BY: Barbara Snider, Erin Kelleher and John Hinman
We received some great comments and questions regarding the recent (May 22, 2017) blog “Why the FDA is Inspecting Wineries.”
One of the most common questions was “does the FDA inspect breweries and distilleries? The answer is a resounding yes. If you are a brewery or a distillery, revisit the original post for more detail.
Breweries and Distilleries.
The bottom line is that the rules are the same for all alcoholic beverages. Most breweries and distilleries, like wineries, sell their products through general commerce and therefore, must register with the FDA and follow the same Good Manufacturing Practices. All domestic companies must register unless they are considered a “retail food establishment” or “qualified facility” and are exempted from registering as described below in more detail.
Breweries and distilleries, like wineries, are also exempt from Subpart C (Hazard Analysis and Risk-based Preventative Controls) and Subpart G (Supply-Chain Program) but like wineries, must comply with Subparts A and B (related to sanitary conditions and training of employees in personal hygiene) and Subpart F (recordkeeping).
Breweries and distilleries are also subject to FDA inspections and the best practice is to be aware and prepared. Therefore, the advice and brief checklists provided in the May 22nd blog apply equally to them.
The one difference for breweries and distilleries is the disposal of spent grains from the manufacturing process. In 2014 the FDA caused much consternation with its proposed rule that would require breweries and distilleries wishing to send the spent grain for animal feed to additionally comply with the hazard and risk analyses and a supply chain program under the Animal Food regulations. (This would be in addition to complying with the human food regulations with which all alcoholic manufacturers must comply).
The good news is that the FDA listened to the outcry against adding this additional regulatory burden and the current rule provides that processors already implementing human food safety requirements do not need to implement additional preventive controls when simply supplying a by-product (wet spent grains) for animal feed. Breweries and distilleries are expected to assure that there is no physical contamination of the spent grain before shipping. For example, contamination by placing trash or cleaning chemicals into the container holding the spent grain. General sanitary conditions apply to transporting the spent grains for animal feed.
It is important to note, however, that any processor who further “processes” the spent grain for use as animal food (for example, drying, pelleting, heat-treatment) must additionally comply with the Animal Food Good Manufacturing Practices which include developing hazard and risk-analyses and developing preventative controls.
The brewery or distillery may choose which path to take.
How does the FDA exemption for “Retail Food Establishments” apply to wineries, breweries and distilleries?
We had many questions about how the exemption (which is not exactly a model of clarity) works. The exemption as it applies to producers (such as wineries in the initial post but also including breweries and distilleries in this post) is very narrow.
The FDA exemption from the registration requirement is for producers that can demonstrate its primary purpose is to sell product directly to the consumer and that sells more than 51% of their product “out the front door” (“Retail Food Establishments”). So, the question is whether a producer’s business operations are such that it meets the definition of “Retail Food Establishment.”
First, even though the initial blog was written for wineries, because all alcoholic beverages are “food,” those breweries or distilleries that may qualify as a “retail food establishment” could possibly also fall under this narrow exception.
As part of the implementation of the Food Safety Modernization Act (“FSMA”), the FDA amended and expanded the definition of “Retail Food Establishment”. The official definition of a “retail food establishment” in the Code of Federal Regulations is:
“Retail food establishment means an establishment that sells food products directly to consumers as its primary function. The term “retail food establishment” includes facilities that manufacture, process, pack, or hold food if the establishment's primary function is to sell from that establishment food, including food that it manufactures, processes, packs, or holds, directly to consumers. A retail food establishment's primary function is to sell food directly to consumers if the annual monetary value of sales of food products directly to consumers exceeds the annual monetary value of sales of food products to all other buyers. The term “consumers” does not include businesses. A “retail food establishment” includes grocery stores, convenience stores, and vending machine locations. A “retail food establishment” also includes certain farm-operated businesses selling food directly to consumers as their primary function.” (Highlighting and emphasis added.)
Therefore, any winery, brewery, distillery that can qualify as a “retail food establishment” demonstrating that its primary purpose is to sell its product directly to consumers will be exempted from the FDA registration requirement.
This means that the annual monetary value of sales of food products directly to consumers must exceed the annual monetary value of sales of food products to all other buyers (at least 51% direct to consumer sales). The term “consumers” does not include businesses unless (as discussed below) you operate within in a small local area in the same state (truly local businesses) and can be characterized a “Qualified Facility.”
The FDA determined that all “direct-to-consumer sales” (DTC) including Internet and mail order sales are included as part of the calculation to determine whether the primary purpose is to sell directly to consumers. The FDA stated that there is no requirement that DTC must be a face-to-face sale. Therefore, sales proceeds from Internet and mail catalog DTC sales may be used in the calculation to determine that the primary function is to sell directly to consumers. Sales made at farmers’ markets, consumer events, directly from tasting rooms and the like are also considered in the calculation.
Further, while the earlier blog discussed the size requirement needed to qualify as a “retail food establishment” (less than 11 employees) in adopting the final rule, the FDA did away with any employee size requirement to qualify for the retail food establishment exemption stating: “Even if some establishments that use mail, catalog, and Internet orders in determining their primary function are larger establishments and can reach consumers on a national level, we do not believe that is inconsistent with section 102(c) of FSMA, which does not specify that FDA’s amendment to the retail food establishment definition only pertains to establishments of a specific size.”
The principal criteria the FDA will use in determining if an establishment qualifies as a “retail food establishment” is whether its primary purpose is to sell its product direct-to-consumer. The FDA’s basic test is whether an establishment’s annual monetary value of sales of food products directly to consumers exceeds the annual monetary value of sales of food products directly to all other buyers, i.e., more than 51% of its sales are direct-to-consumer.
This appears to be another benefit of the alcoholic beverage industry move to DTC (practically and legislatively) where possible.
We did receive a comment asking us to explain what “Qualified Facilities” means. This very narrow exemption from the FDA registration requirement applies only to very small businesses that principally operate locally. Very briefly, a “qualified facility” status applies to those facilities that sell product to consumers, restaurants or “retail food establishments” located in the same state and not located further than 275 miles from the qualified facility. There are also monetary limits on the value of product sold during the prior 3-year period (less than $500,000 adjusted for inflation). Attestations and documentation are required. Should anyone desire more information on this, please call the FDA, your trade association representative, or your attorney.
We received some inquiries asking whether a winery (or brewery/distillery) needs to develop a “Recall Plan” in the case there is need for the recall of the product. The first point to make is that the TTB has primary control over any recalls for alcoholic beverages and does not require a company under its jurisdiction to prepare a Recall Plan. While it might be a good idea and a good business practice to have a plan of action regarding what to do if you need to recall a product from the market, know that it is not required by the TTB and the FDA cannot impose that requirement (at least not yet!).
You should feel comfortable if the FDA inspector asks about your recall plan and you don’t have one (although we do encourage adoption of a recall plan as a basic best practice).
Conclusion – Be Compliant!
We encourage our clients and friends to approach FDA compliance in the same orderly way that they approach all compliance topics. There should be an officer or manager of the facility charged with the principal responsibility of compliance with operating regulations – whether labor and employee related, production facility related (use permits and equipment safety under OSHA for example), alcohol production and sales related (ABC, TTB and local state OSS permits) or food product related (FDA and local food service requirements for example).
The smaller the enterprise of course the more the burden falls on fewer people. That is also why we encourage checklists and spending quality time with your industry trade associations, who have a vested interest in making sure that their members know the rules.
This is a complex issue with many moving parts. We encourage you to contact your trade association representative or your attorney with your questions before you get that call informing you that the FDA inspector is on the way.