Compliance Issues Raised By Prop. 37

If Prop. 37 passes it is urgent that you be prepared because the ads for and against don't tell you everything.

Published on: Oct 25, 2012

By Stephen Meyer, Dale Stern & Greg Broderick.

This article does not offer opinions on Prop.37, but raises and answer compliance questions for producers, packers, processors, grocery manufacturers, distributors, and retailers by the Downey Brand's Food & Agricultural Law Practice.

If it passes, Prop.37 will impose labeling and advertising requirements for "genetically engineered foods," and foods promoted as "natural." The law focuses on retail sales, and provides that "any food offered for retail in California is misbranded if it is or may have been entirely or partially produced with genetic engineering (GE) and that fact is not disclosed."

If it passes, Prop.37 will impose labeling and advertising requirements for "genetically engineered foods," and foods promoted as "natural." The law focuses on retail sales, and provides that "any food offered for retail in California is misbranded if it is or may have been entirely or partially produced with genetic engineering (GE) and that fact is not disclosed."
If it passes, Prop.37 will impose labeling and advertising requirements for "genetically engineered foods," and foods promoted as "natural." The law focuses on retail sales, and provides that "any food offered for retail in California is misbranded if it is or may have been entirely or partially produced with genetic engineering (GE) and that fact is not disclosed."

The thrust is to require food with GE ingredients to be conspicuously labeled. But Prop. 37 also imposes penalties on retailers who sell food that is either "genetically engineered" or "processed" if the label, retail signs, or advertising state or imply that the food is "natural," "naturally made," "naturally grown," "all natural," or any similar words that would have any "tendency to mislead any consumer." The definition of "processed food" is broad, covering food that is dehydrated (read raisins), cooked, or even frozen. Under this definition, it appears that only raw Ag products grown from non-GE modified materials may be labeled or promoted as natural.

This provision creates significant problems for any sellers who sell who use the words "nature" or "natural" in the title, such as Nature Valley Granola Bars and olives or Dannon All Natural Yogurt. These manufacturers face the difficult choice of ceasing sales into California or re-branding their product line for California. And because Prop.37 bars the use of the term "natural" or "words of similar import" from advertising or promotional materials and not just the label, other manufacturers and distributors will have to review their materials to make sure they do not run afoul of Prop.37's mandate.

Prop.37 does include a set of exemptions that protects some products, including alcohol, restaurant sales, medical food, and certified organic foods. But another exemption will likely complicate business for retailers and others. That exemption covers "raw Ag commodities or food derived therefrom" so long as it "has been grown, raised or produced without the knowing and intentional use of GE seed or food." To meet this exemption, the retailer must obtain a written sworn statement from its supplier that the product has not been knowingly or intentionally genetically engineered and has been segregated from food that may have been genetically engineered.

This sworn statement exemption will set in motion a series of certifications and indemnity agreements that will stretch from the grocery stores back down the chain of production to the nursery or seed company and will require a sworn statement from the farmer, the trucker, the packer, the processor, the wholesaler/distributor, and the retailer. While this Proposition is directed at the retailer, this exemption will mean that everyone in the food supply chain will be responsible for compliance.

Also, everyone in the supply chain will need to segregate and document the separation of production, supply, packing, processing, and manufacturing of non-labeled food from labeled food. Until 2019, processed foods must either be 99.5% free of GE ingredients or labeled as GE. After 2019, 100% purity is required. Without a completely separate production and supply chain, the risk of accidental cross-contamination is too high. Zero percent is a standard that even the most modern facilities cannot guarantee.

Prop.37 also contains an exemption for "food that an independent organization has determined has not been knowingly and intentionally produced from or commingled with GE seed or genetically engineered food, provided that such determination has been made pursuant to a sampling and testing procedure approved in regulations adopted by the department." The timeframes to put third party organizations in place with approved sampling and testing is short given the July 1, 2014 implementation date.

Fortunately, Prop. 37 permits regulation and legislative amendments, although only to "further the purpose" of the law. Within this limit, the Department of Public Health (CDFA is left out) may adopt "any regulations that it determines are necessary for enforcement and interpretation" of Prop.37, although it may not "create new exemptions." Without clear regulations, there will be many disagreements over what this law requires.

Clarity is important in light of Prop.37's enforcement provisions, which allow private citizens to sue for violations without proving any specific damage. Prop. 37 provides for attorneys' fees and automatic damages equal to the retail price of the product. That is, a plaintiff who never intended to purchase a product can nevertheless obtain an injunction against a mislabeled product, and recover investigation costs, attorneys' fees, and automatic damages for each product "offered for sale."

If Prop.37 does pass those who may be impacted would be well served to become involved in the regulatory process immediately. There will likely be constitutional challenges to Prop.37 if it passes, but a July 1, 2014 implementation date will be hard to meet.

Stephen Meyer and Dale Stern are the co-chairs of Downey Brand's Food & Agricultural Practice, and each brings 25 years of legal experience in agricultural and business litigation matters. Greg Broderick is also a partner in the Food & Agriculture Practice.