FROM FSMA TO SFCA:

REGULATORY MODERNIZATION & IMPLICATIONS FOR INDUSTRY

DON’T PANIC… THE SKY ISN’T FALLING AND THE SUN WILL RISE TOMORROW BUT….REGULATORS ARE LOOKING TO SPARK A PARADIGM SHIFT FROM A REACTIVE TO A PREVENTION BASED FOOD SAFETY SYSTEM NOT ONLY AIMED AT SCIENCE BASED RISK ANALYSIS….FAR MORE SWEEPING….

FSMA - signed into law by President Obama Jan 4 2011 An Act In Four Titles…waiting for an election?

*Title I – Improving Capacity To Prevent Food Safety Problems *Title II – Improving Capacity To Detect & Respond To Food Safety Problems *Title III – Improving The Safety Of Imported Food *Title IV – Miscellaneous Provisions

Meanwhile in Canada….

NFRS importer / IFS product licensing -> CG1 March 2013, CG2 October 2013 which would be coming into force date

SFCA -> Introduced in the Senate spring 201, passed by Senate fall 2012 currently before the House….

Inspection Modernization -> Fall 2013 -2016 implementation

So what’s the objective? FSMA * Seeks to create paradigm shift…. prevention * Import focus – foreign to meet U.S. safety standards

And for Canada? * Prevention, Prevention, Prevention * Streamlining of Canada’s multiple inspection systems * Meeting trading partner food safety requirements

Pending regulations….

OK – Why ?

Because… - 1 / 6 Americans made ill per year - 128 000 Americans hospitalized per year - 3000 American deaths per year - est. cost to health care system US$ 152 B/Y “Significant public health burden that is largely preventable” - http://www.fda.gov/Food/FoodSafety/FSMA/ucm239907.htm

And… - High profile recalls demonstrating systemic risk Melamine… PCA 2% of peanut supply – death, illness, 3913 recalls

- Demographics and “at risk” Populations… Ageing populati0n, greater longevity with chronic illness…. 30% of the pop. according to FDA 12 million Americans with food allergies -Failure to list allergens 62% 2006 FDA recalls

- Explosive growth of food imports…15 – 20% of supply

- Supply Chain Complexity…rise of the intermediate good…

Roth et al. Journal of Supply Chain Management, Vol. 44, No. 1, Jan 2008

- The “mundane” can be surprisingly complex…

At the same time….consumer concerns, social media

http://www.foodsafetynews.com/2011/05/deloitte-survey-finds-consumer-distrust-of-food-industry/

And – concern from industry….level playing field…

OK – we get it…. So…..what are some of the specifics and impacts for industry?

FSMA Let’s start by asking just who / what is a food importer ? Title III Sec. 301(2) Importer Defined….

“(A) the United States owner or consignee of the article of food at the time of entry of such article into the United States; or (B) in the case where there is no United States owner or consignee as described in subparagraph (A), the United States agent or representative of a foreign owner or consignee of the article of food at the time of entry of such article into the United States”

As such… in a U.S. – CDN context…. At face value Non-Resident Importers (NRIs) need not apply….instead Canadian companies operating as NRIs: * Set up shop in the States * Reconfigure your supply chain – customer = importer * Hire an “agent”….unlike other regs the agent has liabilities here…

“Agent” liabilities…impacts beyond NRIs FSMA Sec. 107 / FD&C Act 743(a)(1)(A) - U.S. agent for foreign facilities liable for reinspection fees. – potential for “taxation without representation” * Reconditioning * Goods arriving subject to Import Alert * When seeking to remove a foreign manufacture from an Import Alert * When looking to export or destroy products that have been refused entry… Likewise – importers to be held liable for recall costs…..given FSMA importer definition – U.S. agents potentially liable?

Why is this an issue?

“Agent” liabilities…impacts beyond NRIs U.S. agents were borne out of the Bio Terrorism Act ( BTA ) Under BTA – facilities processing, packing, manufacturing, holding food for consumption in USA must register with FDA. Foreign facilities must appoint U.S. agent Canadian food processors are foreign facilities Given the U.S. agent liability – what happens if no one is willing to stand as a U.S. agent?

Agents – risk of open ended liability ?

http://www.ncbfaa.org/Scripts/4Disapi.dll/4DCGI/cms/review.html?Action=CMS_Document&DocID=11954&MenuKey=news

FSMA agent liability implications… What if no one is willing to stand as U.S. agent? No FDA registration means product is inadmissible… Surely someone will have skill set and risk appetite but at what cost?

Tantamount to a “tax” on Canadian/foreign foods?

FSMA requires that…. Regulations “…ensure that food imported into the United States is as safe as food produced and sold within the United States” - Sec. 301 / 805 (c )(2)(B)

FSMA establishes a two tiered import channel “Basic” and “Trusted” * “Basic” FSMA importer responsible for verifying that foreign suppliers make use of appropriate risk based preventive food safety controls ensuring that foreign suppliers are in compliance with U.S. food safety requirements and that food is not adulterated or misbranded as defined by the Food Drug and Cosmetic Act. Sec.301/805 (a)(1) – importers shall perform risk-based foreign supplier verification activities to ensure product safety and compliance with U.S. requirements.

“Basic” - continued

FSMA importer to establish a Foreign Supplier Verification Program (FSVP) Verification activities might include: * Record monitoring of shipments ……COA trend analysis ? * Lot-by-lot certification of compliance * Annual on-site inspections * Checking foreign supplier’s hazard analysis / risk based preventive control plans * Sampling and testing of imported products ……appropriateness of customs brokers to be held responsible? …….if importers need this info Canadian suppliers will have to provide it Exemptions - Research / Evaluation - Small Qty / Personal use….not intended for sale - Seafood / Juice HACCP and Low Acid

FSMA : the “Trusted” channel… FSMA Title III Sec. 302 Voluntary Qualified Importer Program – VQIP * Trusted Food Importers to benefit from that nirvana like green lane… - reduced inspections - expedited entry * FSVP plus…. - foreign facility certification - taking into account the food’s known safety risks - taking into account the foreign suppliers compliance history - taking into account the exporting country’s food safety inspection system - importer’s testing, inspection, audits, traceability, temp., sourcing practices….

Biennial Registration Sec. 102(3) Registration Renewal a.k.a re-registration “During the period beginning on October 1 and ending on December 31 of each even-numbered year, a registrant….shall submit to the Secretary a renewal registration…” Reboot – Oct 22 – Dec 31 2012

FSMA – Foreign Facility Inspections FSMA specifically requires FDA to increase inspections of foreign facilities. More specifically, FSMA requires the FDA to double the number of foreign inspections every year for 5 years starting one year after enactment – which they are doing. Year 1 : 600 foreign facility inspections Year 2: 1200 foreign facility inspections Year 3: 2400 foreign facility inspections Year 4: 4800 foreign facility inspections Year 5: 9600 foreign facility inspections - Total number of foreign FDA registered facilities > 230 000

FSMA – Foreign Facility Inspections Low chance…..perhaps, but don’t ignore it! Sec. 306 – Inspection of foreign food facilities Product can be denied entry if FDA inspectors are not allowed to access and inspect foreign facilities

FSMA – enhanced administrative detention Import detention – products subject to import refusal….as in products and products from specific foreign suppliers that are already on an Import Alert Administration detention – detention of product by FDA on a reason to believe basis…

Transportation considerations… Title I – Sec. 111 Sanitary Transportation Of Food - Promulgate regulations pertaining to 21 U.S.C. 350e(b) *Sanitation practices *Packaging *Limitations on vehicle use *Information disclosure requirements *Record keeping

Back in Canada….

NFRS importer / IFS product licensing -> CG1 March 2013, CG2 October 2013 which would be coming into force date

SFCA -> Introduced in the Senate spring 201, passed by Senate fall 2012 currently before the House….

Inspection Modernization -> Fall 2013 -2016 implementation

CFIA Importer Licensing What are NFRS/IFS products? NFRS ( IFS ) importer licensing requirements: -> Written preventive control program Industry’s preventive controls to provide monitoring to ensure compliance before food enters the stream of commerce….food safety is a shared responsibility but ultimately up to industry ….

CFIA Importer Licensing From Inspection Modernization… -> Written preventive control program to address…. * Physical Structure/Maintenance * Product/Process Controls * Equipment Design/Maintenance * Transportation/Storage * Employee Hygiene/Training * Traceability & Recall * Sanitation & Pest Control * Company Verification Processes Such that the preventive control plans designate responsibility, establish procedures to control/monitor /corrective actions, record/document control….

CFIA Importer Licensing NFRS ( IFS ) importer licensing requirements – … in addition to preventive control plans…. -> Written recall plan -> Records ( 3 years ) * Product list * Distribution records * Product compliance * Product complaints And more specifically – Importers who do not have direct control over foreign food production would be required to demonstrate what additional strategies they employ to address food safety risks…….FSVP verification steps?

Inspection Modernization and CFIA Oversight Proposed risked based oversight/inspection model…. 1 “channel” for entry but 3 levels of inspection…. -> Enhanced Oversight -> Normal Oversight -> Reduced Oversight CFIA inspection frequencies adjust based on risk and compliance….

Safe Food For Canadians Act Most sweeping update to Canadian food safety legislation in several decades Broad language….. * Consistent inspection regardless of commodity * Tougher penalties for health and safety violations * Improved import / export controls * Strengthened food traceability requirements

Safe Food For Canadians Act * Consistent inspection regardless of commodity Meat Inspection Act Fish Inspection Act Food provisions of Consumer Packaging & Lab. Act Canada Agricultural Products Act

-> Dairy Product Regulations SFCA -> Egg Regulations -> Fresh Fruit & Veg. Regulations -> Processed Products Regulations -> Honey Regulations -> etc…

Safe Food For Canadians Act * Tougher penalties for health and safety violations Previous max financial penalties C$ 250 000.00…..under SFCA C$ 5 million Sec. 39(1)(a) on conviction on indictment C$5 million / imprisonment for up to 2 years Sec. 39(1)(b) on summary conviction 1st offence not more than C$250 000.00 and/or imprisonment up to 6 months subsequent offence C$ 500 000.00 and/or imprisonment up to 18 months Offences based on tampering, threats….

Safe Food For Canadians Act * Improved Import / Export Controls -> Licensing -> Prohibitions against importing unsafe foods Previously: OK to import non-compliant foods, but prohibited to sell SFCA: Prohibited to import unsafe foods *** Implications for specific industry sectors? Spices? -> Government certification of any food commodity for export compliance

Safe Food For Canadians Act * Strengthened Food Traceability Requirements Sec 51.(1)(v) provides for regulations to be established “…respecting the traceability of any food commodity, including regulations requiring persons to establish systems to (i) identify the food commodity (ii) determine its places of departure and destination and its location as it moves between those place, or (iii) provide information to persons who could be affected by it”

Considerations and Implications… * Market access and potential to create new gatekeepers? * Alignment with BTB and RCC ? * Requires meaningful funding * Costs for executing meaningful due diligence

Regardless of regulations….food safety must not be boiled down to technology and check lists 2010 Salmonella outbreak * 2000 illnesses * ½ billion egg recall from firm with “superior” grade food safety audit

Ethical issues not limited to conventional…. http://www.foodsafetynews.com/2011/12/fax-sale-of-mislabeled-organic-corn-costly-for-oregon-man/

When “local” isn’t so local… …http://www.nbclosangeles.com/news/local/Hidden-Camera-Investigation-

Farmers-Markets-103577594.html

Ideally (hopefully) the new regulatory paradigm won’t….produce a compliance-based food safety approach simply focusing on the avoidance of penalties…. But will…produce a values/behavior based food safety approach focused on prevention SCM litmus test….

Thank You !

Mark FeDuke MSc. CCS CTCS

VLM Foods Inc. Tel ( 514 ) 426 4100 – e-mail : mark@vlmfoods.com