Manufacturers, retailers implicated in latest Russian food fraud

The scale of the latest fraud is staggering. Some 68 per cent of the condensed milk in Moscow grocery stores, and 22 per cent of that sold in St. Petersburg food outlets, did not meet Russian or Soviet quality standards (GOST) or sanitary norms (TU and SaNPin).

But perhaps more staggering yet is the fact that the food processors behind the fraudulent products, and many of the retail outlets stocking them, often make no attempt to disguise what they have done and appear to have little fear of reprisal - a fact which makes it hard to envisage any immediate amelioration in the quality of products on supermarket shelves.

The inspectors said that the companies implicated in the fraud - and whose names appeared on the order documents or, even more startlingly, the product labels - were canned milk producers in Verkhovsky (in the Orel district), Venevsky (Tula district), Gagarinsky (Smolensk district), Lannovsky and Pervomaisky (both based in Ukraine).

As for the retailers, the Piaterochka, Kopeika and Bin chains - which have also been implicated in earlier product scandals - were the principal culprits, although undoubtedly the most high profile company found to be selling the counterfeit products was Metro, the German supermarket and cash & carry group which has spearheaded the drive of western retailers in the Russian market.

According to the inspectors, most of the 'condensed milk' on sale in Russia's biggest grocery outlets bears very little resemblance to the dairy product after which it is named. Under GOST standards, natural condensed milk must contain just milk, sugar and water, but many of the products confiscated by the Trade Inspectorate used cheap vegetable oils (such as palm oil) instead of expensive milk fats, none of which was ever mentioned on the labels.

Furthermore, most of they confiscated products carried fake versions of the GOST quality label.

The 'condensed milk' made with vegetable fats is some 10-15 per cent cheaper than the natural product, but retails for roughly the same price, leading to clear margin benefits for both producers and retailers.

But if the supermarket groups always claim that they were unaware that the products on their shelves were of sub-standard quality - often showing compliance certificates supplied by the manufacturers as proof of their innocence - the general feeling (at least in the Russian media) is that the retailers are just as much to blame for the rising tide of fraudulent products, making a big profit from selling cheap products (which they may or may not know to be fake) with a huge mark-up.

The State Trade Inspectorate has reassured consumers that they are at no risk if they consume these fake products, stressing simply that they are paying over the odds for a poor quality product.

The situation must be particularly frustrating for the inspectors. Over the past six months, they have conducted about 70,000 inspections, finding violations of the rules (mostly regarding the sale of counterfeit or expired products) in 85 per cent of the cases. But no matter how efficient the inspectors become at unearthing fake products, there is likely to be little chance of them holding back the tide as long as the sanctions against counterfeiters remain as weak as they are.

The mimumum fine on which all sanctions are based was set at RUR100 in 2001, at which level it remained until earlier this year when it was increased to RUR600, a clear indication that the previous level was laughably low.

Even with this increase, though, the fine for selling fraudulent products would be around $2,000-$4,000 (i.e. 100-200 times the minimum fine), while that for the illegal use of the logo is around $4,000-$8,000, still just a drop in the ocean for many companies, in particular the retailers which often have western shareholders.

That these fines do nothing to act as a deterrent is clear: in the first six months in 2004 there was an 8 per cent increase in the number of whole milk products failing inspections compared to the same period a year earlier.