Legal and regulatory issues in the online sale of foods
Published: 28 Jun 2017
By Joe Lederman (Managing Principal, FoodLegal)
© Lawmedia Pty Ltd, June 2017
The rapid evolution of technology means that the way we engage in commerce is constantly changing. The sale of food products is no different. Recent developments such as the imminent arrival of Amazon warehousing and delivery logistics systems into Australia, expansion of the Australian tax base to extend the application of GST to more goods sold online, and the introduction of a new mandatory Country of Origin Labelling system for Australia, have new implications for products sold online - apart from foods sold in the 'bricks and mortar' sphere. This article explores some important issues for online transactions involving food, and the impact of the new developments.
New players in online sales
The ability for consumers to buy food over the internet is not new. Australia’s two biggest supermarkets, Coles and Woolworths, have offered online shopping options for years. Research published in early 2017 by market analysts and pollsters Roy Morgan, says that the number of Australians buying food or beverages online at least once per month had risen to 2.1 million, compared with 1.2 million in 2013.
Is an online sale a “sale”?
As at June 2017, most Australian food legislation and consumer protection legislation, including the Australia New Zealand Food Standards Code (Food Standards Code), still lacked specific provisions expressly applying to online transactions.
The Food Standards Code is given effect by the Food Acts of each Australian State and Territory. The Food Acts all define the sale of food in the same way. By way of example, the Victorian Food Act provides that the meaning of “sell” includes having food in possession for sale, and disposing of food by any method for valuable consideration (payment).
While the absence of express provision for online sales does not necessarily mean that such transactions automatically fall outside the law, it is arguable that an online transaction might fall outside the prescribed criteria contained in the specific definitions of “sell” or “sale” in some circumstances or scenarios. Legal reform may be necessary for the purposes of clarification.
Some regulatory anomalies and issues can arise in other situations too.
From a food regulatory compliance viewpoint, the main distinction between conventional selling of foods and the online selling of food is that with an online sale the consumer is not able to examine the labelling on a given product prior to purchase, and must rely on what is placed on the website and in images. This then raises the question of what must be included on the seller’s website? If a law does not specifically refer to online transactions, the answer may depend on the source of the particular labelling obligation, and whether it is mandatory or voluntary.
Australia New Zealand Food Standards Code
The Food Standards Code outlines a number of labelling requirements that must be displayed on many (or most) food products for retail sale. The mandatory requirements include the nutrition information panel, ingredients list, lot number, expiry date, allergen information, supplier information and product name. Less stringent requirements can apply if the food is in a small package, or is sold unpackaged.
The Food Standards Code requires only that the information be attached to the product (or displayed near the product if unpackaged). In reality, the manufacturer will usually be responsible for labelling a food product. However online sellers should also be aware of these requirements.
A major anomaly in the law is the odd result that despite there being regulations that require food products for retail sale to bear a label, the law does not require the content of such labels to be visible before the point of sale.
Australian Consumer Law
Online sellers should also keep in mind the Australian Consumer Law which broadly prohibits misleading or deceptive conduct. If using website information or an image that does not accurately reflect the exact item that is to be sold, one must ensure that it would not potentially mislead consumers.
This could be done by providing as much exact information about the particular product as possible, such as an expiration range. Some online retailers provide online text fields setting out ingredient, allergen and nutrition information, but many still do not.
The expiry date is also becoming an issue for some consumers who shop online, because the products they receive in the deliveries from several retailers appear to be selected from inventory which is much closer to the use-by date than the bulk of products available at the same time to physical shoppers selecting items from the shelf.
Country of Origin Information Standard (the CoOL Information Standard)
The Country of Origin Food Labelling Information Standard came into effect on 1 July 2016 and will become mandatory on 1 July 2018. Depending on the type of food and how it is sold (e.g. whether it is packaged, whether the sale is a retail sale), the food must generally bear a label or have accompanying its sale information which discloses the origin of the food in accordance with the CoOL Information Standard.
A close reading of the CoOL Information Standard indicates that it may be desirable for food producers to include country of origin information on their website. The Information Standard provides that products that are not required to bear a label must display “information accompanying their sale”. This, combined with the strict legibility requirements that apply to Country of Origin Labels (and the object of the CoOL Information Standard) is to enable consumers to evaluate the origin of the food they buy.
If the food product is required to bear a label, the CoOL Information Standard does not go further to require that the label be seen by a consumer before purchase. Guidance released in May 2017 by the Australian Competition and Consumer Commission (ACCC) indicates that an online sale will be compliant with the CoOL Information Standard as long as the packaging of the food bears the correct origin label. Ironically, this guidance would mean that it is not necessary to display the origin statement separately on the website. Guidance from the ACCC has not been given on the separate issue of whether the package bearing the origin claim must be visible on the website prior to an online purchase.
Health Star Rating
The Health Star Rating (HSR) scheme was introduced in June 2014. It is a voluntary scheme that allows food producers to label their products with a number of stars out of five depending on their nutritional value and “healthiness” according to a predetermined formula. If producers decide to use the HSR label, they must conform with requirements as to size, format and font.
The object of the HSR scheme is to provide consumers with a reliable heuristic that can convey health information at-a-glance. The first two-year review of the scheme indicated that over 7,000 Australian products bear the label and approximately 68 percent of consumers were aware of the HSR system.
Even though the HSR scheme is a voluntary one, a business selling its food product should ensure that any imagery is not potentially misleading or deceptive. The use of HSR labelling in a different context (for example, if only the front of pack is visible in picture format and the HSR label is visible but the ingredients list is not) may impact upon the value of the HSR system as a heuristic. In fact, many food products sold online do not display HSR information at all.
Goods and Services Tax and online sales
In April 2017 the Australian Federal Government proposed new laws which would require online companies to charge Goods and Services Tax (GST) on all items sold through their platforms. This would remove the current low-value threshold of $1,000 for online sales, and would shift GST responsibility from individual sellers using the platform to the platform itself. Using Amazon as an example, the changes would make Amazon responsible for charging GST on all goods sold to Australians on any Australian Amazon website.
However, when Australia’s GST regime was introduced in 1999, exceptions were carved out for certain foods. The sale of food is not subject to GST unless it is take-away, sold at a restaurant, or specified in Schedule 1 of the A New Tax System (Goods and Services Tax) Act 1999. Many staple foods such as fresh fruit and vegetables, bread, milk and juice are sold GST-free.
The application of GST to food products sold online is therefore an area that the Australian Taxation Office and ACCC might consider to determine whether or not a sale ought to be GST-free or that online shoppers are not being misled or deceived by inappropriate application of GST.
Another issue with international online selling platforms is that they commonly operate on servers located outside Australia, which can pose jurisdictional issues for regulators responding to an alleged legislative breach.
In March 2016, the Australian Federal Court found that it did have jurisdiction under the Australian Consumer Law over a US-based company that sold products to Australian consumers. More information can be found in a September 2016 FoodLegal Bulletin article.
Many international companies will also establish an Australian-based entity. This may be important for a number of reasons, such as: determining the source of derivation of revenue or incurrence of expenses in transactions for tax assessment purposes; statutory corporate responsibilities, apart from taxation; food labelling and other food law obligations and product liability responsibilities. In many jurisdictions, companies selling food must ensure that the buyer or consumer can identify the entity that is the supplier of the product irrespective of the manner in which the transaction occurs. Legislators in some countries may want to consider making regulatory changes to make express reference to online transactions.