November 17, 2017

Food for Thought: Considerations When Entering the U.S. Market

The barriers for foreign companies who plan to enter the U.S. food market are considerable and complicated, but are not insurmountable, according to a team of Goodwin lawyers who recently shared their insights with a gathering of food companies at the Business France offices in New York.

“The food laws in the United States are complex and have been changing,” said Joanne Gray, co-chair of Goodwin’s Food + Healthy Living practice. “How do you get your products into the United States? How do you know that they are safe? How do you know that they’re high quality? And how do you protect your brand?”

Business France invited French food companies and others to showcase their offerings and learn about the intricacies of food regulations in the United States. Fred Rein, partner in Goodwin’s IP Litigation Group and a member of the firm’s Israel and Tech/Life Sciences Practices, helped facilitate Goodwin’s participation in this event, noting the firm’s strong commitment to French-American economic relations as reflected in the opening of Goodwin’s Paris office last year. In addition to Gray and Rein, Goodwin was represented by Tom Meriam, co-chair of the firm's Food +  Healthy Living Practice and a member of Goodwin's Private Equity Group.

Gray said that one of the biggest risks for food companies right now is adulteration – particularly economically motivated adulteration (EMA). “EMA can be done in a variety of ways. It may be  an ingredient that’s been left out, or one ingredient that has been improperly substituted for another, or a substance that’s been improperly added,” she said. “Or it simply can be that a substandard product is substituted for a quality product. No matter how it occurs, your brand is at risk.”

The food company may not even be aware of the adulteration. If a supplier is cutting corners to save costs, that could lead to a shipment being delayed for weeks, months or even being turned away altogether at the U.S. border.

Guarding Against EMA

The impact of economically motivated adulteration in the U.S. is estimated at $10 billion to $15 billion each year. While instances of adulteration are not always harmful to human health, it will affect a food manufacturer’s bottom line. But there are ways to safeguard your product and protect your brand’s reputation.

“Trust your suppliers and above all, get know your suppliers. And know your suppliers’ suppliers. You want a farm-to-fork control,” Gray said. “Traceability is key. If you’re getting ingredients from suppliers who won’t tell you where they’re getting their ingredients from, that’s a big red flag.”

Gray suggests entering into  contracts with suppliers as opposed to simply using a purchase order. “If somebody won’t sign a good contract indemnifying you for a substandard product, then you need to find an alternative supplier,” Gray added. That is often a red flag for a supplier who may cut corners.

Also make sure you know all of your suppliers’ standard operating procedures and that they are training and retraining their employees regularly on them. If such controls fail and a recall should occur, Gray said having a sound recall insurance policy can be valuable protection.

New Rules on Food Imports

The new U.S. Foreign Supplier Verification Program (FSVP) that recently took effect was intended to force companies to be proactive. It requires that companies institute processes to  prevent adulteration, rather than reacting to it. “It’s a fluid process, there are changes that are going to take place going forward. Everyone needs to be proactive and flexible in adapting to them,” Higgins said.

Importers are required to conduct a hazard analysis. They need to evaluate the specific risks posed by the food as well as review the foreign suppliers’ past performance, along with any corrective actions that supplier may have had to take in the past.

“Importers must ensure that food that comes to the United States meets U.S. safety standards, and the onus is on the importer to assure that,” Higgins said.

The list of potential risks is extensive and detailed and includes: parasites, disease-causing bacteria, chemical and radiological risks, pesticides, natural toxins, food decompositions, drug residues, packaging and labeling, storage, employee hygiene and economic adulteration factors – to name a few.

You can perform an FSVP hazard analysis yourself or you can enlist a third-party, for example a law firm with food regulatory expertise, to conduct it. But the number of analyses can quickly swell depending on the size of the food manufacturer.

“You have to have a foreign supplier verification program for each food you import and for every supplier of ingredients for that food that’s coming into the United States,” Higgins said.

When to Call Counsel

In the unfortunate event of a recall, it’s important to act quickly. Alert your recall team, call in your lawyers and engage your PR folks.

“You should have recall procedures ready to go,” Gray said. “You should be testing them before they are needed, and following them as soon as you know that a recall is warranted. If possible, you want to stop that product before it gets to the consumer.”

If you can halt the product at the distributor before it gets to store shelves, the FDA will not require you issue a press release to the consumer level.

“Your brand has not been damaged. So speed counts. Great brands want to keep their brands great,” Gray said.

In the context of a potential merger or acquisition, Goodwin is regularly called upon to ensure that a potential target company is meeting all of the FSVP requirements and ensure that all of the procedures are in place. “Whether we represent buyers or sellers, we can help trace all of that information back and forth,” Meriam noted.

“And to the extent that they cannot fulfill all of their obligations, that is a leverage point in negotiations.”