FoodLegal

By Charles Fisher (FoodLegal Co-Principal)

© Lawmedia Pty Ltd, December 2019

There is a famous quote that it is easier to ask forgiveness than it is to get permission. However, I prefer the variation on the quote by Amy Jo Martin:

“Ask forgiveness, not permission. But make sure you bring your results with you.”

In relation to this particular article, it is the anticipation or forecasting of the results that can help you assess whether or not to ask permission or forgiveness from a food regulator if (or when) you have identified a potential regulatory non-compliance in relation to your food product.

It depends on the regulator…

As FoodLegal Bulletin has often explored, food is regulated by various different legislative regimes and different regulatory bodies in Australia. And each regulator has their own objectives, policies and resources.

The Australia New Zealand Food Standards Code is enforced differently by the Department of Agriculture at the border than it might be by a State Health Department and differently once again by a council Environmental Health Officer for the purposes of a food business licence. In FoodLegal’s experience, the majority of food regulators are committed to public health and safety and their recall powers are limited to such circumstances. They might not target technical non-compliances, whereas the Department of Agriculture can only pass or fail products that they inspect.

On top of the Food Standards Code, any food supplier must consider whether any of their labels or marketing potentially breaches the Australian Consumer Law by misleading consumers. Such conduct can be enforced by the Australian Competition & Consumer Commission, the State Fair Trading body, the State food regulator and even your own competitors in a civil lawsuit. The penalties are much higher than in food legislation and the ACCC is a much more aggressive agency when it chooses to take enforcement action.

And all of the above ignores the additional regulators that may apply to primary production and the sale of certain categories of food.

So, in order to determine whether to ask forgiveness or permission, it is essential to identify any potential non-compliance, know what the risk of regulatory action is and what regulator(s) may be involved.

In spite of the disparate regulation of food outlined above (or perhaps even because of it), the food industry often has an appetite for risk when the conduct presents no threat to public health and safety. By way of example, making a technically non-compliant health claim or a dubious “natural” or “fresh” claim presents little risk to public health and safety but may provide an edge in a highly competitive marketplace. Many food suppliers may be more inclined to ask permission than to ask forgiveness. And such practices have led some suppliers to not even make a proper assessment as to whether their products may actually breach the abovementioned food regulations.

Compliance is a once-off investment

As outlined above, it is only possible to assess the costs of asking permission as against asking forgiveness when: (a) you have identified that you are even making such a decision; and (b) knowing exactly what the potential regulatory outcomes are.

In other words, in order to know what legal risks you may be undertaking before going to market, you must at least assess the compliance of your food products.

This cost of a compliance assessment versus the cost of a non-compliance should be considered.

FoodLegal has seen this exercise neglected when launching a food product to market. It is neglected both by food companies starting with their very first product as well as multinationals launching a brand new variant. Budgets for regulatory compliance (when they exist at all) are nearly always dwarfed by investment in branding and marketing. Which is appropriate, so long as it does not lead to the neglect of undertaking a proper compliance assessment.

And this neglect fails to recognise two important aspects.

First of all, food recipe and artwork compliance assessment is once-off cost. It is not an ongoing expense once your product is on the market. So, while the cost of seeking a compliance assessment may seem significant and burdensome early on when developing a new product or launching a whole new food business, this cost only needs to be incurred once. Once your product is on the market and your new brand is a roaring success, there is no need for a significant ongoing investment in your product’s compliance - so long as your recipe, label and marketing remain the same and you remain across major regulatory developments.

Secondly, any such neglect in investing in compliance ignores the potential cost of being found in breach.

The potential cost of failing to invest in a compliance assessment

FoodLegal recently was asked to handle a situation for the importer of a baked product into Australia from a major overseas brand. This importer – who, under Australian law, is responsible for compliance as the “supplier” of the food, not the overseas brand owner – conducted an internal label review. However, the client did not conduct a recipe review, trusting that such a common product would not have anything untoward about it. Furthermore, the client trusted the overseas brand owner and did not conduct any laboratory testing of samples to validate the product.

Once the product made a splash on the Australian market, it attracted competitor scrutiny which in turn attracted regulatory scrutiny. The State regulator (where the importer’s business was registered) sent the product to be laboratory tested. This test revealed the following:

•           That the product contained detectable gluten when it claimed to be gluten free; and
•           That the product label stated that the product contained non-permitted preservatives… but upon testing found that the product contained entirely different preservatives than those declared on the label.

Upon reviewing these results with the overseas brand owner, our client was informed that the recipe of the product had changed but they were running out the old packaging with new recipe product. The spike in gluten was limited to that batch but, even ignoring the spike, the brand owner was only aiming for compliance with international limits for gluten free claims; namely: less than 20 parts per million and never aiming for the Australian level of “non-detectable” gluten. The brand owner had not communicated the compliance standards it was aiming to achieve nor the change in recipe. The Australian importer had never assessed the difference in Australian compliance obligations nor validated whether the products met those obligations.

Notwithstanding the clear non-compliances, the client (through legal representation) managed to negotiate and co-operate with the regulator such that the client was not criminally prosecuted for breaches of the Food Act.

However:

•           the product was subject to a consumer level recall (due to the unsubstantiated allergen claims rendering the product “unsafe”);
•           all stock warehoused plus stock returned had to be over-stickered before returning to market;
•           a new label had to be developed as well as a new recipe negotiated just for the Australian market;
•           all future shipments of product had to be put on hold until the new recipe and label were ready.

As you can imagine, the costs of this regulatory action – without any criminal prosecution or penalty – still amounted to hundreds of thousands of dollars.

The compliance costs that could have avoided this devastating impact to the business if they been incurred prior to the product range going to market would have been a relatively small sum. A compositional review, label review and a laboratory test for validation would certainly be less than the huge cost of consequences of the non-compliance! There may be other matters as well, such as import control assessments, taxation assessments, negotiation of supply agreements (which may have attributed liability back to the overseas brand owner in these circumstances if properly negotiated), but all of these costs would have still been quantifiable once-off investments prior to going to market.

The moral of this story is:

Before you preach asking forgiveness over permission, first assess what you are asking for. Make sure that the results you are bringing with you are a successful and profitable product launch, not a recall.

This is general information rather than legal advice and is current as of 30 Oct 2021. We recommend you seek legal advice for your specific circumstances before making any commercial decisions.