By Louis J. Biscotti, partner, WeiserMazars LLP
With the recent release of the final Food Safety and Modernization Act (FSMA) regulations and the passage of the food labeling law by the House, food and beverage (F&B) companies need to step up and ensure that they're in compliance with these new requirements. This is the time to be proactive and not reactive!
I recently attended a food labeling seminar hosted by the Food Institute and learned that the labeling mistakes that can be made are numerous, subtle, and can easily lead to a lawsuit. Food safety and regulatory change was the spotlight of the 14th annual WeiserMazars CEO F&B Best Practices Forum, held Oct. 22. Our panel, which I moderated, consisted of leading experts in the field: Bruce Silverglade from OFW Law; Gale Prince – a food scientist and “the Dean of Safety Recalls”; and Brian Todd, president of the Food Institute.
The No. 1 action that the panel felt all F&B companies must take regarding the release of the FSMA regulations was to review every product for control methods that prevent hazards and document those controls. There must also be a scientific review of every product. Your entire team should be educated on the new rules and the importance of compliance with them.
These steps should be taken immediately – the FDA is overwhelmed with informational requests and third-party auditing firms are similarly overburdened. If you wait too long you may not be able to get the resources you need.
While opinions over the new labeling laws exist both in Congress and among the broader public, the laws regarding GMOs will prevent chaos in the marketplace as there will be one federal law rather than different laws in each state. However, local governments are still making labeling complicated due to requirements like the calorie and sodium information that is mandatory in New York City. It's clear you will need to have appropriate resources (food scientists, lawyers, third-party auditors), education, and an internal plan to deal with the unprecedented complexity of the current web of rules.
The panel also discussed the additional costs of compliance, packaging, testing, relabeling and analysis of products which will similarly increase costs to the consumer. Silverglade pointed out that there are already 200 class action cases pending in California alone on food labeling. While the bulk of these lawsuits are currently taking place in California, they are spreading and we expect that sizable settlements will be plentiful.
We are left asking ourselves if the industry is being overregulated. The projected cost of FSMA is $1 billion, however CEOs should be particularly concerned about the Park Doctrine which says that the FDA can bring criminal charges against any responsible person including officers of food and beverage companies. One CEO recently received a sentence of 20 years under this doctrine.
On a positive note, despite all of the regulations and risks, M&A activity is still hot in F&B with multiples at the highest level in years. So maybe now is the time to sell?