Fighting food and drink counterfeiting with new technology

9 April 2018

Increasingly sophisticated counterfeiting techniques are a growing threat to the integrity and profitability of foods and beverages. With more organisations joining the fight for brand protection, Ceri Jones explores how new technology is helping secure supply chains.

Counterfeiting is big business. It is often sophisticated and managed in ways that mirror regular trading, making it easier for fraudsters to infiltrate legitimate supply chains, and then vanish without trace.

Europol and Interpol’s joint taskforce, Operation OPSON, works to identify and take down organised criminal groups involved in fake food and drinks.

Now in its sixth year – with the 2017 Operation OPSON VII report released in November – the level of participation from countries and companies has increased dramatically, in joined-up efforts to eschew the reputational and financial damage of scandals, and to protect consumers.

The 2017 Situation Report on Counterfeiting and Piracy in the European Union, by Europol and the European Union Intellectual Property Office (EUIPO), addresses the current outlook prior to this year’s report release: “Counterfeited and IPR-infringing goods had an impact on overall EU imports to the tune of up to 5% in 2013, amounting to approximately €85 billion. IPR-infringing products now [represent] up to 2.5% of all global trade, worth up to $461 billion in 2013.”

As involvement steps up, the scale of the situation continues to grow. “In 2016, €1.3 billion of revenue and taxes were directly lost annually to the member states through such IPR infringements, along with €3 billion of lost sales to the EU economy, and job losses of about 23,400,” the report states.

In the sixth operation between December 2016 and March 2017, OPSON seized illegally traded, counterfeit or harmful food and beverages totalling 9,800t, more than 26.4 million litres and 13 million units/items worth an estimated €230 million. OPSON’s annual records indicate that alcohol, mineral water and olive oil are high-risk products in the sector. Worryingly, while products themselves are being replicated, an emerging concern is that of copycat packaging. “Labels, packaging and products being sent to the EU separately is a growing concern… one of the largest product types seized at the external borders,” the report states. According to Europol, the majority of cloned packaging originates in China and is sent to producers separately, to keep illicit goods unbranded up to the last moment, to avoid scrutiny.

Ecommerce, the ‘dark’ net and the New Silk Road transporting freight from China direct to the EU are part of counterfeit gangs’ arsenal, and all are hard to police. The ease of obtaining cloned or recycled original packaging and forged certification labels highlight the importance of taking brand protection online.

Digital identities

“Historically, physical products have been physical products and they haven’t generated any data themselves,” says Niall Murphy, co-founder and chief executive officer of EVRYTHNG, a software company that uses the internet of things (IoT) to turn smart packaging into smart products.

It’s now possible to add digital intelligence to a physical product itself and, therefore, have that product generating a digital trail as it moves through its life cycle.

“It means using a combination of QR codes, NFC and RSS technology to give every product a unique identity that is stored in the cloud. This then generates information at every point in its journey, under what the company terms ‘digital life cycle management’.

“When you look at problems such as parallel trade, it’s caused by lack of visibility. If you can follow products through their distribution channels, then you know what products are where and we can detect issues.”

Monitoring the footsteps of billions of goods generates masses of data, so EVRYTHNG applies algorithmic intelligence to extract meaning from the information. “I might be interacting with a Coke can and want to detect whether that product is in the wrong market because it’s being parallel traded,” Murphy explains.

“Let’s suppose this can of Coke is supposed to be in Vietnam and somebody interacts with it in Singapore; effectively, what happens is the Coke’s digital identity says to itself, ‘I just had a transaction in Singapore, but I’m supposed to be in Vietnam.’ That moment, the digital identity of that can initiate an action – it might send an alert or make itself appear on a map.

“An individual event from a single can of Coke may not be that important, but if you’ve got 20,000 of them because an entire shipment got diverted, then the company has lots of reason to respond.”

Rather than make this technology exclusive, EVRYTHNG has been working with GS1 to determine if digital identities can be integrated with barcodes at the point of manufacture, making digital life cycle management an automatic tool.

Also, Murphy says the firm is collaborating with Europe’s major metal packaging manufacturers so that, “as a product is manufactured for a brand, a digital identity can be created for it and produced on that product at its point of manufacture, and that becomes a default part of the manufacturing process and therefore easily accessible to brands”.

“Ultimately,” he says, “if we’re talking about an independent operating entity, people can print labels themselves and stick them onto products to benefit from this type of web capability directly.

“At the point of manual production, it’s as accessible on the web as if you’re doing billions of production items. That’s one of the great things about the digital world: things are so much more accessible than they would have been historically.”

Murphy is sure that, in time, counterfeiters will try to recreate digital counterparts for products but for now, this is far too complex to attempt.

“A QR code can be copied relatively easily – it’s a printed image,” he explains, “But through using a combination of unique individual QR codes and unique individual items – digital serialisation – the cloud half of that is a crypto-secure software object, and the combination of the two is extremely difficult to replicate. If I scan a product and I’m connecting with a Coca- Cola website, and I’m on a secure web connection so using very robust technology and SSL encryption on the web, then I can have an extremely high degree of confidence that the product item is a legitimate item and is legitimately connected to the Coke website.”

While brand protection is the primary function of this asset management software, the secondary benefits are also highly desirable, spanning stock efficiency, precision product recalls, and detailed online nutritional and dietary information.

Making connections

One company at the forefront of technology use is Adelphi, single malt cask-whisky-maker based at the Ardnamurchan Distillery in Scotland. Fine and rare whiskies are frequently targeted by criminal groups due to their prestige and subsequent high price-tags.

As a member of the Scotch Whisky Association, which is a partner in Europol’s anti-counterfeiting operations, Adelphi has been working to protect the authenticity and reputation of specialist spirits for some time.

It has collaborated with software provider arc-net to trial a different type of asset management programme.

Under this initiative, each bottle produced by Adelphi was assigned a unique identity and a QR code, with the full digital identity being stored on a digital platform. With a quick scan of the QR code, the consumer is assured of a genuine product and receives a digital certificate of authenticity.

Using arc-net’s blockchain technology, all bottles are fully traceability throughout their life cycle, from distillery to consumer. This is a major step towards securing supply chains for the manufacturer, but also benefits customers. “Every detail of each bottle’s story will be recorded, from when it was made to where it was exported, and much more,” says Alex Bruce, managing director of Adelphi.

“Storytelling and authenticity are major components of the Scotch whisky industry. By pioneering this technology, Adelphi is advancing and uniting these vital ingredients.”

Blockchain processes are becoming an increasingly popular way to manage and secure large quantities of decentralised data, and Kieran Kelly, CEO of arc-net, hopes the technology in the beverage sector, will enables a “new era of transparency and authentication”.

Bruce added that, “Adelphi is thrilled to be part of arc-net’s vision to use technology to bring transparency and authenticity to the rapidly growing single malt whisky market. We have a vision for the future and using the platform is an integral component in our ability to capture and share production, process and product data with our customers, simply by scanning a QR code on the bottle.

“In addition to a growing number of countries, globally, recognising Scotch whisky’s geographical indication, we also believe it to be essential that the consumer is able to understand the craftsmanship of making it, and for the producer to ensure the security of their route to market.

“In addition, the arc-net platform will give us the opportunity, as a nascent distiller, to share and communicate our love for the brand and ensure our customers have the ability to visualise and validate our products as they move across the globe.”

Creating incentives

Implementing monitoring technology is a vital step forward, but it relies on getting people to engage with products at all points in the supply chain. There are numerous reasons for shoppers to interact with a product, for authentication, information, bargains or simply to use a fun feature – but is scanning a fad, and how do you keep up momentum?

“We’ve been cutting out coupons from newspapers for decades,” Murphy says, “The 21st-century equivalent of that is scanning a product and getting a reward or a discount coupon to use for the next product. For people who are purely driven by price, reward-driven, off-product coupons are the benefit."

Murphy suggests a similar scheme would help toovercome inefficiency in the distribution process and reduce the threat of counterfeit goods infiltrating legitimate channels. “We see mechanisms where rebates are put in to financially incentivise a second or third-tier distribution channel, provided that they have the product that they’re supposed to have,” he explains.

“An independent trader in Tanzania may receive some products from a second-tier distribution – I can get a reward directly from the brand, provided those products are actually supposed to be in Tanzania, so I can scan those with my smartphone and claim a reward benefit from the brand.

“That’s about putting new business models into the supply chain to deploy incentives to support the integrity of the supply chain.”

“There is an urgency to this,” Murphy says. “I think it’s very public that Heineken’s quarterly results last quarter reported a very direct impact of products coming out of Asia and affecting them in Europe. Measurability in the supply chain is a crucial part of responding to that.

“We’re now in a world where the cost of high-speed variable digital printing is so low that we can print unique identities on to a can of Coke, or just about any packaged item, for close to zero marginal costs,” he continues. “We’re at a juncture of critical mass.

“The product technology is at a cost level where every brand can do this and the consumers have got the technology in their hands to be able to transact, and the standardisation – like with GS1 – has converged to a place where we’re at a crucial tipping point; so is this still a niche thing? No, it’s not. It’s at a place of really scalability.”

Mineral water, along with alcoholic beverages and olive oil, is one of the most counterfeited products in the world at the moment.
Each Adelphi bottle has a unique identity.

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