Food Importers Required to Verify Foreign Suppliers

As I'm sure those of you in the food import business are aware, FDA finalized its rule on Foreign Supplier Verification Programs (“FSVP”) for Importers of Food for Humans and Animals. The rule requires that importers implement a FSVP to verify that their foreign suppliers are producing food in a manner that provides the same level of public health protection as the preventive controls or produce safety regulations, and to ensure that the supplier’s food is not adulterated and not misbranded with respect to allergen labeling.

If you import food into the U.S. you must comply with the requirements under the rule or face regulatory action. The following is an overview of rule and what your business can do to comply its requirements.

What Importers Are Affected:  The rule applies to all importers of food into the U.S. An “importer” is the U.S. owner or consignee of food that is being offered for import or, if there is no such owner or consignee, the U.S. representative or agent of the foreign owner or consignee at the time of entry.

What Food Is Covered: The FSVP Rule applies to all food that is imported or offered for import into the United States. Certain foods are not covered by FSVP, including (1) juice and fish that complies with FDA’s Hazard Analysis and Critical Control Point (“HACCP”) regulations; (2) food for research or evaluation; (3) food for personal consumption; (4) alcoholic beverages; (5) food that is imported for processes and future export; (6) low-acid canned foods; and (7) certain meat, poultry, and egg products that are regulated by the U.S. Department of Agriculture at the time of import. The rule also sets forth modified requirements for importers of dietary supplements and dietary supplement components, very small importers, and importers of food from certain small foreign suppliers.

Importer Requirements Under Rule: Each importer must develop an FSVP that ensures “foreign suppliers” are producing food in a way that provides the same level of protection as what is required under the Preventive Controls Rules and the Produce Safety Rule (if applicable) and ensure that the supplier’s food is not adulterated and is not misbranded with respect to allergen labeling. A “foreign supplier” is an entity that manufactures, processes or grows food, or raises animals that are exported to the U.S. without further manufacturing or processing.

What Must Be Included:  An FSVP must be developed by a “qualified individual” who must perform the various activities and be able to read and understand the language of any records that must be reviewed. In developing an FSVP, an importer is required to conduct and document the following activities:

• Hazard Analysis: An importer must complete a written hazard analysis that identifies potential hazards for each food and each supplier, including biological, chemical (including radiological) and physical hazards.
• Risk Evaluation: An importer must evaluate the risk posed by a food, based on the hazard analysis, and the foreign supplier’s performance. Factors that importer’s must consider in the evaluation can include the foreign supplier’s procedures, processes and practices related to food safety, and any information that FDA may have regarding the foreign supplier’s compliance. The importer can also rely on another entity to perform the risk evaluation under certain circumstances.
• Verification Activities: Based upon the evaluation of risk conducted, the importer must establish and follow written procedures to ensure that it only imports from approved foreign suppliers. Appropriate supplier verification activities may include annual on-site audits of the supplier’s facility, sampling and testing, or a review of the supplier’s relevant food safety records. The importer can also rely on another entity to determine and perform appropriate supplier verification activities under certain circumstances.
• Supply Chains: The final rule also adds flexibility and recognizes the reality of modern distribution chains by not requiring an importer to conduct supplier verification (or evaluate the risk posed by a food and the foreign supplier’s performance) when the hazard requiring a control in a food will be controlled by a subsequent entity in the distribution chain in the United States. For example, if an importer’s customer will control the hazard, the importer can rely on its customer to provide written assurance that the food will be processed for food safety and must disclose that the food has not been processed to control the identified hazard. If the hazard will be controlled by a subsequent entity in the distribution chain, the rule requires disclosure that the food has not been processed to control the identified hazard as well as a series of written assurances starting with assurances from the customer to the importer and continuing the obligation to provide written assurance of processing for food safety throughout the distribution chain. The rule provides flexibility for an importer to establish, document and implement an alternative system that ensures adequate control, at a later distribution step, of the hazards in a food product distributed by a manufacturing/processing facility.
• Conduct Corrective Actions: If something goes wrong and an importer determines that its foreign supplier has not used safe processes and procedures, the importer must take immediate corrective action. The appropriate action will depend on the circumstances, but can include discontinuing use of the foreign supplier until the cause of noncompliance, adulteration or misbranding has been adequately addressed.

The risks evaluated as part of an FSVP must be promptly reevaluated upon the discovery of new information. Additionally, an FSVP must be reassessed for each food and each foreign supplier at least once every three years. Based on the results of any such FSVP reassessment, an importer must promptly adjust its supplier verification activities if necessary.

What is the Deadline to Comply:  Importers must comply with the rule by the latest of the following dates:

• 18 months after publication of the final rule;
• For the importation of food from a supplier that is subject to the preventive controls or produce safety rules, six months after the foreign supplier is required to meet the relevant regulations;
• For an importer that is itself a manufacturer or processor subject to the supply-chain program provisions in the preventive controls regulations, the date by which it has to comply with those provisions.

It is important for companies to determine whether they are subject to FSVP requirements, and, if so, to begin taking steps to ensure compliance. If you are unsure of whether your company is subject to, or if you need assistance complying with, the FSVP rule please contact our attorneys at Morsel Law.

KIND Petitions FDA: Should Investors Lose Confidence in General Counsel?

In a previous article I discussed how important it is for food businesses to conduct an in-depth label review prior to launching new products. Specifically, I addressed the FDA Warning Letter issued to KIND LLC and pointed out how costly labeling mistakes can be, especially when the risk could have easily been mitigated. In their response to FDA, KIND agreed to correct most of the technical errors noted in the letter; however, when it comes to changing their view of what foods are allowed to label themselves as "healthy" they don't agree with what they refer to as "outdated" regulations.

In a citizen petition letter ("Petition Letter") sent to FDA last week, KIND's general counsel, Justin Mervis, notes that under current regulations "whether or not a food can be labeled "healthy" is based on specific nutrient levels in the food rather than its overall nutrition quality." KIND then goes on to claim that new scientific evidence no longer supports this view and that, accordingly, FDA amend 21 C.F.R. 101.65(d)(2) in regards to nutritional content claims so that manufacturers may use the term "healthy" without regard to the total fat or saturated fat, if the source of such fat comes from fruits, vegetables, nuts, seeds, legumes, whole grains or seafood, provided that "such foods are used in their whole form or have been processed in such a way that did not materially degrade their nutritional value." 

While the Petition Letter makes several other recommendations, the majority of the Petition Letter is devoted to the argument that there is a disconnect between the Dietary Guidelines and what claims manufacturers are permitted to state on their labels. KIND argues that manufacturers should be permitted to make claims on their products labels (e.g., "nuts are part of a healthy diet") that are consistent with federal dietary recommendations and current scientific evidence. As such, KIND goes on to request the FDA "undertake rulemaking to define a "dietary guidance statement" as a statement in food labeling about the usefulness of a food, or a category of foods, in maintaining healthy dietary practices." The requested rule would permit claims on food labels to communicate that certain foods are useful in creating a diet that is consistent with current dietary recommendations, so long as those claims are not misleading.

While it isn't a secret that food regulations, in some part, have become "outdated", what makes KIND's petition interesting is it comes after being caught violating the same regulations they are petitioning to amend. The real question is whether KIND knew their product labels were non-compliant when released into the marketplace or did they make a business decision to move forward with non-compliant labels in order to promote their "healthy" marketing campaign. While the saying "it's better to ask for forgiveness then to ask for permission" may apply in certain situations, it's probably not the best strategy when it comes to breaking federal law. 

The role of the general counsel is to advise executive leaders on the state of the law, how certain laws affect their business and to provide pertinent information and/or legal advice to such leaders so they have the ability to make informed decisions. The general counsel is not required to be an expert in the industry in which their client operates (although it certainly helps); however, they should know the limits of their expertise and, when appropriate, bring in outside assistance with such expertise. If they don't know their limits, or can't identify potential legal issues outside their expertise, then their departure should be swift. After all what good is legal counsel if leaders are not able to rely on their advice?

It isn't clear whether KIND made the decision to market their products with non-compliant labels, but if they did the general counsel shouldn't take the blame. However, it took KIND six months to file their Petition Letter which leads me to believe the labeling violations occurred not because of a strategic business decision, but due to the lack of regulatory expertise and oversight from the general counsel's office. If my presumption is correct, investors should demand answers and push for changes in the executive suite. These violations have resulted in significant expense revising labels, advertising and websites, in addition to substantial legal fees incurred responding to the Warning Letter and submitting the Petition Letter, and most recently defending consumer lawsuits. While attorneys play a significant role in advising businesses, legal fees cannot be entirely avoided; however, they can be efficiently managed. It is up to KIND's investors to decide whether their capital in this situation was well-spent. 

Alcohol Beverage Labels: The Importance of Each Word

Let's be honest, most of us as consumers don't read each and every word on a food and beverage labels, especially that fine print way down at the bottom. Sure, we check the ingredients, maybe even the calorie count, but for the most part that's about it. But when it comes down to it, everything on the label matters. Not necessarily to the majority of consumers, only those trying to squeeze money out of the pockets of businesses. And, as demonstrated below, it only takes one person to notice something questionable to cause major headaches.

Just ask Diageo PLC. They were recently sued over the labeling of their Red Stripe beer. Although marketed as a "Jamaican-style lager" and the logo of a Jamaican brewery is displayed on the bottle, the beer is brewed and bottled in Latrobe, PA. This isn't something Diageo is trying to hide, they disclose it directly on the label. However, the complaint claims that the label falsely misrepresented the country of origin of the beer which resulted in consumers paying higher costs for an imported beer. I guess the plaintiffs haven't purchased domestic craft beers lately, which can be some of the most expensive items in the beer cooler.

Another recent proposed settlement with "mislead" consumers came from the owners of Templeton Rye, an Iowa-based whiskey maker. According to the complaint, the whiskey company conducted deceptive marketing practices for failing to disclose its product's origins, and further suggesting that it was made in small batches of a "Prohibition-era recipe." In fact Templeton Rye doesn't even distill their own product. Instead, it buys the rye from MPG Ingredients in Lawrenceburg, IN, and passes it off as their own distillate. The rye whiskey that Templeton Rye purchases isn't even made in small batches, but in large quantities which Templeton Rye purchases in small amounts, the remaining whiskey is sold to other distillers which is then bottled under different brand names. Although Templeton Rye does blend the whiskey at their facilities with an alcohol flavoring formulation which they purchase from yet another vendor to achieve their own flavor profile. Of course, all of this is disclosed on the company website, but that didn't matter to the plaintiffs. Templeton Rye's co-founder, Keith Kerkhoff, is livid, stating: “It’s all about greedy people…if people didn’t like our product, they wouldn’t have bought a second bottle." The parties have reached a settlement where the company has agreed to reimburse consumers who purchased their product in the amount of $3-6 per bottle, up to 6 bottles. 

Last year, Fifth Generation Inc., the marker of Tito's Homemade Vodka, was sued in California for false and deceptive marketing, and in Florida for unfair and deceptive practices. The vodka maker touts that its product is "handmade", however, this apparently isn't the case anymore. Originally, the vodka was made by its founder, Tito Beveridge, in pot stills just outside of Austin, TX. But now, the company produces over 850,000 case per year out of an industrial facility. The company has stated in its own defense that their labels were signed off by the Alcohol and Tobacco Tax and Trade Bureau ("TTB"), so if putting "handmade" on their label is "false advertising" then the TTB wouldn't have approved the labels in the first place. Apparently, this logic wasn't enough for the courts to dismiss the lawsuit. 

As you can see above, each word really does matter. Similar lawsuits against alcohol beverage makers are being filed more and more frequently. Whether on a beverage label or marketing campaign or website, it is important to review and analyze all materials prior to releasing them into the marketplace. If a company doesn't have internal staff qualified to complete this type of regulatory review, they should locate and hire a specialist. Think of this as buying an insurance policy. You spend a small amount of money to get it right the first time to mitigate risk, instead of going without and hoping for the best. But if something is incorrect, one of two scenarios happen: regulators come knocking on your door or you're served with a civil complaint by affected "consumers". Either way, the company is faced with the high cost of defending themselves and possible damage to their reputation, which will most likely result in loss of customers. If your business is unsure whether a label or marketing materials are in compliance with, or need assistance in adapting your label or materials to meet, TTB or FTC regulations please contact our attorneys at Morsel Law. 

FDA Delays Menu Labeling Rule

As mentioned in another article in December, the Food and Drug Administration ("FDA") issued a final rule on food labeling (the "Rule"), as required under the Affordable Care Act, which provides for nutrition labeling of "standard" menu items for chain restaurants with 20 or more locations and "similar retail food establishments." Initially the Rule was to be implemented on December 1, 2015; however, since the Rule was issued numerous chain restaurants, grocery stores, and other covered establishments complained that they may not be able to comply within such time period.  Thus, on July 9, 2015 the FDA responded by announcing that it was extending the compliance date for the Rule to December 1, 2016. 

This is welcome news to the food industry as many businesses have struggled to implement procedures to comply with the Rule. Food businesses will now be afforded additional time to train staff, design new menus, and develop new information systems to assist in efficiently complying with the Rule. The FDA also announced it intends to publish a guide to assist covered establishments in complying with the Rule which is expected to be issued in August 2015.

While the menu labeling rule implementation has been delayed for one more year, it’s important for businesses to start planning for the implementation. If your food or beverage business needs assistance with implementing or interpreting the menu labeling rule, please feel free to contact our attorneys at Morsel Law.

Streamlining Your Food Imports Into the U.S.

If you import food into the United States then you are familiar with the headaches and hassles that go along with this burdensome regulatory process. But that may change with the release of the draft guidance that outlines FDA’s plan to implement the Voluntary Qualified Importer Program ("VQIP") mandated under the Food Safety Modernization Act. The VQIP is a voluntary, fee-based program for the expedited review and importation of foods from importers who achieve and maintain a high level of control over the safety and security of their supply chains. 

The new draft guidance lays out the various benefits in addition to expedited entry that an importer can expect to receive from participating in VQIP, including limiting examination and/or sampling of VQIP food entries to “for cause” situations. Additionally, participants in the VQIP will have access to the VQIP Importers Help Desk, which will be dedicated to responding to questions and concerns of VQIP importers. 

The draft guidance lays out the eligibility for participating in the program, which includes: (a) 3-year history of importing food into the U.S.; (b) do not import food subject to an import alert or Class 1 recall; (c) have a current facility certification for each foreign supplier of food intended to be imported under VQIP; and (d) be in compliance with Foreign Supplier Verification Program requirements and applicable seafood and juice HACCP regulations.  

Participation in the VQIP is for the U.S. fiscal year, which begins on October 1st each year. Applications to participate in VQIP will need to be submitted electronically through the FDA’s industry portal between January 1st and May 31st before the fiscal year in which the importer seeks to join the program. FDA has indicated that due to resource constraints, it will limit the number of participants in the first year to 200 at the most. Participation must be renewed annually, and participants will be subject to FDA inspection. 

If your company is considering participating in the VQIP program, carefully review the draft guidance as the FDA will only accept comments on until August 4, 2015.