Insightful The US FDA Small Business Exemption from Nutrition Labeling: Who Qualifies?

Recently, after seeing a photo of a Dick Taylor bar with a nutrition facts panel on it, I posted on Facebook asking how a company the size of the Mast Bros could possibly still qualify for a small business exemption from the 1990 Nutrition Labeling and Education Act (NLEA). With sales reportedly topping US$10M, a new 65,000sf factory under construction in the Brooklyn Navy Yards in NYC, a retail store in Williamsburg, a factory/store in the Arts District in Los Angeles, and who knows how many employees … how could the Mast Bros still be considered a small business?

As I learned after spending many hours poring over the regulations and reaching out to colleagues trying to make sense of the regulations, I learned that they probably do qualify for labeling exemptions for many, if not all of the products they make. I also learned that most small chocolate makers and confectioners are not filing for the exemption - and probably should be .

Disclaimer : IANAL - I am not a lawyer. This is my interpretation of the regulations. The analysis following should   not   be relied upon as reliable legal advice. You should consult a lawyer with experience with FDA labeling regulations. There are separate guidelines for foreign firms importing food products. Consult a lawyer.

Can YOU Qualify for a Small Business Nutrition Labeling Exemption?

Yes, Virginia, you are on the fast track to qualification if your company is incorporated in the US and it has an annual   average   of fewer than 100 FTE (full time equivalent) employees.

Any food company with an annual average of fewer than 100 FTE employees (seasonal employment can be higher) can claim an exemption for any product that is produced a)   in small quantities   and b)   as long as   the label: 1) does not contain any nutrition information;   and , 2) does not make a health or nutrient/nutrition claim.

If a product fails either of the above two numbered tests, a nutrition label is   mandatory – with   only one   exception [from the regulations]:

Foods in packages with available label space of less than 12 square inches (e.g. pack of gum),   provided that   the label provides a means for consumers to obtain nutrition information (e.g., address, phone number). However, if a nutrition or health claim is made, a nutrition label   must   be provided.

Statements such as “organic,” “sugar-free,” “gluten-free,” “dairy-free,” “soy-free,” and “non-GMO” are not likely to be considered health or nutrient/nutrition claims – but that depends on how they are worded. Sugar-free claims are subject to separate regulations. Statements such as “heart-healthy,” “high-fiber,” and “low-calorie” are likely to be construed as being either a nutrient content or health claim and would by definition require a nutrition facts panel on the label. It is not clear whether “paleo” (don’t get me started on how chocolate can possibly be considered paleo) or “raw” can be construed as a health claim, again it depends on wording. Consult a lawyer with experience in this area if you have any doubt.

What’s next?

Your company has fewer than 100 FTE employees and you are not making any nutrition, nutrient, of health claims on the label. There is just one more question to consider: what does the NLEA mean by “small quantities?”

The NLEA defines small quantities as “under 100,000 units   of ‘the same product’   sold in the same twelve-month period.” If you mold “the same” chocolate into (for example) bars in 5gr, 50gr, and 100gr sizes, you add up the total of all the different sizes and if the number is less than 100,000 then that product meets the quantity requirements for a nutrition labeling exemption.

However, if the total is over 100,000 then each size of the product needs a nutrition facts panel — unless the total area is less than 12 sq in, in which case you need to indicate, on the label, a way for the customer to get the information should they so desire.

Assuming your company and product(s) meet all the above tests, notice   must   be filed annually   with FDA   to be in compliance with the NLEA. There is only   one   exception:

Firms with fewer than 10 employees with sales of less than 10,000 units/product do not have to apply to FDA for an exemption.

Counting to 100,000 — the fine print

The above points seem straightforward … but one offers some wiggle room. The 100,000-unit number for a product refers to [taken from the regulations]:

A product includes all package sizes that are manufactured by a single manufacturer or which bears the same brand name, which has the same statement of identity, and has   a similar preparation method .  

In considering whether products have similar preparation methods, consider all steps that go into the preparation of the products, from the initial formulation steps to any finishing steps; for example,   products with different ingredients would be considered different food products and counted separately in determining the number of units.

But ... what do “different ingredients” and “similar preparation methods” (or,  recipe ) mean? This is where interpretation comes into play.

1. One way to interpret the guidelines would be to say that “all bars with 70% total cocoa content and with an ingredients list that consists of ‘cocoa beans, sugar’ and that are processed entirely in a melangeur” are   the same product   (or recipe; similar preparation methods and similar ingredient lists). This is   probably how an inspector would view things.
2. Another way to interpret the guidelines would be to say that “all bars with a 70% total cocoa content and with an ingredients list that consists of ‘cocoa beans, sugar’ and that are processed entirely in a melangeur” are   not   same recipe   if   the beans   are from different origins . The question is, “Are cocoa beans from Nicaragua the same ingredient as cocoa beans from Colombia?” Probably.   But maybe not .

It’s not all that hard to get to a count of 100,000 if your interpretation of “recipe” is broad – the approach suggested in 1) above. Assuming only 50gr bars are being molded, 100,000, 70% bars comes out to be less than 5MT of beans.

However, if you do have to put a nutrition facts panel on the label, with the broad interpretation in 1) you can use   the same   nutrition facts panel for every product that has a similar preparation method and the same ingredients. This reduces the cost of compliance significantly.

Because of the ambiguity of the regulations it   is possible to argue that beans of different origins are different ingredients; they have different fat levels and macronutrient contents. (It might also be possible to claim that using a melangeur and using a ball mill and roll mill are different preparation methods within the meaning of the regulations.)

For every product with a different recipe – and this does mean inclusions or flavorings and could include equipment/method – a labeling exemption could be claimed. This is the narrow interpretation in 2) above, which could, theoretically, be used to keep product counts below 100,000.

The narrow interpretation in 2) has not been tested that I know of, and the distinction is likely never to be something that would be of interest to the FDA.

However, as was pointed out, it is likely that a regulator or inspector would consider any liquor to be the same ingredient as long as the macronutrient content was within allowable limits–tending toward the interpretation in 1). That said, with adequate record keeping in place to document segregation of ingredients and processes, it might be possible to successfully argue the case that liquors made with beans from different origins were different ingredients. Ask a lawyer before going down this path.

Top Line Summary and Conclusions

Again, I am not a lawyer so please do not rely on this interpretation should you be inspected. Consult a lawyer before you decide what, or what not, to do.

1. If your company is eligible for the labeling exemption you must apply for it to be in compliance with the NLEA.
2. Your company  must   file for an exemption   for each year and for each product   for which you want to claim the exemption,   unless   you have fewer than 10 FTE employees and sell fewer than 10,000 units of a product.
3. If your company has more than 10 FTE employees, is making more than 10,000 and fewer than 100,000 units of any product in a twelve-month period, and has fewer than 100 FTE employees and is not making health or nutrition/nutrient claims on the label,  the products that are manufactured in under 100,000 unit quantities are eligible for a labeling exemption.
   
4. If your company has fewer than 100 FTE employees, you can have a mix of products that do and do not qualify for the exemption. However, your company  must   file for the labeling exemption   each year and for each product that qualifies for the exemption .
   

Going back to the original question: assuming the Mast Bros have fewer than 100 FTE employees, it is possible for them to claim a small business labeling exemption for many, if not all, products they make. It all depends on how they count to 100,000.

That said, it is my sincere hope that every chocolate maker will see the wisdom in providing this information somewhere, if not on the label then on their web site, in the box when shipping direct, and to their retailers. I don’t know where the cut-off should be - $500k in annual sales? – but I’d like to see small makers adopt the business discipline and responsibility and put nutrition facts panels on their labels even if they are not required to by law.

Notes

On a related labeling point, if you are using cocoa beans with less than 50% fat you cannot legally call your product chocolate as the regulations for cocoa liquor require 50% minimum fat content. From my reading (again, IANAL), even if you added cocoa butter to get to the 50% minimum, your chocolate would still not legally qualify as chocolate because the definition applies to the liquor. This is not something a small maker is likely to ever get called on, it’s just something to be aware of. (CFR 21 Sub-part B §163.111, Chocolate liquor.)

In addition to the nutrition label, products may display certain nutrition information or health claims on packaging. Health claims are only allowed by the FDA for "eight diet and health relationships based on proven scientific evidence", including: calcium and osteoporosis, fiber-containing grain products, fruits and vegetables and cancer, fruits, vegetables, and grain products that contain fiber—particularly soluble fiber—and the risk of coronary heart disease, fat and cancer, saturated fat and cholesterol and coronary heart disease, sodium and hypertension, and folate and neural tube defects.

Paleo food labels and advertisements are no exception to these rules. Companies that advertise the health benefits of Paleo foods must ensure their claims are not misleading to consumers and any claims they make are backed by appropriate scientific support. At the same time, companies should beware of making negative claims about the potential “detriments” of non-Paleo foods (e.g., that dairy, soy or corn products are unhealthy), which could attract unwanted negative attention or legal action from those industries. [Note: By extension, claims made for raw would be subject to this logic.]

Sources

• http://www.fda.gov/Food/GuidanceRegulation/GuidanceDocumentsRegulatoryInformation/LabelingNutrition/ucm053857.htm
• http://www.fda.gov/ICECI/Inspections/InspectionGuides/ucm074948.htm
• https://www.accessdata.fda.gov/scripts/nle/client/report/
• https://en.wikipedia.org/wiki/Nutrition_Labeling_and_Education_Act_of_1990
• https://en.wikipedia.org/wiki/Nutrition_facts_label
• http://www.foodsafetymagazine.com/enewsletter/labeling-of-health-and-nutrition-claims/
• https://www.law360.com/articles/639623/is-paleo-the-next-battleground-in-food-litigation

What is the motivation for a business seeking to avoid having a nutrition label?

Lower barrier to entry, less complexity.

Mitch -

The regulations acknowledge that creating nutrition fact panels and designing packaging to accommodate them can be an onerous financial burden for small businesses, especially if they have lots of different products, each in different sizes.

Sebastian's lowering barriers to entry and complexity for startups and small companies are aspects of what I refer to as onerous burden.

The NLEA was enacted back in 1995. The tools to calculate the nutritional components of foods has improved a lot since then and the cost of generating the panels has come way down. There are now online services that will generate nutrition fact panels based on recipes you upload for $20 or less each.

So, I don't see that costs associated with generating the nutrition facts panel can be called onerous in this day and age, for many startup and small chocolate makers. 

If a chocolate maker has been in the market selling for a couple of years, I have trouble buying into the complexity argument as well. As I mentioned in the original post, if the recipes are substantially similar, a single label could be used for many products.

That said, if I were a confectioner with dozens and dozens of different pieces, some seasonal maybe never to be produced again, and which are produced in the low hundreds or thousands each, the complexity argument is very much in force and the economic argument becomes more compelling. In this case I don't see a problem with filing for the exemption if the company is eligible.

One possible motivation to consider is branding for a company whose packaging aesthetic is a large part of their appeal. Nutrition fact panels are ugly and putting one on the label (even on the back!) would interfere with the company's carefully crafted corporate identity. I personally do not buy that as a legitimate excuse.

Again, the operative point here - as I read it, and remember that I am not a lawyer - is that if you qualify for the exemption you must file for it to be in compliance with the law.

Hi Clay,

      Where did you find this portion of the info ? I followed the link to the FDA website, but must have overlooked where they discuss " the size of the packaging" 

 " However, if the total is over 100,000 then each size of the product needs a nutrition facts panel — unless the total area is less than 12 sq in, in which case you need to indicate, on the label, a way for the customer to get the information should they so desire" 

     Thank you

  Best

@chocotoymaker -

It's in section 3.14 of the following document:

https://www.fda.gov/ICECI/Inspections/InspectionGuides/ucm074948.htm

Thank you Clay !

My pleasure!