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Contracts Archive

Debt and American Chicken Farming

August 2, 2016

 

"What do you mean 'I have to move'? I live here."

“What do you mean ‘I have to move’? I live here.”

This handy infographic explains the economics of poultry production from the perspective of the typical American chicken farmer. It’s not just a tough life: farmers bear a great deal of the economic risk (in the form of debt) that allows you to buy that cheap broiler bird in the supermarket. Farmers take on long-term debt in the hope of acquiring short term poultry production contracts, the terms of which are skewed in favor of the big poultry buyer.

Does this knowledge encourage you to buy from a farmer that does not participate in the “Big Chicken” system?

Hat-tip, Jordan Green – Farmbuilder.

Lessons Learned From Massive Recalls Due To Peanut-Tainted Cumin

February 20, 2015

by Lauren Handel

FDA recently issued a consumer advisory warning people who are highly allergic to peanuts to avoid products containing ground cumin because peanut protein has been detected in some cumin shipments. Since last December, I have noticed many recalls due to undeclared peanuts in products containing cumin, and I have been wondering what’s going on. How could so many companies be affected by peanut protein in cumin? I have been surprised that, until now, FDA has been silent about the issue, and it has not attracted media attention. Thankfully, Allergic Living magazine has investigated and found some answers, although many questions remain.

cuminAccording to Allergic Living’s investigation, there have been two waves of recalls, which have been traced back to two Turkish suppliers of cumin — although the peanut contamination may have originated farther back in the supply chain and the cause of the contamination is unknown. Allergic Living’s investigation found that the largest set of recalls began in December 2014 when it was discovered that an American company, which had been supplied by one of the Turkish companies, sold a peanut-tainted batch of cumin powder to at least 38 other companies. Those 38 companies, in turn, have supplied cumin products to other companies, further expanding the recalls. According to Allergic Living, 580,000 pounds of beef, pork and chicken have been recalled to date. Whole Foods alone has recalled more than 100 products. Allergic Living has a list of the recalls, which is broader than the one included in FDA’s consumer advisory.

This wave of recalls demonstrates how a problem triggered by one ingredient supplier can cause a ripple effect throughout the supply chain. It also reinforces the importance of supplier verification. Few, if any, food companies have control over the production of every ingredient or raw material they use. Rather, manufacturers must rely on their suppliers to provide unadulterated, accurately labeled products that meet the manufacturer’s required specifications. Supplier verification ensures that such reliance is well placed. It should include review of a supplier’s food safety and production practices, periodic audits, and product testing and/or certificates of analysis.

The growing number of cumin-related recalls also shows that companies down the supply chain are likely to bear the costs of a supplier’s problem. Recalls can be very expensive and devastating for smaller companies that can’t afford recall insurance. Recalls also can harm a company’s reputation and cause it to lose customers and, therefore, revenues. This is why companies should have contracts with their ingredient suppliers requiring the supplier to indemnify the buyer for its costs and losses in the event that the supplier’s problem causes a recall. Such contracts also should explain what each party’s roles and responsibilities will be in the event of a recall.

We will continue to follow the news on the cumin-related recalls.

Listeria outbreak linked to apples serves as reminder of the liabilities food businesses can face

January 12, 2015

by Lauren Handel

The recent outbreak of Listeria monocytogenes linked to commercially-produced caramel apples, has been traced to the apple distributor, Bidart Brothers of Bakersfield, California. As of January 9, 2015, the outbreak has caused 32 people to become infected in 11 states and contributed to three deaths. Bidart Brothers and three manufacturers of caramel-covered apples have issued recalls.

imgres-3Events like this remind us that food — even a product as seemingly innocuous as an apple — can be dangerous. For that reason, it is critically important that growers, manufacturers and other sellers of food products employ rigorous food safety practices to try to prevent hazards and plan ahead to be able to effectively recall products in the event that something goes wrong.

It is also important to understand that, no matter how careful a food manufacturer or supplier may be, it can be held strictly liable for all damages caused by contaminated food. Strict product liability means liability without regard to fault. In other words, an injured party may recover without having to prove negligence or intentional wrongdoing. The only way for a business to protect itself from such liability is to have insurance and contracts that appropriately put the responsibility for losses on the party that caused the harm. Food manufacturers and sellers, therefore, should make sure that their business liability insurance includes adequate product liability coverage and that their agreements with suppliers and customers include enforceable indemnification and insurance provisions.

Legal Tools for Food Hubs, Part 2: Contracts Are Not Evil

April 10, 2014

by Lauren Handel

Earlier this week, I wrote about intellectual property as a valuable legal tool for food hubs and all food businesses.  This second installment on legal tools for food hubs is about contracts. In particular, supply and sales agreements can be important tools for risk management and to take advantage of special protections afforded to produce sellers.

First, I feel the need to dispel some misconceptions about contracts. Contracts are critically important legal tools for food businesses. Yet, so many values-based businesses seem to feel that contracting is a hostile act. But legal contracts are not inherently antagonistic, unfair, or devoid of values. To the contrary, a contract should be the foundation for a cooperative, mutually beneficial relationship. And a contract can be instilled with the parties’ values — for example, by requiring that suppliers use sustainable practices, raise animals humanely, and pay workers fairly. Parties to a contract have enormous flexibility to define the terms of their relationship and transactions. However, if parties do not spell out their agreement in a contract, the law will apply default rules, which may not be consistent with the parties’ intent. 

Contracts are an essential part of an overall risk management strategy. Food can be a risky business. And every seller in the supply chain — from the farmer or manufacturer to the distributor to the retailer — is potentially on the hook if a consumer gets sick from tainted food. Therefore, food hubs, or anyone selling food produced by someone else, should use their supply contracts to ensure that producers and processors use safe practices, that the buyer will be indemnified for harms it did not cause, and that the suppliers have sufficient insurance coverage. With regard to insurance, buyers should require that their suppliers name them as additionally insured on the suppliers’ general liability policy which must include product liability coverage. Contracts also can address what will happen in the event of a product recall by defining the parties’ roles and their responsibilities for the costs of the recall.

In addition, food hubs should use their sales contracts and invoices to take advantage of the special protections afforded to produce sellers under the Perishable Agricultural Commodities Act (PACA). PACA applies to dealers, brokers and commission merchants of fresh or frozen produce who, on any given day, buy/sell/broker the sale of at least 2,000 pounds of produce. The law does not apply to retailers until they sell at least $230,000 worth of produce in a calendar year. In general, food hubs are subject to PACA and, therefore, required to be licensed by the US Department of Agriculture.

PACA provides some extraordinary protections for produce sellers, including food hubs, provided that they take steps to preserve their rights. PACA requires produce sellers to be paid promptly, which means within 10 days unless the parties agree in writing to a longer term, not exceeding 30 days, before the transaction takes place. The law also creates a trust for the benefit of unpaid produce sellers, by which the buyer must hold in trust all produce in the buyer’s possession, all of the buyer’s inventory of goods derived from produce, and any proceeds the buyer receives from the sale of produce until full payment is made to the seller. These rights can be lost, however, if the seller does not notify the buyer of its intent to preserve its rights under PACA. If the seller is a PACA licensee, such notice may be given in the invoice using particular language specified in USDA regulations.

It is not possible to discuss here all of the contract tools available to food hubs and other food businesses. Feel free to contact us at (888) 908-4959 or info@foodlawfirm.com to discuss your business’s contracting concerns.