Business Insurance, Product Recall

The FSMA Bell Tolls for Small Businesses

Authored by industry expert:

Joel Berrian, CPCU, ARM, AIC
Jberrian@big-ins.com

In a little over two months, “small businesses” must comply with the FDA Food Safety Modernization Act’s (FSMA) rules addressing human and animal foods. Since September of last year, the companies (other than small, very small and other exempted entities) that produce eighty percent of the food under the United States Food and Drug Administration’s (FDA) jurisdiction ($466 billion in food sales) have been required to comply with FSMA’s rules. The time for small businesses to comply is approaching fast.

“Small”, in this instance, is relative. Under FSMA, the FDA defines “small businesses” as “a business with fewer than 500 full-time equivalent employees”. Many of these “small businesses” operate multiple facilities and account for hundreds of millions in national sales along the entire length of the food supply chain. In comparison, “very small businesses”, defined by the FDA essentially as having less than $1M in annual sales plus food held without sale, have another year or until September 30, 2018 to comply. In other words, those companies that produce eighteen percent of the food the FDA oversees have just over sixty days to be in compliance.

While compliance is not necessarily costly or difficult, it is time consuming and document intensive. For example, the rule on preventative controls for human food require extensive documentation addressing a multitude of issues, including but not limited to, hazard analysis, preventative controls, monitoring efforts, corrective actions and verification procedures. And, it all must be documented. If it’s not documented, it didn’t happen. Moreover, each facility operated by a registered company must undertake these efforts. Additionally, each manufacturing or processing facility must also develop a risk-based supply chain program for raw materials and ingredients identified as a hazard. Further, the burden falls on each manufacturer or producer to approve and verify suppliers, including those used on a temporary or spot-purchase basis. Finally, each small business must be able to produce its FSMA-related documentation to the FDA within 24 hours of a request. No court order or subpoena is required, just a simple document request.

While the FDA has cooperated with the food industry to assist in compliance activities, and we expect continued cooperation with small businesses, a company would be wise not to wait until the last minute to undertake compliance activities. The FDA has several enforcement tools, including but not limited to criminal prosecution, suspension of registration, administrative detention, quarantine and seizure, just to name a few. Additionally, the failure to comply with the regulations could very well result in a recall – if it’s not documented, it didn’t happen.

Small businesses, like their larger brethren, must undertake a comprehensive food safety strategy that is pro-active as well as protects the company from the brand, fiscal and operational impact of a recall. An across-the-board strategy is vital because we all have bad days – including the vendors on your supply chain. The FDA website lists a new recall every day. Despite your team’s best efforts, a recall will hit. Whether it’s a vendor’s bad day or yours, recalls happen. All companies suffer a bad day, whether a human, technological or equipment error, resulting in ravaged brands, damaged balance sheets and lost customers. And, unlike the larger companies, most small businesses do not have the brand legacy or bank account to withstand the brand and balance sheet losses a recall causes. In addition to your food safety efforts, review your insurance portfolio and supply chain contracts so that you can properly protect brand and balance sheet.

For all of those “small businesses” out there, September 30th is just around the corner, make sure you are ready.

And to our many friends, upon your review of this article, if you can provide helpful advice or recommend actions to be taken by small businesses as the FSMA deadlines approach, please share your thoughts with us. Thank you.

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Joel Berrian is co-owner of Berrian Insurance Group and specializes in insurance for large risks with complex exposures such as mining and energy, product and professional liability, catastrophe exposed property, food and beverage, and global cargo and marine.

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