RMB 700 worth of pork from his own home-raised pig, we can see a disconnect between existing food safety regulations and everyday experience. Both cases were indeed corrected afterwards. In fact, if regulators lack a deep understanding of producers, problems and discrepancies can arise in specific enforcement actions. Food safety enforcement involves not only street vendors and market stalls but also many smallholder producers. Li Jie runs a rural cooperative – we would like her to share what practical difficulties small-scale producers like her might encounter when working in the food safety space.Li Jie: One experience we had ourselves was being targeted by a professional counterfeit hunter. Green plums are a very traditional crop in our area. Many villagers make green plum wine at home, and local restaurants and farm-stay venues sell this kind of loose (unpackaged) green plum wine. Our cooperative used to make it too – we drank it ourselves, and there was no issue with food safety. But a partner who helped us sell our products on an online platform was later reported to the authorities by a professional counterfeit hunter. When the township’s Industry and Commerce bureau came in to investigate, our partner was fined quite a lot of money. Although we as the producers were not fined, the people at the cooperative were still very frightened and worried. Green plum wine falls under the processing of agricultural products – without a licence, it is illegal. We also consulted the investigators from the township on how we could improve things, only to find that only distilled baijiu in Guangdong can obtain a small workshop licence; this kind of infused wine simply cannot qualify. To get a licence, we would need to build a factory, requiring an investment of nearly RMB one million – well beyond our means. At the time, the township also suggested we find an existing small food workshop and co-invest to upgrade into a licensed distillery, but for us the costs were still far too high.
Some people had earlier suggested sending our green plums to an outside processing factory. We consulted quite a few distilleries, but after careful consideration we decided to process the wine ourselves. For one thing, there is the issue of price. Fresh green plums locally are very cheap to buy in – over the past couple of years they have been just eighty to ninety fen per jin, not even one yuan. Our cooperative pays a little more, then processes the wine ourselves. If we sent them to an outside processor, the pricing might not work out. For another, we felt that if the processing stayed in the village, the labour income could stay in the village too. Also, since we practise ecological agriculture, we wanted to use ecological methods in processing – environmentally friendlier approaches – rather than simply handing everything over to a factory.
But now, for various reasons, in the end we have had no choice but to go with contract manufacturing through an external processor.
Wang HaoIn Li Jie’s story, it was a “professional counterfeit hunter” who ended up targeting the cooperative’s products. Many counterfeit hunters are becoming ever more professionalised. How should we view them? Some regard them as whistleblowers within the food safety system; others see them as deliberately picking on trivial defects simply to extract a large compensation payout.Zhang Xueming: Food safety counterfeit hunting is a highly contentious issue, both in academia and in practice. The emergence of professional counterfeit hunting stems first and foremost from China’s adoption of a punitive damages system in its legislation. Before this law came into effect, all compensation cases in Chinese law were governed by the restorative principle. For example, if a flat piece of ground were dug into a pit by a tortious act, the compensation would be to fill the pit back to its original level – you dig out so much, you fill back that much, with no profit to be made. After the Law of the People’s Republic of China on the Protection of Consumer Rights and Interests introduced a punitive damages system in the 1990s, it stipulated threefold compensation – in other words, if your loss is one, you can recover three, pocketing two in the process. Where profit beckons, a profession follows.
In 2009, the Food Safety Law of the People’s Republic of China was enacted, raising the threefold compensation based on the value of goods under the Consumer Protection Law to tenfold. The margin for profit widened further. After the second revision of the Food Safety Law in 2014, the minimum compensation of RMB 500 was raised to RMB 1,000 – meaning that even a single pack of instant noodles found to be counterfeit would yield at least RMB 1,000, even though ten times its price might amount to very little. As a result, the once-unprofitable food sector was flooded with a large influx of professional counterfeit hunters, and correspondingly, a great many food safety counterfeit cases came to light. The relevant companies find this very troubling. For imported food in particular, even the smallest labelling defect can mean that, once a counterfeit claim succeeds, the product is removed from the domestic market altogether.
● Professional counterfeit hunters target foods procured through “overseas proxy purchasing”. Source: Beijing Evening News● Professional counterfeit hunters target foods procured through “overseas proxy purchasing”. Source: Beijing Evening NewsTo be fair, professional counterfeit hunting has played a certain role in disciplining food business practices. However, in enforcement, there are indeed instances of excess and repetition. The sheer volume of cases consumes enormous energy and judicial resources, increasing the sense of exhaustion felt by both courts and businesses. At the same time, some counterfeit hunters engage in “making counterfeits in order to report counterfeits”, causing serious harm to the food industry. For example, they might spot a product on a shelf with only a few days left before its expiry date, then hide it away – stuffed into a corner of a shelf where the store’s stock clerk cannot see it. Once the date passes, they retrieve it, purchase it, and demand compensation. Counterfeit hunters like this are widely resented; even some in the counterfeit-hunting community despise such people, calling them “against the spirit of fair play”. That said, food businesses themselves should first and foremost practise self-discipline, strengthen compliance, and operate in full accordance with the law. At the same time, they should promptly report anyone who manufactures counterfeits in order to exploit them – the police must step in and handle such cases as fraud.
Wang HaoFrom the perspective of enforcement, frontline market supervision authorities also find themselves in a bind when dealing with the issue of “professional counterfeit hunters”, which has given rise to a practice of “no complaint, no enforcement” – if no one files a complaint, the authorities take no action. This brings to mind a recent news story: some small restaurants without a cold-food preparation licence served smashed cucumber, and were reported by counterfeit hunters. A plate of smashed cucumber is barely worth anything, yet the fines ran to several thousand yuan, with professional counterfeit hunters involved behind the scenes. Could this kind of counterfeiting targeting small vendors and small eateries lead to penalties that are out of proportion to the actual fault? How should we view the guidelines on discretionary penalties in such enforcement cases?Zhang Xueming: For small vendors, there should indeed be differentiated treatment in regulation. First, cases of this kind should generally fall under the “three smalls” management framework set by provincial governments. Once covered by the “three smalls” framework, penalties are typically much lighter. Second, every provincial market supervision bureau has published guidelines on discretionary penalties under the Administrative Penalties Law for Food Safety, which include specific provisions for lighter penalties, reduced penalties, and exemptions from punishment. Corresponding circulars and policies have been issued at the provincial level.
The reason we are now seeing “disproportionate penalties for minor offences” imposed on small vendors is, on one hand, that the individuals concerned need to verify whether they have formally applied for recognition as a small-scale vendor and whether they have been brought under “three smalls” management. On the other hand, at a macro-management level, these mitigating policies and regulations have not been fully utilised and implemented effectively. I believe these situations are addressable.
II. Smallholders, Small Vendors and Small Eateries: Where Do They Go From Here?
Wang HaoSimilar to Li Jie’s experience, I have also heard of cases where a farmers’ cooperative wanted to process its own fresh Sichuan peppercorns into Sichuan peppercorn oil. One route was contract manufacturing; another was building their own factory. But there was no suitable local factory for contract manufacturing, and the cost of building one was simply too high, so in the end nothing came of it. Professor Zhong, in your anthropological fieldwork you come across many farmers – have you paid much attention to these kinds of issues?Zhong Shuru: This is actually quite a common situation. These days, people practising ecological agriculture find that selling fresh vegetables is the least profitable part of the business. Consumers’ expectations about food prices mean they figure vegetables should cost three or four yuan per jin at most, so when the price jumps to ten or fifteen yuan, people simply cannot accept it. And fresh vegetables are perishable, which makes turning a profit even harder. So I completely understand why operators like Li Jie, who practise ecological agriculture, want to add value through processing agricultural products – it is a way to keep the business alive. Fresh green plums might sell for just a few mao per jin, and storing them is difficult, so there is basically no profit to be had. But turn them into green plum wine, and the added value rises, giving some meaningful return. The problem is, processing is a huge challenge, and smallholders simply lack the qualifications and the capital to run it. Take flour, for instance – raw flour is very cheap, but to process it into biscuits, you need to build a factory, and that means finding one to two million yuan. How could a smallholder suddenly come up with that kind of money? And even if you use white-label contract manufacturing – sending your product to another factory for processing – you still face all sorts of requirements: whether your volumes are sufficient, whether your raw materials meet their specifications, and so on. Because they are doing the processing under their own brand, they are taking on part of the risk. The trust relationships involved, and the coordination of finances and quality control, become incredibly complex.
As things stand, the overall production environment is not particularly accommodating for ecological agriculture, especially when it comes to processing. Simple primary processing – for example, selling home-cured Chinese-style pork – generally poses no problems, because these kinds of products are found in virtually every market, and especially so in urban-rural fringe areas or rural markets. If authorities were to crack down strictly on these too, the boundaries of what is permissible would become extremely broad. I think a key dividing line is whether processing has fundamentally altered the product’s original form. Zhang Xueming: Article 36, Paragraph 3, of the Food Safety Law of the People’s Republic of China explicitly provides that the specific administrative measures for small-scale food production and processing workshops and food vendors shall be formulated by the provinces, autonomous regions and municipalities directly under the central government. In practice, the licensing entry requirements and specific penalty provisions for small workshops, small merchants and small vendors each reflect their own provincial characteristics.
Some localities have already established concrete administrative measures for the “three smalls” – small workshops, small merchants and small vendors – but others have yet to follow suit. Moreover, the scope and conditions for inclusion in the “three smalls” category vary from place to place. In some areas, for instance, home-brewed liquor and small restaurant-brewed liquor have not been brought under the “three smalls” framework, meaning producers must obtain a production licence under the Food Safety Law – a significantly higher barrier with heavier penalties for non-compliance.
In addition, we would like to see more channels through which smallholders, small merchants and ordinary citizens can participate in legislation and regulatory revision. As we know, when it comes to legal and legislative participation, large enterprises typically go through industry associations or retain lawyers. For cooperatives like Li Jie’s, or other small-scale businesses, the opportunities are far more limited.
First, local governments or businesses could take the initiative to form associations – for example, setting up a grassroots small food workshop association – or strengthen links with the Consumers’ Association and other industry bodies, actively engaging in the legislative process when relevant authorities are drafting laws.
Second, we would suggest paying attention to the legislative and standards agendas published by government departments – monitoring the websites of the Market Supervision Administration, the People’s Congress, government bodies and standards-setting organisations – and submitting opinions and suggestions in a timely manner to participate in the revision and improvement of relevant regulations.
Third, it is also important to follow media reporting on related developments, so as to stay informed about changes in laws and regulations and better respond to food safety issues.
Wang HaoFoodthink has previously studied how various countries manage food safety for small-scale agricultural production. In the United States, for instance, smallholder production is classified under the law as a cottage food operation, and the applicable standards are significantly lower than those for commercial food sales. As long as annual food sales revenue is $50,000 or below, producers may make specific items such as baked goods, jam and jelly at home and sell them directly to consumers. Of course, national conditions differ and nothing can simply be copied wholesale – but is it possible that China could draw on similar regulatory approaches?Zhong Shuru: There are certainly examples of this. Cooperatives like Li Jie’s operate by selling directly to consumers – in many cases they make their own wine and sell it themselves, with no middlemen. Ecological agriculture is still in its infancy here, but abroad it has grown into a large-scale system known as the Alternative Food System. It is a network built alongside mainstream channels such as supermarkets, wet markets and online e-commerce platforms, and it advocates establishing a direct link between consumers and producers. The more intermediaries there are, the greater the food safety risk we face. In a wet market or supermarket, produce travels from farm to consumer through at least three to six different tiers. The more tiers there are, the longer the chain, the more opaque the information becomes, and the more easily it can be obscured, leaving the end consumer trapped in an information black box. Take tonight’s dinner, say stir-fried tomato with eggs. If the tomatoes were bought from a supermarket, I have very little idea where they were grown. But if I bought them directly from a farmer I know, the information is far clearer. This is why we should encourage short supply chain sales in every form – the shorter the chain, the more transparent the information.
But at present, short supply chain sales remain a small share of the overall market. One reason is that many consumers simply do not know what channels exist for buying such wholesome food; another is that ecological agriculture has demanding growing requirements, and output and scale are both limited, resulting in a low market share. In European and North American countries, this segment can account for around 5 per cent of the market, but in China it may not even reach 1 per cent.
There is a tension here: short supply chains are built on trust between producer and consumer. Very often there are no formal standards to define the terms and no labels to vouch for the product. This informal system of trust – between people, and between people and products – must also comply with all manner of market regulation and legal requirements, which makes conflicts easy to arise.
How can these small-scale, informal operations find greater partnerships with conventional channels such as supermarkets and e-commerce platforms? Where trust mechanisms are entirely mismatched, forging that link is a challenge that remains unresolved in both scholarship and practice.
Li Jie: As a smallholder producer, I have to admit I do not know much about the legal aspects of the regulatory framework. From our own perspective, I think a tiered management system would genuinely be more appropriate, after all, small-scale household production and large-scale factory production are worlds apart. On the basis of ensuring basic hygiene and safety conditions, I hope that friendlier standards and requirements can be developed for smallholders, small food workshops and other small-scale operations to help ease the difficulty we face in obtaining the necessary qualifications. The US cottage food policy just mentioned, for example, has provisions and requirements that are far more practical for small-scale agricultural operations, rather than applying a blanket approach to everyone.
Compiled by: Hu YunwenUnless otherwise noted, all images are provided by Foodthink
This article was first published in Tencent News’s “Let’s Talk Science”
Reproduced on Foodthink’s WeChat official account with permission
Zhang Xueming
Zhong Shuru
