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Free-range egg supplier under investigation

Scandal could be about to revisit the egg industry.

The Commerce Commission has confirmed to Newsroom that it’s investigating a West Auckland egg supplier for allegedly putting caged eggs in cartons labelled as free-range.

The industry was rocked by revelations in March last year that millions of caged eggs had been sold as free-range in Countdown supermarkets.

The latest investigation is into Blackwater Trading company which produces free-range eggs at its Gold Chick farm in Henderson Valley, West Auckland.

Acting on a complaint from a former employee at Gold Chick, the Commerce Commission began investigating the company late last year.

Newsroom understands the allegations involve claims that large quantities of eggs were being driven up from a caged egg producer in the Waikato and then repacked and sold as free range.

A former employee of Gold Chick, Feihing (Johnny) Hu, is believed to have told investigators that caged eggs were put into 'Farmer Brown' free-range cartons.

Farmer Brown is one of the brands controlled by New Zealand’s biggest egg producer, Mainland Poultry, which sources eggs from farms around the country as well as its own facilities.

Mainland was caught up in last year’s scandal when another of its brands, Woodlands, was withdrawn from supermarket shelves after it was found that caged eggs were being sold as free-range.

The eggs were packed by Palace Poultry, a big egg producer near Bombay, south of Auckland.

The managing director of Palace Poultry, Aaron Fletcher, told Newsroom at the time that he thought the caged eggs he was buying from a local supplier were free-range.

The Serious Fraud Office investigated that case for nearly 12 months but recently said the evidence was not of a high enough standard to lay charges.

Newsroom’s own investigation found the scandal had been running for years and the sums involved topped $7 million.

It’s not known how far back the allegations against Blackwater Trading and its owner Xue (Frank) Chen go.

A few days before Christmas last year, police charged Chen, 34, with perverting the course of justice.

He is accused of threatening his employee Johnny Hu to have him withdraw his complaint to the Commerce Commission.

Chen, who lives on the Henderson Valley egg farm, will reappear in the Waitakere District Court next month.

When Newsroom visited Chen he was happy to discuss the Commerce Commission investigation and said he was innocent of any wrongdoing.

Watch: Newsroom's Melanie Reid speaks to Frank Chen in the video below

He said Hu was a disgruntled employee who he had caught stealing eggs from him.

Chen told Newsroom that he had gone to see Hu at his home with two other employees after he heard about the complaint but denied threatening him.

He confirmed that between 10,000-15,000 caged eggs a week were driven up from a farm in the Waikato in one of his trucks.

When Newsroom told Chen that it was not his truck being used but a rental van from James Blond Rentals in Kelston, he agreed.

Chen blamed the driver, an Iranian immigrant, for divulging the information to Newsroom.

“The one thing I have learned in the last three years is not to trust Muslims,” said Chen.

He claimed the driver had turned against him because he had declined to help him with his immigration status.

Newsroom has never spoken to the driver or Johnny Hu.

We have, however, talked to another person who said he visited Gold Chick and saw cage eggs being packed into Farmer Brown free-range egg cartons.

According to Chen, all the caged eggs he buys in are sold to bakeries and dairies, “because all these people want cheap eggs”.

Chen’s egg farm was listed for sale on Trade Me on January 12 with an asking price of $1.65 million.

The advertisement stated that the business had a turnover of $1 million and produced a cash surplus of $300,000. When Newsroom put it to Chen that the business was for sale he said that it wasn’t true.

Hamish Sutherland, General Manager of Zeagold, a subsidiary of Mainland that buys eggs for the Farmer Brown brand, said the company was assisting the Commerce Commission with its investigation.

In 2017, four percent of Farmer Brown’s free-range eggs came from Chen’s operation.

“We have supplied all the information that the Commission has asked for. We believed every egg we got from him (Chen) was free-range and came from that farm.”

Sutherland said that Zeagold monitors its suppliers and that Chen’s production of free-range eggs exceeded the amount of eggs it was buying from him.

“We do regular audits and had good controls in place, but bitter experience has taught us that people with fraudulent intent appear to be able to circumvent any controls we put in place. To counter this problem, we are building more free-range capacity on our own farms to reduce the reliance on third party supply.

"The most recent audit of Gold Chick was March 2017. At this time, he had just over 9000 laying hens on the site, more than enough to supply the free-range eggs we bought from him."

Sutherland told Newsroom that Zeagold had cancelled Gold Chick's contract in October that year, before it became aware of the Commerce Commission’s investigation.

“We terminated the contract for reasons that were completely unrelated to the eggs themselves. Mr Chen had defaulted in payments to the packaging supplier and was unable to meet the terms of our agreement."

He said it was distressing that Zeagold and Mainland were having to defend their reputations for the second time in 12 months.

“We are victims twice over in this situation – once by having the wrong (and cheaper) product sold to us under false pretences, and secondly in terms of potential damage to our brand reputation. The Commerce Commission is not investigating our company or brands as being party to any alleged wrong doing. “

Commerce Commission’s investigators formally interviewed Chen last month and are now gathering information from Gold Chicks customers and suppliers.