Food and Beverage News and Trends - August 18, 2023

This regular publication by DLA Piper lawyers focuses on helping clients navigate the ever-changing business, legal and regulatory landscape.

Time for the 2023 Farm Bill. When Congress returns from recess on September 5, one of its top priorities will be the 2023 Farm Bill, the omnibus legislative package that is the primary agricultural and food policy instrument of the federal government. The current Farm Bill expires on September 30. Since the beginning of the year, the House and Senate agricultural committees have been meeting to work on the new bill – a complex, intense process including hearings, listening sessions with farmers, and the introduction of dozens of marker bills which may or may not make it into the final act. The Farm Bill has been reauthorized approximately every five years since the 1930s. This year, the process of writing the bill has been significantly delayed by other legislative issues, such as the fight over the debt ceiling – indeed, some observers suggest that such delays mean the bill may not be reauthorized until next year. At this point, in addition to the usual legislative process, two central issues are emerging which will likely impact the final bill:

Food aid. About 76 percent of the spending in the current Farm Bill goes to so-called Nutrition Title programs, in particular the Supplemental Nutrition Assistance Program (SNAP), which feeds more than 42 million Americans. That figure may be higher in the 2023 update. In the spring this year, the deal to raise the US debt ceiling included expanded work requirements for SNAP recipients. Democrats are now striving to protect SNAP from further cuts.

Climate change solutions. The 2022 Inflation Reduction Act provided $19.5 billion for Agriculture programs intended to help the sector embrace practices that may help to mitigate climate change. Some, including members of Congress, want to divert these IRA funds to Farm Bill purposes. Others, among them sustainable farmers and other stakeholders, oppose diverting the IRA’s climate funds in this way. There is also growing demand for Congress to require the USDA to develop better standards that strategically address agricultural climate concerns.

AgriStability is reopened for Alberta producers. The Alberta and federal governments have reopened the AgriStability program, which will allow farmers to assess business risks and opt in to protect their operations if weather has greatly affected revenue. Due to the effects of wildfires and droughts throughout the province, the program will be open until September 29. 2023 – its original deadline had been at the end of April. AgriStability, provided through the Sustainable Canadian Agriculture Partnership, compensates margin declines greater than 30 percent at 80 percent for every dollar of decline. Agricultural producers who sign up through late participation will have payments reduced by 20 percent to encourage proactive enrolment.

Partially hydrogenated oils are no longer GRAS. On August 8, the FDA issued a direct final rule reflecting its June 2015 final determination that the use of Partially Hydrogenated Oils (PHOs) in foods is no longer to be considered Generally Recognized as Safe (GRAS). PHOs are also referred to as trans fats. This recent action addresses artificial sources of trans fat. The new direct final rule revises existing FDA regulations to no longer include PHOs as an optional ingredient in the standards of identity for peanut butter and canned tuna, and it revokes a pre-1958 authorization allowing use of PHOs in margarine, shortening, bread, rolls and buns. The rule also reflects an understanding that PHOs cannot be completely removed from the food supply because they occur naturally in meat and dairy products and are present at very low levels in other edible oils. At the same time the FDA issued the final rule, it released a companion proposed rule in case it needs to withdraw the final rule because of unanticipated adverse comments.

National group rolls out new guidelines for labeling pet food. On July 31, the Association of American Feed Control Officials (AAFCO) approved new suggested labeling guidelines for pet food sold across the nation. This change constitutes the first major labeling update for pet food in more than 40 years. The group is a national organization that is tasked by federal, state, and local governments with regulating the sale and distribution of animal foods. The new labeling guidelines include standardized nutrition information, clear ingredient statements, and storage and handling instructions. The group said in a release that the modern design and updated labeling information in the new version will ensure consistency and transparency, so consumers can easily make more informed buying decisions for their pets.

CFIA issues Notice to Industry on caffeinated energy drinks. On August 15, the Canadian Food Inspection Agency (CFIA) issued a Notice to Industry, “Your regulatory responsibilities regarding caffeinated energy drinks,“ in the wake of recent recalls issued for several caffeinated energy drinks (CEDs). Non-compliant CEDs have been sold across Canada and online by various importers and retailers. The Notice contains a reminder that any CEDs manufactured, imported, or distributed to Canadian consumers need to meet Canadian requirements. In particular, they must observe the 180-mg caffeine limit set for a single-serving container and must carry the required cautionary and bilingual statements. The Notice admonishes importers and distributors, “This is a reminder that you are responsible to ensure the CEDs you manufacture, import, or distribute meet Canadian requirements.“ The CFIA is conducting inspection activities regarding possible noncompliance by importers and distributers and has advised that it may take regulatory actions, including product seizure and detention, license suspension, administrative monetary penalties, or prosecution.

Canadian Grain Commission repeals changes to wheat grading. The Canadian Grain Commission (CGC) is repealing the alignment of primary and export tolerances for test weight and total foreign material for certain classes of wheat. Under current rules, wheat weighing 60.1 pounds would sell as no.1 wheat. Under the proposed, and now revoked, changes, a bushel would have needed to weigh 63.3 pounds to avoid being downgraded. The classes of wheat affected were Canada Western Red Spring, Canada Western Hard White Spring, Canada Western Extra Strong, Canada Western Soft White Spring, and Canada Northern Hard Red. The changes had been announced on July 19, 2023 and were repealed in response to stakeholder concerns. The Wheat Growers Association opposed the changes, which, it charged, would “take money from farmers’ pockets.” A number of growers associations also opposed the changes. The Western Grain Elevators Association, however, had supported the changes, stating that harmonized standards would make payments to farmers fair, by compensating them for the quality of the wheat they grow.

FDA receives comments on proposed labeling guidance for plant milks. On August 3, Dairy Reporter ran an article explaining that more than 900 comments have been submitted to the FDA concerning its proposed labeling guidance for plant-based milk alternatives. Dairy Reporter said that the dairy industry consistently argued that allowing plant-based products to be labeled as any form of “milk” would confuse customers about the nutritional value of the products. On the other hand, supporters of non-dairy milk substitutes said that consumers are fully aware that the term “milk” is often used for such products and that they are not confused by the use of the term. They said that it is “well established” in the consumer marketplace that plant products are referred to as milk. One such group cited a 2020 survey that indicates 92 percent of adults recognize that soy milk and dairy milk are different.

Government of Canada launching commercial whelk fishery in Nova Scotia. The Honourable Diane Lebouthillier, Minister of Fisheries, Oceans and the Canadian Coast Guard, has announced that a new commercial fishery for whelk will be introduced next year off eastern Cape Breton Island. Whelk, Buccinum undatum, is a sea snail that is primarily exported to Asian markets. As part of the process of launching the new fishery, the government monitored whelk populations and launched an exploratory whelk fishery, allowing it to determine that a commercial fishery would be both economically and biologically sustainable. A new commercial fishery, the Ministry said, will generate economic opportunities for Nova Scotians without compromising conservation.

Nonprofits support USDA rule on salmonella in chicken. Several nonprofit consumer and health organizations have come out in support of a USDA proposed rule that would treat non-ready-to-eat breaded stuffed chicken products as “adulterated” under federal law when they contain more than a minimal amount of Salmonella. At issue are chicken products that are breaded, stuffed, and not ready to eat – for instance, a package of Chicken Kiev that has been pre-browned but is otherwise raw. Such products amount to only 0.15 percent of all chicken purchases but have been disproportionately associated with Salmonella outbreaks as well as fully five percent of all chicken-related outbreaks. Salmonella is the leading cause of hospitalizations from food poisoning, and chicken is the leading cause of illnesses from Salmonella.

Trade group asks FDA to standardize labeling of mushroom supplements. The Natural Products Association, a trade group representing food supplement makers, is seeking clarity from the FDA on the proper labeling of mushrooms and other ingredients in dietary supplements. On August 8, the association filed a citizen petition requesting the agency to incorporate aspects of guidance from the American Herbal Products Association in its definitions of this type of product. “Mushroom dietary supplements are extremely innovative and as the business grows, require a standard nomenclature,” said Daniel Fabrikant, the CEO of the trade group. “By requesting that the FDA incorporate AHPA’s labeling guidelines or exercise enforcement discretion until the Agency publishes its own standards of identity regulation, we aim to protect domestic farmers who continue to be economically harmed by foreign entities damaging the credibility of this emerging market.”

Kellogg’s defeats consumers’ allegations about its protein claims for cereals. The Kellogg Company and its Kashi unit have defeated appeals seeking to revive two proposed class actions that had accused them of deceiving consumers about the protein content of their products. In a 3-0 decision handed down on August 14, the US Court of Appeals for the Ninth Circuit agreed with a lower court that federal law preempts the plaintiffs’ claims, which had been made under California and Illinois consumer protection laws. The issue was whether Kellogg’s labeling of the quantity of protein in an array of products sold under the Kashi, Bear Naked, MorningStar Farms, RX, and Special K brands was misleading because, the plaintiffs alleged, the products contain “poor quality” protein that the body can’t absorb. The court wrote, however, that “if Plaintiffs believe that a reasonable consumer would assume that all proteins are created equal, and that any products marketed as containing a certain quantity of protein provide identical protein-based health benefits, they are free to urge the FDA to amend the regulations or to challenge the agency’s rules as inconsistent with its statutory mandate.”

Consent decree with raw-milk manufacturer. The FDA’s 15-year oversight of a raw milk manufacturer will expand under a consent decree entered in the US District Court for the Eastern District of California on July 27. The FDA has banned interstate sales of raw milk for human consumption since 1987. Since 2010, Raw Farm LLC (formerly Organic Pastures LLC) has been under a permanent injunction which forbids the company from distributing misbranded foods, raw milk, raw milk products, and “unapproved drugs” across state lines. In March this year, the Department of Justice moved for contempt, in part alleging that the company had distributed an unapproved new drug in interstate commerce – specifically, its raw cheddar cheese, which it was marketing for the prevention of heart disease, osteoporosis, and viral infections. Among other concerns FDA expressed was the company’s claim that the raw milks it labels as “pet food” are safe for human consumption. The parties entered into the consent decree before further court action could be taken. The consent decree continues the court’s jurisdiction over the company, and the 2010 injunction remains in effect for its directors, officers, agents, representatives, attorneys, and others involved, who are required to “abide by the decisions of the FDA,” and to adhere to specific requirements for labeling and audits. Every page of the Raw Farm website now includes the disclaimer “RAW FARM will not offer for introduction, introduce, or cause to be introduced into interstate commerce, or deliver or cause to be delivered for introduction into interstate commerce, any unpasteurized raw milk or raw milk products.” The decree also requires Raw Farm LLC to hire an independent “labeling expert.” Within California specifically, on August 3, California State Veterinarian Dr. Annette Jones imposed a statewide recall and quarantine order on Raw Farm Cheddar packaged in one-pound blocks after routine testing at the Raw Farm, LLC manufacturing and packaging facility found Salmonella contamination.

California winery agrees it illegally aged wine in the ocean. As part of a plea agreement with the District Attorney of Santa Barbara, California, Ocean Fathoms, a California wine company, has turned over more than 2,000 bottles of its wine after admitting it had illegally aged its products in the ocean. Ocean Fathoms describes itself as “the World’s most exclusive and unique wine brand” and since 2017 has aged wines, via a patented process, in proprietary cages set on the ocean floor. In the plea agreement, entered on August 8, two of the company’s three founders pleaded guilty to three misdemeanor charges in exchange for the dropping of multiple felony charges. The company had never received the proper permits from the California Coastal Commission or the US Army Corps of Engineers; sold its wine (for around $500 a bottle) without federally approved labeling, without a business license, and without an alcohol sales permit; and collected sales taxes from each purchase without paying those taxes to the state. “The more we looked at it, the more we realized that there wasn’t anything in order,” said Deputy District Attorney Morgan Lucas. In addition, said the District Attorney’s office, the company took thousands of dollars from investors without informing them it was conducting its operations illegally. Any remaining bottles of wine were seized by the Bureau of Alcoholic Beverages Control and last week were destroyed at a wastewater treatment plant in Santa Barbara; the bottles were then taken to a recycling center. “Ocean Fathoms can no longer proceed without acquiring the proper permits from a plethora of state and federal agencies,” Lucas stated. Meanwhile, co-founder Tod Hahn said that once the plea agreement’s one-year probationary period is complete, the company will be relaunched. A recent social media repost of a 2021 CBS article about the company has been viewed 20 million times on Instagram and TikTok and, the company says, has prompted thousands of emails from media organizations, potential investors, and customers – the latter are being added to a waitlist.

This Texas product is from ... North Carolina. On July 31, the United States District Court for the Central District of California denied a request from the maker of Texas Pete hot sauce to dismiss a class action lawsuit accusing the company of false advertising because the product is not actually made in Texas. Last year, a consumer sued T.W. Garner Food Co., the manufacturer, after purchasing a bottle of the Louisiana-style hot sauce at a Ralph’s grocery store in Los Angeles and then discovering that it is made not in Texas but in Winston-Salem, North Carolina. The lawsuit asks the court to require Texas Pete to change its name and branding and to reimburse customers. In the 20-page order, the court found that customers who see the bottle’s label, which depicts a lone white star and a lasso-wielding cowboy, “could believe – erroneously – that the products originated in Texas.” The company had argued that the labeling contains enough information for a consumer to understand that the product is not from Texas.