Philadelphia Targets Sweetened Beverages for New Revenue; Imposes First Big-City Soda Tax

On Thursday Philadelphia became the first major U.S. city to approve a tax on sodas and other sweetened beverages.  In enacting Bill Number 16017601, the Council added a new Chapter 19-4100 to the city code, which imposes a $0.015 per fluid ounce tax on beverages and beverage concentrates sweetened with sugar-based sweeteners or artificial sugar substitutes such as stevia, saccharin, or aspartame.   The tax is expected to add 18 cents to the cost of a can of soda.

The provision does not apply to infant formula, medical foods, products that are more than 50 percent milk, products that are more than 50 percent fresh fruit, vegetables or a combination of the two, unsweetened drinks to which a purchaser can add or request the addition of sugar, or syrups or other concentrates that the customer can combines with other ingredients to create a beverage.

Examples of sugar-sweetened beverages include, soda, fruit drinks without the minimum amount of fruit, sports drinks, sweetened flavored water, energy drinks, presweetened coffee or tea, and non-alcoholic beverages intended to be mixed into an alcoholic drink.

Under the new section, retailers and restaurants selling “sugar-sweetened beverages” – a term that includes beverages sweetened with artificial sweeteners rather than sugar – must purchase the beverages from distributors who are registered with the city.  In addition, such retailers must notify the registered distributor that the retailer is a dealer under the law and that the purchase is subject to the tax. Then, the registered distributor must provide confirmation to the retailer of the notice and provide a receipt detailing the amount of beverage purchased and the applicable amount of tax.  The tax is paid to the city by the registered distributor, not by the retailer.   However, if a retailer fails to provide notice to the registered distributor, it will be liable for the tax.

Under an original proposal, Philadelphia Mayor Jim Kenney sought a three-cent-per-ounce tax to fund various desired programs.  A compromise resulted in the 1.5-cent-per-ounce tax, which is projected to raise $409.5 million over five years to support expanded pre-K, community projects, and other city expenses.

Several U.S. cities, including Boulder and San Francisco, are considering their own taxes on sweetened beverages. In addition, many states and cities already have carve-outs from their sales tax exemptions, providing that unlike other foods, sweetened beverages remain subject to sales tax. And in 2014, Berkeley, California became the first U.S. city to adopt a sweetened beverage tax, charging a penny-per-ounce.  Readers will also recall that New York City’s effort to ban large soft drinks was struck down by a state court in 2013, on the grounds that the state health board did not have the authority to impose the ban.

The news of the new tax comes on the heels of FDA’s long-awaited and much-discussed final rule on nutrition labeling, which mandates the disclosure of added sugar on packaged food nutrition labels.  In addition, FDA has hinted that it will look to redefine the conditions under which a product can be called “healthy,” and some public health advocates have suggested that the revision should include a limit on sugar or added sugars.

FDA Releases Final Rules Revising Nutrition Facts Label and Certain Serving Sizes; Industry Given Two to Three Years to Comply

FDA announced today that it was finalizing two previously proposed rules that will require industry to overhaul Nutrition Facts panels on all food products sold in the United States and recalculate serving sizes for some foods.  The new rules mark the first time that FDA has engaged in rulemaking to update the framework for nutrition labeling since 1993 and include revisions to the general format and display, the nutrients that must be displayed, and the serving sizes used to calculate nutrient information.  The final rules are largely consistent with the initial proposed rules, which we covered here and here.  Notable changes from today’s labels include:

  • A revamped format, as shown in the imageFOP Label to the left provided by FDA, which will increase the type size for “Calories,” “servings per container,” and the “Serving Size declaration.”
  • The addition of “added sugars” in grams and as a percent Daily Value.  Controversially, FDA issued a supplemental rule in July 2015 to the initially proposed rules in March 2014, which proposed to include a percent daily value for added sugars that would not exceed 10 percent of total calories.  In finalizing the rule as proposed, FDA rejected comments noting that it has acknowledged that there is no chemical difference between sugars that are added to foods and naturally occurring sugars, and cited data that allegedly shows that it is difficult to meet nutrient needs if you consume more than 10 percent of your total daily calories from added sugar.
  • The addition of Vitamin D and Potassium as mandatory declarations.  Citing food consumption surveys by the CDC, FDA will require vitamin D and potassium to be added to the Nutrition Facts label based on perceived deficiencies in the American population.  Vitamins A and C will no longer be mandatory declarations, although manufacturers can still list these vitamins voluntarily.
  • Revisions to serving sizes.  The final rule revises serving sizes based on more recent food consumption data.  For example, the serving size for ice cream is changing from 1/2 cup and 2/3 cup and the serving size of soda is changing from 8 ounces to 12 ounces.
  • New requirements for multi-serving packages.  Dual column labeling that shows information both per serving and per container will be required for certain food packages that can be consumed in one sitting or multiple sittings.  For packages between one and two servings, calories and other nutrients must be declared for the entire package rather than per serving.  In justifying the revised approach circumscribing manufacturers’ labeling choices for multi-serving packages, FDA pointed to the likelihood that a typical consumer will consume a particular product in one sitting.
  • New definition for dietary fiber.  The final rule adopts a new definition for dietary fiber that requires FDA to have made a determination that the substance has physiological effects that are beneficial to human health.  The new definition will present a host of legal and logistical issues for manufacturers as they determine how to calculate a particular product’s dietary fiber content.
  • New recordkeeping requirements.  The rules also impose onerous new recordkeeping requirements on manufacturers, which will require manufacturers to make and keep records related to added sugars, certain fibers, vitamin E, folic acid, and folate.

As far as when consumers can expect to start seeing the new labels in stores, it’s not entirely clear.  Most companies will have to comply within two years, while small businesses (defined as having less than $10 million in annual sales) will have three years.  But at this stage, it’s unclear whether compliance means that all labels with the old format must be off store shelves, or whether only newly manufactured products will need to use the new labels.

The final rules are set to be published in the Federal Register next week.  FDA will likely continue to issue guidances and other documents designed to help businesses and consumers prepare for implementation of the new regulations.  Stay tuned for what is bound to be an interesting process as the industry overhauls labels for the first time in over 20 years.

FDA Releases Draft Guidance on Determining What Constitutes a “Qualified Facility” under FSMA Preventive Controls Rules

On Friday, the FDA announced the availability of a draft guidance describing its current thinking on how to determine whether a business is a “qualified facility” that is subject to modified requirements under its previously released rules governing current good manufacturing practice, hazard analysis and risk-based preventive controls for human food and animal food (“the Preventive Controls Rules”).  Under FSMA and the Preventive Controls Rules, a “qualified facility” is not generally subject to hazard analysis and risk-based preventive controls and supply-chain requirements imposed under the Preventive Controls Rules.  However, a qualified facility must submit an attestation that the facility meets the definition of a qualified facility and that the facility has identified potential hazards, implemented preventive controls to control those hazards, and is monitoring the effectiveness of those controls.  The draft guidance provides more information about how a facility can determine whether it is indeed a “qualified facility” and how it should submit the required attestation.

While a facility can meet the “qualified facility” definition in two ways, the draft guidance indicates that FDA “believe[s] the definition of a very small business will apply to most qualified facilities” and thus focuses on determining whether a facility will meet that definition.  Under the Preventive Controls for Human Food Rule, a “very small business” is a business, including any subsidiaries and affiliates, averaging less than $1,000,000, adjusted for inflation, per year, during the 3-year period preceding the applicable calendar year in sales of human food plus the market value of human food manufactured, processed, packed, or held without sale (e.g., held for a fee).   The Preventive Controls for Animal Food Rule defines “very small business” similarly, except that the relevant figure is $2,500,000.

In addition to summarizing the relevant provisions of the Preventive Controls Rules, the draft guidance offers new insight into how facilities should evaluate whether they meet the relevant definition.  Notably, the draft guidance explains:

  • The total annual sales criteria applies equally to all affiliated entities, regardless of whether the entity is the parent, subsidiary or affiliate, such that either all or none of related entities will constitute a qualified facility.
  • Facilities must include all human or animal food, depending on the rule, when determining sales and market value.  This means that the facility must include in its calculations both: (1) food that is not subject to the Preventive Controls Rules (e.g., seafood, juice, low-acid canned foods, and dietary supplements); and (2) raw agricultural commodities and products subject to regulation by USDA.
  • In determining annual sales, facilities should look to preexisting resources such as tax forms, accounting documents, invoices, and bills of lading.
  • In determining the market value of food manufactured, processed, packed or held without sale, facilities should consider factors such as the cost of the incoming food, the amount of insurance that a warehouse holds for its products, and assets on a balance sheet.

The draft guidance also provides examples of calculations and responds to potential questions about specific situations.  Human food facilities are required to submit their first attestation to FDA by December 17, 2018, while animal food facilities are required to submit their first attestation by December 16, 2019.  While stakeholders can always submit comments on guidance documents, FDA encourages comments to be submitted by November 14, 2016 in order to ensure consideration before it begins work on the final version of the guidance.

FDA Finalizes Additional Guidance on Medical Foods; Continues to Take Narrow View of Category


FDA has finalized its guidance document relating to medical foods, a special class of products defined under the Orphan Drug Act.

Although most of the content of the final guidance mirrors the draft guidance released in August 2013, the final guidance clarifies the following points:

  • Medical foods are exempt from the labeling requirements for nutrient content claims and for health claims under the Nutrition Labeling and Education Act of 1990. However, if they bear false or misleading claims they will be considered misbranded under section 403(a)(1) of the Food, Drug, and Cosmetic Act.
  • FDA does not maintain a comprehensive list of medical food products. This question and answer was not included in the draft guidance.
  • There are no distinctive nutritional requirements associated with pregnancy. This is a departure from the conclusions in the draft guidance.
  • There are no distinctive nutritional requirements associated with the management of diabetes mellitus. This, too, is a departure from the conclusions in the draft guidance.

Medical foods must be formulated to be consumed or administered enterally under the supervision of a physician and are used for specific dietary management of a disease or condition with distinctive nutritional requirements. 21 U.S.C. 360ee(b)(3).  FDA’s reading of this definition has been criticized as being unduly restrictive.  For instance, FDA’s interpretation excludes products directed towards diseases or conditions that can also be addressed through modification of the diet, a limitation not included in the statutory definition. See 21 CFR 101.9(j)(8).  The final guidance does not broaden FDA’s interpretation of the medical foods category.

Under FDA’s interpretation, medical foods can be used to manage inborn errors of metabolism such as phenylketonuria, which impairs metabolism of the amino acid phenylalanine. However, the guidance advises that pregnancy, diabetes mellitus, and diseases resulting from essential nutrient deficiencies are not diseases or conditions with distinctive nutritional requirements, and thus FDA generally does not see products intended to manage those conditions as medical foods.

Aside from providing guidance on the scope of the medical foods category, the FAQs offer practical advice for manufacturers and retailers of medical foods. For instance, although medical foods should be formulated to be used “under the supervision of a physician,” which means that the patient should generally see the physician on a recurring basis for, among other things, instructions on the use of the medical food.  A product can be labeled accordingly.  However, the guidance makes clear that medical foods should not be labeled as “Rx only,” as that designation would be false and misleading. In addition, the guidance is clear that the labeling of medical foods should not include National Drug Code (NDC) numbers, the unique numbers assigned to each listed drug that identifies the labeler, product, and trade package size.  NDC numbers are often used by retailers to track sales of products, but FDA’s view is that NDC numbers should only be used on drugs.  According to FDA, using NDC numbers on medical foods could convey a false message that FDA has approved the medical food.

Understanding your product’s category under FDA’s regulatory regime – whether conventional food, dietary supplement, medical food, or drug – is essential for complying with FDA requirements for registration, labeling, and promotion of the product. This final guidance reiterates FDA’s position that the medical food category is narrow.  Companies marketing a product as a medical food should carefully consider FDA’s reading of the term “medical food” and ensure that their labeling and promotion of the product is consistent with FDA rules.


FDA to Chew Over Meaning of “Healthy”

appleAlthough “healthy” might sound like a subjective term, FDA has long-defined “healthy” under nutrient content claim regulations. For example, to be “healthy” an item must be low in fat and saturated fat.  Many stakeholders and health advocates have argued that this conception of “healthy” may be outdated, and the agency hinted this week that it will be re-considering the criteria for “healthy” and similar claims.

In March 2015, KIND, the makers of granola bars, received a warning letter from FDA in part because it labeled certain products as “healthy” even though the products contained more saturated fat than is permitted for a “healthy” claim.  KIND changed its labeling, and FDA issued a closeout letter in April 2016.   Soon after, KIND requested that FDA confirm it could use “healthy” to describe the company’s corporate philosophy.  FDA agreed that using “healthy” in that way is acceptable, because it is not used as a nutrient content claim and does not appear on the same display panel as nutrient content claims or nutrition information.

FDA issued a statement explaining its analysis of the “healthy” claim for KIND’s corporate philosophy and in that statement, it also announced that “now is an opportune time to reevaluate regulations concerning nutrient content claims, generally, including the term ‘healthy.’” FDA cited evolving nutrition research, forthcoming Nutrition Facts labeling final rules, and a citizen petition from KIND for this decision.

FDA plans to solicit public comments on these issues “in the near future.” Through the comment process, companies and organizations with views on the appropriate criteria for “healthy” and other nutrient content claims can help educate FDA and ultimately shape FDA policy.  Stakeholders should begin considering their opinions now, to be able to respond when FDA opens its comment period.

FDA Final Rule for Foods and Cosmetics Aims to Reduce Risk of Mad Cow Exposure

Today the FDA issued its final rule prohibiting the use of certain cattle material in human foods, dietary supplements, and cosmetics.  The rule is focused on reducing the risk of human exposure to bovine spongiform encephalopathy (BSE), a fatal neurological disorder sometimes known as “mad cow disease.”  The rule will take effect on April 18, 2016.

Under the final rule, FDA prohibits the use of designated parts and organs referred to as “specified risk materials.” Studies have shown that when cattle are infected with BSE, the BSE agent resides in these parts and organs.  The final rule also prohibits the use of the small intestine (unless the distal ileum has been removed), material from nonambulatory disabled cattle, material from cattle not inspected and passed for human consumption by the appropriate regulatory authority, and mechanically separated beef.  FDA has clarified that other materials can be used in foods and cosmetics and are not prohibited: milk and milk products, hides and hide-derived products, tallow that contains no more than 0.15 percent insoluble impurities, tallow derivatives, and gelatin manufactured using customary industry practices.

Cattle materials inspected and passed from a country specifically designated under the rule are also carved out from the BSE-related restrictions. A country seeking to be designated must send a written request to the Director of FDA’s Center for Food Safety and Applied Nutrition, including information about the country’s BSE case history, risk factors, measures to prevent the introduction and transmission of BSE, and any other relevant information.

The final rule completes a rulemaking process that began with an interim final rule in 2004 and was followed by interim final rules in 2005 and 2008. In addition to the restrictions in this final rule, FDA has other specific requirements regarding record maintenance, retention, and accessibility, for manufacturers and processors of human foods or cosmetic products made with material from cattle.

Identity Crisis Over: Dietary Supplements Can Be “Dietary Supplements”

In its dietary supplement labeling guide, first issued in April 2005, FDA advised that it would not consider the term, “dietary supplement,” alone, to be an appropriately descriptive “statement of identity.” FDA, however, has now reversed course. Revised guidance released last week now provides as follows:

Can the term “dietary supplement” by itself be considered the statement of identity?

Yes. This term describes the basic nature of a dietary supplement and therefore is an “appropriately descriptive term” that can be used as the product’s statement of identity. The statement of identity for a dietary supplement may therefore consist simply of the term “dietary supplement.”

The revised guidance also adds the following: “Dietary supplement” may be included as “part of a longer statement of identity (e.g., ‘cod liver oil liquid dietary supplement’).”

After WTO Battle, USDA Issues Final Rule Lifting Pork and Beef COOL Requirements

Today, following a protracted legal battle at the WTO, USDA issued a final rule removing mandatory Country of Origin Labeling (COOL) requirements for muscle cut and ground beef and pork.

Beginning in 2008, Canada and Mexico challenged the COOL requirement, arguing that it discriminated against non-U.S. meat and was outside the bounds of permitted rules that WTO signatories can adopt.   Following WTO rulings against the United States, USDA amended the rule in 2013.  The revised COOL rule was also found to be non-compliant with WTO standards.  In 2015, arbitrator granted Canada’s request for authorization from the WTO to suspend the application of certain tariff concessions for the U.S.  Shortly thereafter, Congress voted in the Consolidated Appropriations Act of 2016 to remove the COOL requirement, and USDA stopped enforcing the rule as of December 18, 2015.

As a result of this change, retailers and their suppliers are no longer required to convey country of origin information for beef or pork products to their buyers or consumers under the mandatory COOL program.  However, imported beef and pork products sold in consumer-ready packages must still bear the foreign country of origin under Customs and Border Protection and USDA’s Food Safety and Inspection Service (FSIS) regulations.

COOL regulatory requirements for chicken, lamb, goat, farm-raised and wild caught fish and shellfish, perishable agricultural commodities, peanuts, pecans, macadamia nuts, and ginseng remain in effect and are not effected by USDA’s action.

Coalition Challenges National Marine Fisheries Service Rules for Regulating Offshore Aquaculture in the Gulf of Mexico

On February 12th, a coalition led by the Center for Food Safety filed suit in the U.S. District Court for the Eastern District of Louisiana challenging the National Marine Fisheries Service’s (“NMFS”) final rule implementing the Fishery Management Plan for Regulating Offshore Aquaculture in the Gulf of Mexico (“FMP”). The rule is the first FMP for domestic aquaculture for species managed by the Gulf of Mexico Fishery Management Council (“Council”), and the first broad-scale specific authorization for offshore aquaculture in the United States.

The Council approved the FMP in 2009; however, NMFS did not implement its measures as a final rule until January 13, 2016. In the interim, two national policies on aquaculture were adopted: (1) NMFS issued a Marine Aquaculture Policy in 2011; and (2) the Interagency Working Group on Aquaculture released a draft National Strategic Plan for Federal Aquaculture Research in 2014.

According to the Council, the FMP applies to activities that constitute “rearing of aquatic organisms in controlled environments (e.g., cages or net pens) in federally managed areas of the ocean.” It authorizes up to 20 Gulf Aquaculture Permits, for a term of ten years each, up to a total annual production of 64 million total pounds. Any individual permit holder may only produce 20% of that annual total. The FMP also requires a dealer who receives fish cultured at an offshore aquaculture facility to possess a Gulf aquaculture dealer permit. A permit allows harvest of all native Gulf species that are managed by the Council, excluding shrimp and corals.

There are currently no commercial offshore aquaculture operations in federal waters for finfish rearing. There are 25 permit holders for live rock aquaculture in the United States’ Exclusive Economic Zone, as well as several aquaculture operations in state waters of California, Florida, Hawaii, Maine, New Hampshire, and Washington.

The FMP has several mechanisms for regulating offshore aquaculture, including the overall harvest limit for the fishery noted above. The Council set that harvest limit (referred to as “optimum yield” in keeping with legally-mandated principles for wild-caught fishery stocks) equal to the average annual landings of all marine species in the Gulf, except menhaden and shrimp, between the years 2000 and 2006. Entry to the fishery may be limited in subsequent years if the overall harvest level is exceeded. The FMP also contains siting requirements, obligates permit applicants to conduct a baseline environmental assessment off the proposed site prior to permit review, and requires extensive and routine monitoring and reporting once operations are underway.

The legal complaint, filed by twelve organizations representing fishery interests and environmental and food safety groups, alleges that industrial aquaculture is sufficiently different from fishing that NMFS does not hold permitting authority over its regulation. Rather, the complainants believe that it should be regulated more akin to farming practices. While FMPs are typically used to manage single- or multiple-stock wild-caught fisheries, fishery management councils have utilized them with some flexibility in the past for purposes such as ecosystem-based management.

NMFS, for its part, counters that all offshore fisheries, including aquaculture, are most appropriately regulated under the Magnuson-Stevens Fishery Management and Conservation Act. On February 23rd, NMFS’ Deputy Assistant Administrator for Regulatory Programs, Sam Rauch, testified before the Senate Commerce Committee’s Subcommittee on Oceans, Atmosphere, Fisheries, and Coast Guard that, while setting optimum yield for aquaculture is “a little awkward,” the agency feels that the Magnuson-Stevens Act provides sufficient statutory authority for managing offshore aquaculture.

The complaint further alleges that the FMP does not adequately address how aquaculture will affect the survival of wild fish. The topic of large-scale commercial aquaculture has traditionally been controversial in the United States. Opponents’ major concerns are that escapes from aquaculture pens could affect wild populations through genetic modification or disease, and that operations will adversely affect the environment through waste and chemical contamination.

NMFS has argued in the regulatory documents that reporting requirements minimize such risks, and that permitting operations will benefit the nation by increasing the supply of in-demand local species such as snappers, groupers, red drum, cobia, and jacks.

Court Temporarily Tables Controversial NYC Salt Warning Rule

In September 2015, the New York City Board of Health unanimously passed a unique measure that would require chain restaurants to warn consumers about the sodium content of certain menu items.  In particular, restaurants with 15 or more locations nationwide would be required to show images of saltshakers next to menu items with 2,300 or more milligrams of sodium.  Fines under the rule were set to begin on March 1.

But today, just a day before the March 1 effective date, a New York appeals court granted the National Restaurant Association’s request for a temporary stay, meaning enforcement of the rule will be halted.   A lower court had upheld the measure and last week denied the NRA’s request for a preliminary injunction, deciding that the requirement was consistent with federal law and that the warning did not harm restaurants’ rights to sell higher sodium foods or consumers’ personal autonomy.  The NRA had argued that the law was arbitrary and capricious and could not be properly adopted by the Board of Health.

The rule will be temporarily stayed with the appeals court can consider the NRA’s preliminary injunction request.

Separate from New York City’s unique salt labeling rule, a federal law requiring chain restaurants to post certain nutrition information was passed in 2010.  A final rule implementing that law was issued in 2014 year, although the deadline for compliance has been extended until December 2016.  Unlike New York City’s rule, the federal law would not require restaurants to post sodium content on menus.