The U.S. Food and Drug Administration (FDA) recently announced it will be holding a full-day public meeting on September 27, 2019, to address “Horizontal Approaches to Food Standards of Identity Modernization.” As explained in more detail below, FDA’s “horizontal” approach to standards reform would look at amending wide groups of standards rather than evaluating standards on a case-by-case basis. Requests to make oral comments are due by September 12th and in-person attendees should register by September 20th. Written comments are due by November 12, 2019, and can be submitted to FDA docket number FDA-2018-N-2381-1371.
The U.S. Food and Drug Administration (FDA) recently released an updated Fourth Edition of its Guidance for Industry entitled, “Fish and Fishery Products Hazards and Control Guidance, Fourth Edition – August 2019” (“the Seafood HACCP Guide”).1 The Seafood HACCP Guide is intended to assist processors of fish and fishery products in developing their Hazard Analysis Critical Control Point (HACCP) plans. Technically, the Seafood HACCP Guide is not binding, but in practice, FDA will expect companies either to follow the Seafood HACCP Guide or to be able to support the appropriateness of deviations from the guidance.
The Fourth Edition of the Seafood HACCP Guide was originally released in 2011, and the August 2019 updates reflect the agency’s ongoing effort to update the document. FDA determined specific chapters and appendixes of the Seafood HACCP Guide warranted updating based on the availability of new science and chose to publish those portions instead of withholding until a fully revised Guidance was ready for publication. The introduction chapter summarizes the changes and marks the updated portions with “as of August 2019” language. Going forward, FDA plans to treat the Seafood HACCP Guide as a “living document,” making updates to individual chapters on an as-needed basis and posting updates to FDA’s Seafood website (www.fda.gov/seafood).
On the whole, the updates largely reflect incremental changes in the Seafood HACCP Guide and do not reflect fundamental shifts in agency policy. FDA updated three chapters and two appendices. Perhaps most significantly, however, FDA has added two new appendices focused on allergen control. Processors should review the August 2019 changes carefully and in light of current company programs and practices, and the allergen control recommendations may also be useful for companies not operating under seafood HACCP.
SDIL, also known as ‘sugar tax’, has been in force since 6 April 2018.
There are two rates of tax depending on the sugar content of the drink:
- 18p per litre on drinks that have a total sugar content of more than 5g and less than 8g per 100ml; and
- 24p per litre on drinks that have a total sugar content of 8g or more per 100ml.
The policy behind SDIL is to reduce childhood obesity by encouraging producers to change the recipes and lower the sugar content of the drinks. The Government estimates that over 50% of manufacturers had done so before SDIL came into effect. With equivalent taxes in force in a number of European jurisdictions (e.g. France, Belgium, and Ireland), this will continue to be relevant to multinationals.
Some of our clients in the soft drinks sector are looking at ways to reformulate recipes to reduce the sugar content in their recipes, produce sugar-free products, and find sugar substitutes (e.g. stevia) which may be exempt from SDIL. Recipe reformulation, being carried out by research and development (“R&D”) centers of multinationals, is likely to take time as new recipes need to be tested before product launches.
On the supply side, one of the many headaches for the heads of procurement and R&D of the soft drinks groups is finding reliable sources of sugar substitutes of high quality and additional R&D budgets to carry out the required work, while competing with alcoholic drinks producers who need to source the same ingredients for their products. On the buy side, would the use of substitutes pass the consumer tasting tests to minimize a softening in consumer demand for the same product?
What drinks are caught?
SDIL catches drinks which have sugar added during production and contain at least 5 grams of sugar per 100ml of prepared drink. Only soft drinks with an alcohol content of 1.2% alcohol by volume or less are within the scope of the levy.
SDIL applies to drinks on the basis of their ready-to-drink composition. When looking at the sugar content of drinks which need to be diluted or otherwise prepared before they can be consumed, the dilution ratio is set by the producer.
For the purposes of SDIL, sugar means calorific mono-saccharides or di-saccharides, including sucrose, glucose, fructose, lactose, and galactose. Sugar substitutes like stevia, aspartame, and sucralose are excluded. However, consideration may need to be given to consumers’ perception of the health factors in using such substitutes.
Certain types of drinks are exempt from the levy: milk-based drinks (containing at least 75ml of milk per 100ml of prepared drink), milk substitutes (containing at least 120mg of calcium per 100ml of plant-based drink), alcohol substitutes (sold or advertised as direct replacements for alcohol) or certain drinks used for medicinal purposes (including baby formula and diet aids).
Drinks which were packaged (e.g. bottled or canned) or brought into the UK before 6 April 2018 are also outside the scope of SDIL.
Who is liable?
SDIL is aimed at persons packaging, producing or importing sugary drinks. Who is liable depends on when the tax is triggered. For drinks which are packaged in the UK, the tax point is when the drinks are removed from the packaging premises (unless the drinks are taken to a registered warehouse or made available for sale on the premises), and the person liable is the packager. If the packaged drinks are imported to the UK, the tax is triggered the first time they are removed from a registered warehouse, made available for sale or free of charge, or received at premises run by a wholesaler or retailer of drinks liable to SDIL. In that case, the liability falls on the first seller or first recipient of the drinks.
There is an exemption for ‘small producers’ who produce less than 1m litres of drinks which are within the scope of the levy per year. There is no equivalent relief for importers.
What do you need to do?
If you are (or expect within the next 30 days to become) liable for SDIL, you should register with HMRC, keep records and file quarterly returns. The reporting periods are fixed at the end of March, June, September, and December. The returns and the tax are due within 30 days of the end of the reporting period.
Potential transfer pricing issues to consider
Since sugar taxes are broadly applied on volume packaged in or imported into the relevant jurisdiction, it is likely to affect the profitability of any manufacturer, packager or distributor who sells, distributes or imports soft drinks. If the affected distributor purchases the finished products from an overseas related party, then the price at which it buys from that party will need to be adjusted to ensure that the relevant entity retains an arm’s length operating margin – in line with its function, asset and risk profile. If the distributor is a limited risk in nature, it should retain a sufficient level of operating margin post sugar tax. That is, it should not be in a loss-making position.
Separately, consideration may need to be given to any reformulation of recipes or any additional R&D spend by an overseas related group entity may result in the creation of new, valuable intellectual property (e.g. technical or manufacturing know-how) which may have an impact on a multinational’s existing business model and group-wide transfer pricing arrangements.
Two consumer groups have sued the Food and Drug Administration (FDA) seeking to compel the agency to implement the laboratory accreditation provisions in the FDA Food Safety Modernization Act (FSMA). Specifically, the plaintiffs want FDA to meet its obligation under FSMA to establish a program for the recognition of accreditation bodies and accreditation of laboratories equipped to perform food safety testing, including developing model standards for laboratory accreditation. The lawsuit was brought in the U.S. District Court for the Northern District of California by the Center for Food Safety (CFS) and Center for Environmental Health (CEH).
CFS and CEH previously sued FDA for failing to meet the statutory deadlines for other FSMA requirements. In 2012, the groups sued FDA after the agency did not meet the statutory deadlines for promulgating the seven major FSMA regulations. FDA settled the lawsuit by establishing a schedule of deadlines for completion of the rulemakings, and FDA subsequently issued the regulations by the court-ordered deadlines. In October 2018, the groups sued FDA for failing to meet the statutory deadlines for FSMA’s traceability provisions. FDA entered into a consent agreement in June 2019 and agreed to implement the traceability provisions on a specified timeline. Neither of those lawsuits addressed the statutory deadlines related to laboratory accreditation that is at issue in this most recent lawsuit.
This blog post first provides background on the accredited laboratory provisions under FSMA and then summarizes the complaint. Click here to read more.
The U.S. Food and Drug Administration (FDA) recently issued the first Warning Letter addressing violations of the Foreign Supplier Verification Program (FSVP) rule, one of the seven major FDA Food Safety Modernization Act (FSMA) regulations. Under the FSVP rule, importers must take steps to verify that their foreign suppliers produce food that satisfies U.S. food safety standards. FDA issued the Warning Letter to the importer of tahini implicated in a recent Salmonella outbreak. According to the FDA, the importer did not have an FSVP in place for the imported tahini. This memorandum summarizes the Warning Letter and provides analysis of the key takeaways for FSVP enforcement.
Summary of Warning Letter
Brodt Zenatti Holdings LLC (Brodt Zenatti) is the FSVP importer for tahini from Karawan Tahini and Halva (Karawan), located in the West Bank, which was implicated in a multi-state Salmonella Concord outbreak earlier this year. Brodt Zenatti recalled the tahini on May 23, 2019, and according to FDA, the company voluntarily agreed to stop importing the product. FDA placed the Karawan tahini under detention without physical examination (DWPE) per Import Alert 99-19 on May 30, 2019, as a consequence of being found contaminated with Salmonella.
In Italy, the cultivation and the industrial use of hemp has a long tradition and recent changes in the law have led to a revival. While a law enacted in 2016 promotes the cultivation of hemp as a means to preserve biodiversity and to reduce the environmental impact in agriculture, hemp-derived products for human consumption are still subject to restrictions. A recent judgment of the Italian Supreme Court, delivered in joint session, has the last word on the supposedly legal cannabis.
Traditional cultivation of hemp in Italy
The cultivation and industrial use of cannabis sativa L. (“hemp“), a particular genus of cannabis, has a long tradition in Italy. The plant’s cultivation was favoured by climate conditions and strong demand in the manufacture of textile and ropes in the naval industry. In the 1950s, Italy was the second-largest producer of hemp in the world (behind only the Soviet Union), with almost 100,000 hectares cultivated.
Yet the cultivation of hemp was almost abandoned further to Italy’s ratification and implementation of the international conventions on narcotics. The invention of plastic materials that replaced hemp for several uses did the rest.
In the last few years, hemp’s cultivation and use are having a revival to the point that the value of hemp business in Italy is now reported to be in the range of 150 Million Euros. However, the market is highly fragmented with more than 1,500 players in the sector.
Cannabis may be used also as a medicinal product. Even that use has attracted considerable interest in the last years. Cannabis for medical use has a remarkably higher THC content and is subject to the medicinal products’ regulation. This comment is however concerned with cannabis for non-medical uses.
Cannabis as a narcotic substance
The Italian legal landscape changed starting from the 1961 United Nations’ Single Convention on Narcotic Drugs, as amended by the 1972 Protocol. The Convention included among the controlled substances the cannabis (meaning any genus of the cannabis plant) and certain products derived from cannabis. It is true that the Convention exempted the cultivation of the cannabis plant for industrial purposes (fibre and seed) or horticultural purposes. However, countries permitting the cultivation of the cannabis plant are required to introduce controls for preventing misuse.
In Italy, the matter is regulated by the Presidential Decree No. 309 of 9 October 1990 (“DPR 309/1990“), laying down a “consolidated text of the laws on narcotics and psychotropic substances, the prevention, treatment, and rehabilitation of drug addiction conditions”. Narcotics and psychotropic substances are classified into five different categories (“Tables“) according to the danger and risk of addiction. More specifically, Table II includes “cannabis” with an explicit reference to leaves, inflorescence, oil and resin. The psychotropic effect is caused by the active ingredient of cannabis, the delta-9-tetrahydrocannabinol (“THC”), which is also listed as such among the controlled substances in the Table of medicinal products. It must be said that the THC concentration in cannabis may vary depending on the genus of the plant, the part of the plant (there is no THC in fibres, roots and seeds) and even the method and conditions of cultivation. Italian law does not contemplate a minimum accepted threshold of THC in cannabis’ leaves, inflorescences, oil, and resin, which are controlled substances, irrespective of the THC content. However, as not all the parts of the cannabis plant contain THC, there is still room for cannabis products that are THC free.
Hemp is back
The European Union supports with subsidies the cultivation of hemp (of the permitted varieties listed in the Common Catalogue of Varieties of Agricultural Plant Species) for the obtainment of fibres, as having a positive impact on the environment for the preservation of biodiversity (Regulation No. 1307/2013). However, the varieties used shall have a THC content not exceeding 0,2 %. The Court of Justice of the European Union (order of the Court of 11 July 2008 – C-207/08, Babanov) stated that EU law precludes national legislation which has the effect of prohibiting the cultivation and possession of hemp grown for fibre covered by EU regulation.
In Italy, the Law No. 242 of 2 December 2016 (“Law 242/2016”) promotes the cultivation of hemp and its industrial applications. The Law stipulates that the cultivation of hemp is lawful provided that the THC content is below 0,2%, while farmers are anyway exempted from criminal liability under the D.P.R. 309/1990 upon the condition that the THC content does not exceed 0,6%. The Law 242/2016 also lists the products that may be obtained from hemp, including food and cosmetics, provided that they are in compliance with the applicable regulation of the Ministry of Health, including as far as the maximum tolerated THC content is concerned.
Although the main objective of the Law 242/2016 is the promotion of the agricultural uses of hemp, some business operators interpreted the reference to possible products that can be obtained from hemp (some of them, as foodstuffs, for human consumption) as a general liberalisation of cannabis having a THC content below 0,6% (so-called light cannabis). Thus, a variety of hemp products with a THC content declared to be below 0,6% have spread on the market, mainly sold by small retail shops mushrooming in Italian cities. Such products are often sold as food products (to the extent they are intended for human consumption), while other times are justified as collectibles or items for unspecified “technical uses”.
As a matter of fact, such businesses have long been (and are still) tolerated as supposedly harmless. Further to sporadic enforcement against retailers or consumers of light cannabis, Italian courts had the opportunity to decide on the legitimacy of such products. While the vast majority of case law held that cannabis products with THC content are in breach of the DPR 309/1990, the case law was not always consistent. In order to prevent conflicting decisions and to provide guidance in the interpretation of the law, the Italian Supreme Court decided to address the matter in joint session (Sezioni Unite) with a judgment that is likely to be a game-changer.
Hemp used in food
The Supreme Court, in the judgement No. 30475 of 30 May 2019, addressed one of such cases where the defendant claimed that the Law 242/2016 would have excluded the so-called light cannabis products from the list of controlled substances. The Supreme Court, however, took a difference view and stated that the scope of the Law 242/2016 is limited to the promotion of the cultivation of hemp and its industrial uses, while it does not derogate to the DPR 309/1990. As a consequence, there is not such a thing as light cannabis that would be lawful as not included among the controlled substances of the DPR 309/1990. The Supreme Court found that the DPR 309/1990 classifies as psychotropic substances the leaves, inflorescences, oil, and resin derived from cannabis, irrespective of the genus of the plant and the THC content. Indeed, the DPR 309/1990 does not set forth any threshold of THC content for the qualification of cannabis as a controlled psychotropic substance. The Court further noted that the exemption from the criminal liability of the Law 242/2016 applies only to farmers and to the cultivation of hemp, provided that the maximum THC threshold of 0,6% is not exceeded (though, as a rule, hemp for cultivation and industrial uses should have a THC content below 0,2%).
However, the main interpretive issue the Court faced was the coordination of the Law 242/2016 with the DPR 309/1990 insofar the former allows the cultivation of hemp for the obtainment of the products as listed by the law, which includes foodstuffs and cosmetics. In that respect, the Supreme Court stated:
“For the sake of completeness, we must consider the provisions contained in the Law 242/2016 concerning foodstuffs. As it was made clear, the law does not allow the production of leaves or inflorescences. It must be ruled out that the legislature, by referring to the production of foodstuffs, wanted to make reference to the human consumption of leaves and inflorescences. On the contrary, the reference, among other products, to foodstuffs, which are to be manufactured in compliance with the sectorial regulation […], bring us to the conclusion that the legislature has imposed on the producer the obligation to strictly comply with the laws that govern the production of foodstuffs, if it intends to produce products obtained from hemp, as seeds or flour. This is all the more true that the Law 242/2016 refers to the implementing regulation to be issued by the Ministry of Health as to the maximum content of THC that is admitted in foodstuffs”.
While the Ministry of Health has not enacted yet that regulation, the existing one (the Ministerial Circular of 22 May 2009) does not admit any presence of THC in foodstuffs. We must consider once more the consequence of the Supreme Court’s finding that no exemption applies to the production, extraction, sale, transport, distribution, commercialisation, storage, the possession and any other activities relating to hemp’s inflorescences and leaves. Such activities always amount to a criminal offence pursuant to the DPR 309/1990. Thus there is no room for the farmer to sell and for the producer of foodstuffs (or cosmetics) to use such parts of the hemp plant.
On the other hand, seeds and fibres of hemp may be used for the obtainment of food (as it is the case of the oil obtained by the seeds, which is commonly available in Italian stores) or cosmetics. Indeed, seeds and oil obtained from seeds are contemplated in the Ministry of Health’s list of botanicals that may be used in food supplements.
A limited exception was, however, acknowledged for the case the THC content is not sufficient to produce any psychotropic effect in the consumer. The Supreme Court argues that the mere detection of THC in a product is not sufficient for a criminal offence to occur, as long as the product has no discernible effects in the human body. Quoting its earlier case law, the Supreme Court construed very narrowly this exception, while it was excluded that such acceptable THC content may be that provided for the exemption of farmers under the Law 242/2016.
What’s the future for light cannabis in Italy?
The judgement of the Supreme Court does not appear to leave any room for the commercial use of hemp’s inflorescences and leaves, including for the production of foodstuffs. The use of cannabis for cosmetics was not addressed by the decision. However, the use of inflorescences and leaves to that purpose seems to pose material issues, considering that even their detention (e.g. by the cosmetics’ manufacturer) may amount to a criminal offence. Under the current legal framework, for the production of food and cosmetics only the parts of the hemp that do not contain THC may be used (basically seeds and fibres).
Finally, the Law 242/2016 refers to the implementing regulation of the Ministry of Health as far as the admitted content of THC in food is concerned. That regulation has not been enacted yet. While it could not derogate to statutory provisions, as those contained in the DPR 309/1990, new rules could nonetheless clarify outstanding issues, as the THC content that may be accepted as not having any detectable psychotropic effect. Although the Supreme Court seems to rely on an assessment to be carried out on a case by case basis, the lack of clarity is likely to jeopardise even that part of the cannabis business relating to products that are basically THC free products or where THC may be detectable in traces due the raw materials used.
On July 24, 2019, the Health Commission of the Chamber of Deputies approved the draft opinion that amends and adds various provisions to the General Health Law concerning overweight, obesity, and front labeling of food and non-alcoholic beverages.
The approved amendments to the General Health Law have, as its main purpose, the right to health protection, as well as the constitutional interest of providing individuals and society with an adequate state of health.
Particularly, the amendments approved by the Health Commission regarding the front labelling of food and non-alcoholic beverages are mainly focused on the following aspects:
- Front labelling warnings shall be included separately and independently from the declaration of ingredients and nutritional information; The front labelling warnings shall indicate whether the product exceeds the maximum limits for energy content, added sugars, saturated fat, sodium, and other critical nutrients and ingredients established by the relevant regulatory provisions;
- Critical nutrients shall be declared. Critical nutrients are those components of a diet which may be a risk factor for chronic non-communicable diseases. These critical nutrients will be determined by the Ministry of Health;
- The Ministry of Health is empowered to order the inclusion of legends or pictograms when deemed necessary;
- It is expressly provided that the Ministry of Health shall consider the international treaties and conventions “on labelling,” of which Mexico is a party, in order to determine the requirements with which food and non-alcoholic beverages labeling must comply;
- Labels or back labels must include nutritional information that is easy to understand, truthful, direct, simple, and visible.
Amendments to the General Health Law, approved by the Health Commission, must be submitted to the Plenary of the Chamber of Deputies to continue with its legislative process, and if necessary, be published in the Federal Official Gazette.
As consequence of the entry into force of the amendments and additions to the General Health Law, the draft opinion establishes that the national executive power will have 180 days to make the corresponding regulatory adjustments.
At Hogan Lovells we are ready to advise you and address any matters related to this situation.
The Food and Drug Administration (FDA) recently announced its Fiscal Year (FY) 2020 fee rates, which in particular cover the fees for facility reinspections and participation in the Voluntary Qualified Importer Program (VQIP). These fees were authorized by the FDA Food Safety Modernization Act (FSMA) and were first implemented in October 2011 (for FY 2012). Reinspection fees are charged when FDA performs an inspection subsequent to an inspection that identified a “noncompliance materially related to a food safety requirement of [the Federal Food, Drug, and Cosmetic Act], specifically to determine whether compliance has been achieved.” VQIP is a voluntary, fee-based program that provides expedited review and import entry of human and animal foods into the United States for participating importers.
Oatly, Inc. has chosen to discontinue its “no added sugars” advertising claims after the Campbell Soup Company brought a challenge before the National Advertising Division (NAD). Campbell argued that various claims found on Oatly oatmilk products, including “0 g added sugars” and “no added sugars,” were misleading because the products contain maltose, a sugar by-product of the hydrolysis process used to manufacture oatmilk. The company agreed to discontinue the “no added sugar” claim, and the NAD’s decision focused on the “0 g added sugars” claim. The case highlights key food industry advertising issues, including whether and when the NAD will defer to FDA regulations regarding claims based on mandatory labeling elements, as well as the complexities of calculating added sugars.
The U.S. Food and Drug Administration (FDA) recently finalized its “Guidance for Industry: Determining the Number of Employees for Purposes of the ‘Small Business’ Definition in Parts 117 and 507 (CGMP and Preventive Controls Regulations for Human and Animal Food).” The Guidance is intended to help facilities determine whether they qualify as a “small business” for the purposes of Preventive Controls for Human Food (PCHF) and Preventive Controls for Animal Food (PCAF) regulations. Qualifying as a small business is significant because it may result in 1) exemptions from certain requirements for “farm mixed-type facilities” and 2) later compliance dates (which have already passed, with a few minor exceptions).
Notably, the Guidance explains that different entities within the same corporate structure may have different statuses under the rules (i.e., one entity could qualify as a small business while another does not). This memorandum provides a high-level summary of the Guidance, and we encourage any company claiming status as a small business to read the Guidance closely to confirm it is performing the analysis consistent with FDA’s expectations.