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When an Australian grown product doesn't count as an Australian ingredient

Published: 6 Feb 2017

By Charles Fisher (FoodLegal Principal)

© Lawmedia Pty Ltd, February 2017

With mandatory compliance with the new Country of Origin Food Labelling Information Standard approaching next year, the food industry is discovering all manner of discrepancies and unforeseen negative impacts for their products. This article explores the situation where, if 100% Australian wheat is milled overseas, the resulting flour is required to identify the product as “Made in” the country where it was milled.

Separating processing from origin of ingredients

One of the primary issues that consumers had with Australia’s previous mandatory country of origin labelling is that it largely treated food products like any other consumer product, such as electronics or cars. In others words, the origin of the product was largely defined by where the majority of the costs were incurred and where it was substantially transformed.

However, many consumers were concerned with both where the manufacturing was taking place and the origin of the ingredients (i.e. where they were grown). Thus consumers were concerned that products that were either grown in or processed in countries with dubious food safety records and yet could still claim to be “Made in Australia”.

Therefore, one of the key regulatory innovations in the new Country of Origin Food Labelling Information Standard (the Information Standard) is to separate the labelling requirements for processing of food and the origin of its ingredients. The kangaroo picture applies to when a product is produced, grown or made in Australia. The bar chart indicates what percentage of the ingredients are Australian (although the origin of the non-Australian ingredients rarely needs to be declared).

While this change to country of origin labelling would appear to address consumer concerns, it creates a huge burden on the food industry, especially companies with global supply chains or who use Australian ingredients but process them off-shore.

This article will explore the situation of 100% Australian wheat that is milled into flour outside of Australia, then re-imported back into Australia and used as an ingredient in bread. and demonstrate how all the different potential country of origin logos that could apply to such a product would – in some way – be misrepresenting the product.

Potentially overlapping definitions of “made in” and “grown in”

Both “made in” and “grown in” are defined in Section 8 of the Information Standard. It is worth noting at the time of publication that these definitions differ considerably from the definition in the Australian Consumer Law as the proposed amendments to the Australian Consumer Law have still yet to make their way through Parliament.

Similarly, it is worth noting that only the definitions in the Australian Consumer Law constitute legal defences (or “safe harbours”) against misleading and deceptive conduct. Compliance with the Information Standard does not currently confer any legal defence against misleading and deceptive conduct.

A product can claim to be “made in” a country if “it underwent its last substantial transformation in that country” [emphasis added]. This definition differs from the current Australian Consumer Law definition in that it is limited to the last country where the product was substantially transformed and removes any references to costs incurred in the country.

A food or ingredient can claim to be “grown in” a country if it: 

(i)            was materially increased in size or materially altered in substance in that country by natural development; or 

(ii)           germinated or otherwise arose in, or issued in, that country; or  

(iii)          was harvested, extracted or otherwise derived from an organism that has been materially increased in size, or materially altered in substance, in that country by natural development; 

A food consisting of more than one ingredient can also claim to be “grown in” a country if: (i) each of its significant ingredients was grown in that country; and (ii) all, or virtually all, of the processing occurred in that country.

The difference in “grown in” definitions for single ingredient foods and multiple ingredient foods is important. The definition of “grown in” as it applies to single ingredient products makes no reference whatsoever to the processing of the product.

Australian-grown wheat definitely meets the definition of being “grown in Australia”. However, if it is milled into flour outside of Australia, does it then fall outside the definition of being “grown in Australia”? If any ingredients are added to the flour (such as salt or thiamine or folic acid, etc.), the resulting flour could clearly no longer claim to be “grown in Australia” because not all of the ingredients were added in Australia. The flour could clearly claim to be “Made in” the country where it was milled because turning wheat into flour would clearly constitute substantial transformation.  Note also that folic acid in bread-making flour is mandatory for most flour in Australia under Standard 2.1.1 of the Food Standards Code.

However, if there are no other ingredients added and relying solely on the wording of the Information Standard, there is an argument that the flour could still claim to be “Australian grown” even if it had been substantially transformed overseas. It must be noted that this argument runs counter to the views of the government in its supporting documentation and in the online government online logo tool which both assume that overseas substantial transformation precludes the making of a “grown in Australia” claim.

It is also worth noting that in December 2015, the Australian Competition and Consumer Commission (ACCC) – in its role as enforcer of the Australian Consumer Law – fined Kailis Bros for misleading and deceptive conduct in relation to the packaging of their Australian caught prawns which highlighted in both words and graphics their Australian origin while only disclosing the fact that the prawns were deveined and peeled in Thailand in small print on the back of pack.

In relation to describing flour milled overseas from Australian wheat as “Australian grown”, the ACCC would likely take an even stricter position given that milling constitutes substantial transformation while peeling and deveining prawns does not.

Declaration of offshore processing

The Information Standard does acknowledge that some processing of food can happen overseas without compromising the “Australian grown” claim. Section 20 of the Information Standard requires any overseas processing of Australian grown product be described within the logo. An editorial note goes on to say:

Section 18 or 19 will apply only if the food was grown, produced or made in Australia, so that it cannot have undergone a substantial transformation when abroad, nor can it have been combined with non-Australian ingredients outside Australia. However, it may have undergone some processing (e.g. cleaning, shelling, packaging, re-packaging) and it may have been combined with other Australian ingredients.  

For example, the label for Australian macadamias sent to Fiji for shelling, sorting and packing before being returned to Australia would include a statement ‘(shelled, sorted and packed in Fiji)’. 

Using the Kailis Bros example, under the new Information Standard, their logo would feature a kangaroo, a 100% full bar chart and the words “Australian prawns” so long as the overseas deveining and peeling was also described in the logo.

When is an ingredient “Australian” for bar chart purposes?

So far, it seems clear that ACCC and the government would hold that flour milled overseas from Australian wheat cannot claim to be “grown in Australia”, despite the wording of the Information Standard being somewhat ambiguous in relation to single ingredient products.

While this may be appropriate on a broader scale, in this instance it has further ramifications, most particularly in relation to the bar chart. The bar chart is required to display the percentage proportion of “Australian ingredients” in the product. Whether an ingredient is “Australian” or not is defined as follows:

(a)  an ingredient that was exclusively grown or produced in Australia is from Australia;

As discussed above, if anything is added to the flour, it cannot be described as having been “exclusively grown” in Australia. If nothing is added, the government and ACCC still believe that substantial transformation (i.e. the milling) precludes the flour from meeting “grown in Australia”.

So would such flour, if sold in the Australian market, have to display on its bar chart that it is 0% (zero percent) Australian despite the fact that 100% of it was grown in Australia?

Potential claims and logos

For the sake of example, we have chosen New Zealand to be the overseas country where the flour is being milled. We have chosen New Zealand as the example due to the fact that most Australian consumers hold New Zealand produce in high regard.

If you were selling just flour, there is an argument that the flour has a single ingredient (namely wheat) and that the wheat was grown in Australia. Thus, it could have the following logo:

CoOL 1

For flour vendors, while the kangaroo logo and “Grown in Australia” claim might be nice, the above logo is far from misleading when representing the nature of the product.

However, the issue becomes far more complicated when the flour is then used as an ingredient in another product, for example bread that is made in Australia. If a loaf of bread is 75% flour and that flour is from only Australian wheat but has been milled in New Zealand, is the resulting product 100% Australian ingredients or only 25% Australian ingredients? While it can be strongly argued that the flour has 100% Australian ingredients, the flour itself may not meet the definition of being “exclusively grown in Australia” and thus may not count towards the Australian ingredient proportion of the bread. Part of the confusion arises from the fact that wheat is a commodity and not usually considered as a food ingredient itself.

Therefore, such a product would have to choose between either of the following logos based upon its view as to whether the flour was “exclusively grown in Australia” despite being milled outside of Australia:

CoOL 2

OR

CoOL 3

While the latter logo would be safer from a regulatory perspective, would it not be misrepresenting a product where every single ingredient was grown in Australia and only one process was conducted overseas?

If the overseas milling is a cost-saving exercise that is necessary to the viability of the product but results in not being able to claim that the flour is Australian, what incentive is there for such a product to use Australian grown wheat in the first place?

Such confusion and ambiguity shows why the new Information Standard is still causing the Australian food a severe amount of grief, and even regret, even for products that desire to use only Australian ingredients.

Country of origin training

FoodLegal has created a comprehensive online training package consisting of eight video modules which explains the new Country of Origin Labelling requirements.  Click here to view the first video.