http://english.caixin.com/2013-01-18/100484066.html Far away from the sun-splashed fields of soybeans, corn or olives, how one man produced tons of oil destined for tabletops sourced from sewers (Beijing) -- It's oil with an extra something, but there's nothing virgin-like about it. Pumped from sewers outside of restaurants, or pressed from trash, the oil is born from waste holes both human and mechanical. Known as "gutter oil" in China, it's commonly used at greasy spoon restaurants and canteens, many of which purchased the cheap oil processed by businessmen like Liu Liguo. In July 2011, Liu was arrested at the gate of one of the gutter oil companies he founded. Prosecutors say one of Liu's companies used cutting edge technology to produce, at peak operation, 60 tons of oil per day. Investigators at Liu's trial in December 2012 revealed details of a massive distribution network concentrated in four provinces. The trial, which began in August 2012 in Ningbo, Zhejiang Province, exposed all links of one gutter oil supply chain, involving 58 companies, some of which were well-known cooking oil brands. A verdict has not yet been announced. The largest case of gutter oil manufacturing to date, Liu's story began with a modest biodiesel facility that later gave way to companies which sold off as much as 12,000 tons of the waste as cooking oil and raked in nearly 100 million yuan in sales since 2007. Though the oil can resemble edible oil, it can contain carcinogenic compounds and hazardous chemicals. The prosecution's indictment states that Liu knowingly traded the non-edible waste oil to resellers that would "pass off the purchased oil as soybean oil." Taste for the Oil Business Liu was born in Pingyin, Shandong Province, in 1977. He worked at a nearby aluminum plant for 10 years until the management failed to pay its workers. In 2003, Liu left and pooled money from relatives and friends to open the Pingyin Changshun Oil Processing Plant. A former colleague from the aluminum plant surnamed Li said that at the beginning, Liu started off producing real cooking oil. "At the time, the factory processed pig lard. That is, the factory took animal fat, removed the color, took away the smell and sold it. It was for meant human consumption," Liu later told China Newsweek from the detention center. In the first two years, Liu lost money due to his lack of experience. He continued to borrow money from relatives and friends, accumulating some 2 million yuan in debt. For Liu, 2005 marked a turnaround in business. At the time, China's biodiesel industry was still in its infancy and there were no uniform regulatory standards. Liu's business acumen led him to restructure the company. He renamed the factory and purchased biodiesel equipment. In other countries, biodiesel can be used as a renewable fuel for vehicle engines. In China, this is also seen as a lawful use of gutter oil. But fluctuations in the price of petroleum fuel â€“ which gas stations were adulterating with biodiesel â€“ later shuttered many of the industry's suppliers. For Liu, staying in business would mean the oil just needed go somewhere else. The Liberation Daily reported that in 2005, the price of a ton of gutter oil was 800 yuan. By 2006, the price had shot up to 3,000 yuan per ton. Producers of biodiesel could refine it for roughly 3,500 yuan and sell it for 5,000 yuan per ton. Much of the gutter oil used by Liu's companies came from Beijing sewers. With no domestic standards at the time, the biodiesel would sell as long as a customer agreed to buy it. "During that time, I learned much more about the gutter oil business," Liu said. Fuel oil was in short supply, and many gas stations began mixing biodiesel with diesel. Liu's business grew daily. At its highest, monthly profits reached 200,000 to 300,000 yuan. Page 2 of 3 Far away from the sun-splashed fields of soybeans, corn or olives, how one man produced tons of oil destined for tabletops sourced from sewers The price of diesel declined. The good times stopped rolling and the demand for biodiesel ground to a halt. China consumes as much as 90 million tons of diesel fuel annually, and there remains huge potential in the alternative fuels market. But many biodiesels produced can be more expensive than diesel and are not compatible with certain engines. Another difficulty is that Sinopec and PetroChina control the diesel supply market, and few private companies can break into state-owned sales channels. Secrets of the Oil Factories Since 2007, Liu's plant, among other processing facilities in Pingyin took raw gutter oil and produced "red oil," for cooking oil suppliers across the country. Up and down the gutter oil supply chain, there are illegal businesses. Take processing "red oil," for example. Liu later explained that in 2011, he purchased raw gutter oil at a cost of 5,000 to 6,000 per ton. Liu said that processing a ton of such oil could earn 500 to 600 yuan. Liu said that there were at least five gutter oil companies on operation in Pingyin alone. Prosecutors say Liu's factories produced gutter oil mainly for food uses. He denied this in court, saying that he was only producing feed oil for animal use. However, producing feed-grade blending oil requires approval from a provincial-level agricultural department. Liu's company never obtained any official permits. Factories without such permits make up a large share of the Chinese feed oil market, a regulatory gray area. Those outside the industry have no way of knowing whether this oil is entering the edible oil market. On March 9, 2009, Liu rented a 1,300 square meter factory in Pingyin County's Jixi Industrial Park. With registered capital of 500,000 yuan, he founded Jinan Bohui Biological Technology Co. Ltd. The company stated that it had annual production capacity of 10,000 tons of bio-wax and two tons of refined feed oil. In May 2010, Liu incorporated another company called Jinan Gelin Bioenergy Co. Ltd. Files with the industry and commerce department show that the company had registered capital of 1 million yuan and operations in the production and sale of biodiesel, oleic acid, stearic acid and fatty acid. The average worker was not told where the product was destined. One worker, Yang Honglei, said that workers were not allowed to bring outsiders into the factory during production, leave their posts, or ask "careless questions." After the incident, several of Jinan Gelin Bioenergy's core operating officers described the company's production process. Each day, a shipment of some 30 tons of raw gutter oil would arrive at the factory. After being melted and stewed, the oil would be sent to the hydrolysis workshop. In steel tanks, workers would add white clay and activated carbon to filter the oil. The gutter oil became clearer and smelled less. The gutter oil would then be distilled to remove pungent flavors and fragrances. Finally, the oil would enter the gas-fractionation plant and separated to form the final products. Fatty acids accounted for 30 to 40 percent, and "red oil" accounted for 60 to 70 percent. Page 3 of 3 Far away from the sun-splashed fields of soybeans, corn or olives, how one man produced tons of oil destined for tabletops sourced from sewers Among Jinan Gelin Bioenergy's products, fatty acid was a byproduct. "Red oil," which sold for around 8,000 yuan per ton when it exited the factory, was the company's main source of profits. Prosecution materials show that after the gutter oil was fully processed by the factory, the oil did not have a foul smell and appeared clean. A woman surnamed Feng from a nearby village said that Jinan Gelin Bioenergy was a heavy polluter. "It smelled like rotting dogs. The stench assailed the nostrils until you retched, and then your head ached." After the plant went into operation, roses planted nearby withered and died. Fruit on nearby trees turned black and fell to the ground. Rabbits and chickens died of respiratory tract infections. The local residents petitioned authorities several times to no avail. In October 2010, a project feasibility report conducted by the Jinan Municipal Engineering Consulting Co. stated that from an environmental impact standpoint, the factory met all standards. An August 2010 feasibility report from the same consulting company said the recycling of gutter oil into biodiesel would protect the urban and rural environment and in fact, serve to keep gutter oil off of kitchen tables. From Sewer to Table The sales of Jinan Gelin Bioenergy's gutter oil were kept secret by Liu personally. According to prosecution materials, if there were goods to deliver, Liu would contact the drivers on the afternoon of the day before the delivery and give them the contact information for the recipient. His sales of gutter oil went to many other provinces. In 2009, Liu developed a customer network that included large cooking oil companies. That year, he contacted Cheng Jiangping, an oil business intermediary. That February, through Cheng, he met Yuan Yi, operator of a large grain and oil trading company on the Henan Qingfeng Grain and Oil Market. Liu confessed that in June and July 2009, after Jinan Bohui Biological Technology began producing, Yuan made a series of oil purchases from Liu. Police later accused Yuan of selling large quantities of Liu's oil with the knowledge that it originated in sewers. Yuan sold the oil at a markup to grain and oil companies in Henan Province or in cans to construction site canteens and night market buffets. This brought gutter oil to thousands of dining tables every meal, bringing in total sales of 3 million yuan. Another company, Henan Huikang Oil Co., also came under investigation in the second half of 2009. The company purchased inferior-quality oil from Liu, mixed it with regular soybean oil and sold it to a number of food companies. Total sales amounted to more than 160 tons at total value of 1.5 million yuan. The inferior-quality oil was also sold to feed producers and pharmaceutical processing companies. Finally, just one month after Liu's company Jinan Gelin Bioenergy completed an equipment overhaul to increase production capacity, Liu was arrested in front of his other company, Bohui Biological Technology. Liu's arrest led Shandong police to four other companies that sold gutter oil. Over 50 people were detained in relation to the gutter oil operations. With the seven people that went to trial as part of the gutter oil sting in August 2012, Liu was argued there was insufficient evidence to prove whether the product was a "poisonous and harmful food product." While tons of gutter oil continue to circulate through the food system, Nie Jianhua, deputy commissioner of the Supreme People's Procuratorate, told People Daily's Online that that addressing rampant food safety violations remains difficult. For now, food quality will remain a question entirely up to the judgments of consumers.