2013 Food and Beverage Industry Outlook

January 2, 2013

This year is sure to bring a number of significant changes to the food and beverage industry, especially given the 2012 election results and the continued momentum of several “hot topics” from 2012 that attracted the attention of government officials, agencies and the general public. Possible areas where changes may occur include environmental, food safety and labeling, OSHA, EU regulations, immigration and tax. Please contact the authors or any of McGuireWoods’ Food and Beverage Industry team members for additional information or assistance with any of these areas.

The following are potential food and beverage industry issues to follow in 2013:

Food Labeling

Trent Taylor, Richmond

Uptick in Lawsuits Involving Labeling Issues

One of the most explosive litigation trends in our tort system right now is the large uptick in the number of suits targeting the labeling practices of food manufacturers. A huge number of such suits were filed in 2012 (mostly in California), and they have found a receptive audience in the courts by focusing on foods that are labeled as “natural” or “healthy,” words that are inherently subjective and that are not governed by federal standards (and those subject to preemption). While courts have dismissed some suits, others usually have resulted in sizable settlements and certification of classes in recent months. In 2013, it is likely that more of these suits will be filed and litigated, and there should be more clarity on whether these suits will remain a legitimate threat to the food industry or whether they are merely a passing fad that courts will eventually shut down.

Similarly, some of these labeling suits that were dismissed by trial courts on a variety of grounds such as federal preemption are now ripe for appellate court review and will be either affirmed or reversed in 2013. One such example is the case of Young v. Johnson & Johnson, currently pending before the U.S. Court of Appeals for the Third Circuit. The issue in this case is whether a trial court decision dismissing claims against a food manufacturer for making nutrition claims on their product packaging based on federal preemption should be affirmed. The outcome of this case will be influential in how strong a defense preemption will be in future cases.

Investigations by Government Agencies

The year 2012 also saw the rise of governmental investigations of food manufacturers for their labeling practices. One such example is the federal and state investigations into the energy drink industry that center on whether the manufacturers of these drinks are deceiving consumers in a number of ways, including the amount of caffeine in their drinks, the health risks generated by consumption of large amounts of caffeine, whether all the ingredients in the drinks are properly disclosed and whether the drinks are dietary supplements or foods. Whether these investigations result in civil or criminal penalties or increased regulations, as well as whether they expand into other areas of the food industry, will bear watching in 2013.

Expansion of State Laws Regarding Food Labeling

In 2012, various state legislatures moved to expand laws requiring accurate labeling of food products. For instance, legislatures in at least 20 states have introduced legislation that would require the labeling of genetically engineered food. In California, a new law requiring labeling of genetically engineered food, Proposition 37, was narrowly defeated as a ballot initiative in November 2012. It appears that there may be a similar ballot initiative in Washington state in November 2013, and there are current legislative efforts to pass similar measures in Connecticut and Vermont. Passage of such laws could significantly increase the number of food labeling lawsuits, so those in the food industry will need to monitor these legislative efforts closely in 2013.

Food Safety

Angela Spivey, Atlanta

Recent Food Safety Reforms

Since the Food Safety Modernization Act (FSMA) was enacted on Jan. 4, 2011, amending the Federal Food, Drug and Cosmetic Act, the industry has been subject to sweeping reforms of our food laws on a strategically staggered basis. In 2012, companies that manufacture, process, package or hold food products regulated by the FDA were required for the first time to implement risk-based preventive controls. Additionally, food facilities required to register with the FDA were obligated to renew the registration between Oct. 1 and Dec. 31, 2012. We have also seen the FDA exercise its increased authority granted by the FSMA, including the first suspension of registration of a food facility, which prevents the facility from placing any food product in the stream of commerce. What’s next?

Foreign Supplier Verification Program and Accreditation Programs Required in 2013

As of Jan. 4, 2013, the foreign supplier verification program requirements become effective, even if regulations have not been issued by the FDA specifying the necessary content of such a program, holding importers accountable for the safety of the food they bring into the U.S. Section 301 of the FSMA requires U.S. importers of food products to perform risk-based foreign supplier verification activities to verify that imported food is produced in compliance with applicable requirements related to hazard analysis and standards for produce safety and that the imported food is not adulterated or misbranded. Importers must maintain documentation and records of the implemented verification program for at least two years. This same section of the FSMA imposes upon the FDA the requirement to issue guidance to assist the importers in developing appropriate foreign supplier verification programs and provide for the content of the newly required programs. However, even if the FDA fails to meet its deadline to issue guidance (which appears to be the case), the industry is not relieved of its obligation to implement and document a viable program by Jan. 4, 2013.

By Jan. 4, 2013, the FSMA also calls upon the FDA to establish a laboratory accreditation program (Section 202) and establish an accreditation system for third-party auditors (Section 307). These programs have yet to be established by the FDA but are anticipated in 2013.

Changes for USDA Regulated Facilities

This year will also bring changes for USDA-regulated facilities, although to a lesser degree than the FDA-regulated facilities. The USDA’s Food Safety and Inspection Service (FSIS) announced that as of Feb. 8, 2013, producers of nonintact raw beef and all ready-to-eat products containing meat and poultry must hold shipments until the products pass agency testing for foodborne pathogens. The new policy requires USDA establishments and importers of record to maintain control of, or hold, the products tested for pathogens by FSIS until negative test results are received. FSIS has also announced tougher new standards to prevent illnesses associated with E. coli bacteria, and will soon prohibit any raw ground beef found to contain six additional types of E. coli bacteria from being sold to consumers.

Taxes on Sugary Sweetened Beverages

Jerry Kilgore, Richmond

Recent Defeats at the Ballot Box Will Lead to More Ballot Measures in 2014

On Election Day, two sugar-sweetened-beverages tax proposals were defeated at the ballot box. In Richmond, CA, voters defeated Measure N on a 67 percent to 33 percent vote. The proposition would have imposed a penny per ounce tax on local businesses that sell soda, juice and other sugar-sweetened beverages and would have made Richmond the first U.S. city to pass such a tax. The tax was projected to raise more than $3 million per year, with the revenue dedicated to reducing childhood obesity. The beverage industry spent more than $2.5 million to defeat Measure N. To the south in El Monte, CA, voters defeated a similar measure on a 77 percent to 23 percent vote.

Given the solid defeats this past fall, some believed the tax proponents might pursue a different approach going forward. To the contrary, it appears they will redouble their efforts in 2013 and beyond.

It has been widely reported that sugar-sweetened-beverages tax proponents believe the appropriate next step is to attempt to spread the beverage industry’s resources thin by attempting to pass at least 14 state or local beverage tax ballot measures in 2014. Their rationale assumes the industry will be unwilling or unable to continue to spend $2.5 million, or more in the case of a state measure, opposing each ballot measure.

State, County and Municipalities Likely to Consider Bills Taxing Sugar-Sweetened Beverages

Additionally, at the state level, outgoing Governor Gregoire of Washington has proposed a lame-duck budget that includes a 19 cent per ounce carbonated beverage tax to generate $57 million in revenue (with a $10 million exemption) despite voters’ in 2010 repealing, through a ballot measure, a recently enacted beverage tax. Her proposal is considered a nonstarter given that her Democratic successor ran on a no-new-taxes platform, but it is worth noting that the state anticipates a budget deficit exceeding $900 million. 

As the spring legislative sessions convene, McGuireWoods Consulting anticipates that numerous states, counties and municipalities facing deficit concerns will consider bills imposing new taxes on sugar-sweetened beverages, as well as other food and beverage products. It is likely that some of these proposals will include ballot measures.

Potential Increase in Federal Regulatory Activity

At the federal level, with the fiscal cliff in the foreground and tax reform looming in the background, there has been a spike in chatter about imposing a federal sugar-sweetened-beverages tax modeled after federal tax on tobacco products. The Center for Science in the Public Interest (CSPI) has renewed its call for a penny-per-can soda tax to raise $10 billion in new federal revenue over 10 years as well as additional anticipated savings to Medicaid and Medicare through anticipated behavior changes projected to reduce the incidence of obesity, diabetes and other costly health conditions. While CSPI’s reintroducing their longtime call for soda tax is not news, the Bipartisan Policy Center, the Economic Policy Institute and even former Treasury Secretary Larry Summers have each publicly called for a soda tax as a part of a broader package to prevent the fiscal cliff from being fully realized. A broadening choir of opinion-leading voices suggests that a federal beverage tax proposal may be more fully considered by policymakers.  

Additionally, other advocates are focused on the Supplemental Nutrition Assistance Program (SNAP) (previously known as food stamps), which must be renewed by the next Congress. These advocates, who tend toward an antitax and limited government ideology, may make an effort to restrict SNAP recipients’ from using their federally provided assistance to purchase sugar-sweetened beverages. While their motivation is to reduce government spending, it nevertheless stigmatizes sugar-sweetened beverages.

Immigration Compliance

Christine Mehfoud, Richmond

Continued Enforcement Aimed at Employers (more Form I-9 Inspections)

As the country patiently waits for comprehensive immigration reform, no doubt the significant enforcement we have seen over the last few years that has been aimed at employers will only increase in 2013. All employers across the country, regardless of whether they employ foreign workers, should be on alert for immigration-related inspections and enforcement actions — especially employers associated with “critical infrastructure” or “key resources” sectors, which include the food industry.  

E-Verify

Be on the lookout for more states to mandate E-Verify for private employers in 2013. E-Verify participation is also expected to be a part of any comprehensive immigration reform. In the meantime, employers in Georgia, North Carolina and Tennessee should pay particular attention to the upcoming 2013 E-Verify participation deadlines in those states:  

  • Georgia
    • Employers with more than 99 employees: deadline has passed
    • Employers with 11-99 employees: July 1, 2013
  • North Carolina
    • Employers with more than 500 employees: deadline has passed
    • Employers with 100-499 employees: January 1, 2013
    • Employers with 25-99 employees: July 1, 2013
  • Tennessee
    • Employers with more than 199 employees: deadline has passed
    • Employers with 6-199 employees: January 1, 2013

All employers who have not yet implemented E-Verify or who have only implemented E-Verify in certain states should review the relevant states’ requirements to determine whether they need to revise their E-Verify participation.

New Form I-9

Last, but not least, in addition to the increased enforcement, USCIS (U.S. Citizenship and Immigration Services) is expected to issue a new Form I-9 within the next few months after two rounds of comment period in 2012. Overall, the proposed Form I-9 declutters the Form I-9’s content and leaves less room for error in completing the Form I-9. However, implementation of the new I-9 will require additional training and tweaks to existing electronic systems (if implemented). As a reminder, the proposal is still in draft form and employers should continue to use the current Form I-9 until any changes are made permanent.

EU Regulatory Issues

Matthew Hall, Brussels

It’s Not Too Late For Self-Regulation of Unfair Trading Practices (But Time is Running Out)

The High Level Forum (the Forum) for a Better Functioning Food Supply Chain, established by the European Commission (EC) in 2010, presented its report on Dec. 5, 2012. A key focus of the Forum has been leading the continuing debate on the impact of unfair trading practices in the food supply chain, and at the publication of the report the EC recommended that stakeholders “put forward a satisfactory solution at the earliest opportunity.” The EC also indicated that it will be assessing in parallel all possible options for tackling this issue in the food chain, including legislation, and will launch an impact assessment. The EC aims to achieve “clarity on the way forward” before the end of 2013.

Other Points from the Report of The High Level Forum for a Better Functioning Food Supply Chain

The Forum identified various other areas that need to be progressed during 2013 and beyond. These include the review of the Markets in Financial Instruments Directive, the rules on provision of food information to consumers, the establishment of food price observatories, the treatment of novel foods and the establishment of national organizations to report on geographical indication counterfeiting. The Forum also recommended in its report maintaining a multistakeholder dialogue on the follow-up to the ongoing pilot project on a fitness check for the food supply chain and the improvement of the European Food Prices Monitoring Tool

Study on Choice and Innovation in the Food Sector

In a related development, on Dec. 11, 2012, the antitrust directorate of the EC announced a study that will examine, in particular, whether increased concentration and the use of “own brand” (private label) products have hampered choice and innovation in the European food sector by giving retailers bargaining power sufficient to impose unfair trading practices on their suppliers. The final report of the study is expected by the end of 2013. Its conclusions will be used in the impact assessment that the EC plans to launch on unfair trading practices, announced on Dec. 5, 2012.

CAP Reform

The EU’s Common Agricultural Policy (CAP) is due to be reformed in 2013. After a wide-ranging public debate, the EC presented on Nov. 18, 2010, a communication on the “CAP towards 2020,” which outlines options for the future CAP and launched the debate with the other institutions and with stakeholders. Following a debate in the European Parliament and the European Council, the approval of the different regulations and implementing acts is expected by the end of 2013, with a view to having the CAP reform in place by Jan. 1, 2014.

Environmental

Benne Hutson, Charlotte

Concentrated Animal Feed Operation (CAFO) Permit Guidance

Since the 5th U.S. Circuit Court of Appeals in National Pork Producers Council v. EPA ruled that only CAFOs that had actual wastewater discharges could be required to get an NPDES permit, the Environmental Protection Agency (EPA) has been struggling to rewrite its permit guidance document (which required facilities that “proposed to discharge” to obtain permits). Due to Office of Management and Budget concerns, the new guidance is not expected to be issued until the summer of 2013 at the earliest. EPA is also seeking input from states on the amount of resources they need to enforce CAFO discharge permits. A new U.S. EPA study that identified large dairies in Wisconsin as a likely source of drinking water well contamination is putting pressure on the agency to have CAFO permits also cover groundwater. 

Coal Ash

A decision is expected from the U.S. District Court for the District of Columbia in early 2013 on whether or not EPA will be subject to a hard deadline to publish a coal ash rule. Environmentalist groups have requested a six-month timeline, while EPA says it will need at least a year to review and receive comment on recent data and other concerns regarding the regulation. Under EPA’s schedule, no coal ash rule would issue until at least 2014. 

Product Packaging

Activity at the state and local levels regarding product packaging will remain high. A number of cities are considering adopting plastic bag bans or expanding existing bans to cover other packaging products. Model legislation continues to be developed to expand the concept of “extended producer responsibility” to cover product packaging. Traditionally those laws have focused on products with toxics components such as electronic waste and mercury-containing thermostats.

Occupational Safety and Health

Don Anderson and Beth Rothenberg, Jacksonville

OSHA’s (Occupational Safety and Health Administration) Regulatory Agenda

OSHA is long overdue to publish its semiannual regulatory (unified) agenda, having missed the April and October deadlines to publish its agendas for 2012. Look for OSHA to publish a new unified agenda in early 2013, which will likely contain aggressive regulatory goals following President Obama’s reelection.

Process Safety Management

OSHA’s process safety management (PSM) regulation turned 20 years old in May 2012. In 2013, OSHA will continue its National Emphasis Program for PSM-covered chemical facilities, which includes facilities likely to use ammonia for refrigeration.

Hazard Communication

In March 2012, OSHA issued its long-awaited final rule revising its Hazard Communication Standard to align it with the United Nation’s Globally Harmonized System of Classification and Labelling of Chemicals. Employers will need to have their employees trained on the new label and safety data sheet (SDS) formats by Dec. 1, 2013.

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