This article was written by Scott Bouvier and Lauren D'Ambrosio.
While Australian consumers have experienced some empty supermarket shelves at times with no flour, eggs, chicken, beef, canned items, rice or pasta, it’s our clients that are working hard behind the scenes and along the food supply chain to meet unprecedented demand levels, while still looking after their employees, complying with Australia’s consumer protection laws and managing their commercial contracts. In this alert, we’re putting the spotlight on these 5 COVID-19 takeaways for Australian food companies about food recalls, import/export considerations, country or origin labelling, food production employee considerations and supply chain agreements.
Do I need to plan for recalls?
COVID-19 is not a foodborne illness. The WHO has stated that coronaviruses cannot multiply in food; they need an animal or human host to multiply. To date, there is no evidence that viruses that cause respiratory illnesses, such as COVID-19 are transmitted via food or food packaging. As such, the current advice from global food authorities is that transmission of COVID-19 through food is highly unlikely (if you’re interested in more on this, review the detailed guidance on these websites: WHO, FSANZ, US Department of Agriculture, US FDA, EU Food Safety Authority, BfR, New Zealand Food Safety).
Due to the mode of transmission, it is expected that food recalls due to COVID-19 will not be necessary, even in circumstances where an employee at a food business has tested positive for the virus. The US FDA has expressly indicated that it does not anticipate food recalls will be needed in response to COVID-19. In Australia, as at 20 April there have been no food or beverage recalls due to concerns about COVID-19 contamination, or because workers have been infected.
Having said this, food companies are at all times obligated to comply with Australia’s laws relating to food recalls, principally including:
- Under the Food Standards Code, State and Territory food authorities can issue a mandatory order requiring a food business to recall a food product where there is a problem with the food. This includes microbial contamination with pathogenic microorganisms such as bacteria, viruses or parasites.
- Food companies have general legal obligations which would require a company to conduct a recall of an unsafe product including the obligation to supply safe products under Australian Consumer Law, and the duty of care owed to consumers under common law.
- Under the Food Standards Code, all food companies are required to have a written food recall plan in place to ensure that food which is not safe can be quickly removed from the food supply chain. Food businesses should make sure their recall plan is up to date in light of any impacts that may result from changes in suppliers or other issues that may arise due to COVID-19.
What are the Export and Import considerations?
In a time where international borders have increasingly been restricted or closed off, maintaining the flow of food in and out of Australia has become a challenge. To assist with food exports, the Federal Government is establishing the International Freight Assistance Mechanism which will involve:
- $110 million of support to Australia’s agriculture and seafood export sectors and help exporters to secure freight flights that will allow them to get their produce into key overseas markets;
- Targeting high-value agricultural and fisheries exports, predominantly for perishable products, including seafood (e.g. lobsters), premium red meat (particularly beef and pork), dairy (such as fresh milk and yoghurt) and horticulture (such as premium fruits and packaged salad or vegetables).
- Initial focus on the key markets of China, Japan, Hong Kong, Singapore and the United Arab Emirates (UAE), but the list of countries may be expanded based on demand, operating method and commercial opportunities.
In the Australian Government’s factsheet on the International Freight Assistance Mechanism (available here), it states that “food products will be exported subject to adequate domestic supply”; however, it is not clear how this will work in practice (e.g. whether there will be a requirement for companies to sell products domestically in addition to exporting or whether the Government will refuse support to companies seeking to export a product that is in short supply in Australia).
The Australian Government has also announced increased funding of $49.8 million in the 2019-20 financial year for the Export Market Development Grant (EMDG) in light of the effects of COVID-19. The existing EMDG scheme encourages small- and medium-sized Australian businesses to develop export markets and reimburses up to 50 per cent of eligible export promotion expenses above $5,000 provided that the total expenses are at least $15,000.
On the other hand, imported food represents about 16% of household consumption in Australia. This includes highly processed fruit and vegetables, chocolate, coffee, pasta and rice. Many of these items are in high demand at the moment. Current travel restrictions are causing delays which impact on when goods will arrive in Australia and some countries have temporarily banned exports (eg rice from Vietnam). In relation to import certifications, as some overseas governments haven’t been able to send original paper-based certificates due to air travel delays, customs authorities are temporarily accepting certain electronic certificates for fresh produce, cut flowers, plants and other plant-based goods and imported animals, biological and animal-based goods.
Are there exceptions for Country of Origin labelling?
In this changing environment, where food supply chains are being disrupted and consumers are “stocking up” on bulk purchases of staple foods, food businesses are increasingly being faced with sourcing challenges. Where a business is struggling to obtain supply of raw materials to produce manufactured goods either from overseas (e.g. Italian pasta) or within Australia (e.g. locally-grown tomatoes), it may be necessary to adjust the mix or sourcing of ingredients which could affect the accuracy of the country of origin labelling for that food. For example, if your label says “Made in Australia from Italian pasta” but you’re no longer able to obtain supply from Italy, your country of origin labelling will be incorrect once you start using pasta from another source or if your label says “Made in Australia from at least 80% Australian ingredients” but your Australian suppliers aren’t able to keep up with demand for some of those Australian ingredients. Changing the label to reflect this short term sourcing change is particularly challenging when labels are printed in bulk and in advance.
The ACCC has emphasised that in a heightened public health environment, consumers value accurate and clear information on the origin of the food they purchase. While there are no defences for changes in circumstances due to COVID-19, the ACCC has provided some guidance and comfort on complying with the country of origin labelling requirements in light of COVID-19 supply chain interruptions (see: https://www.accc.gov.au/business/covid-19-coronavirus-information-for-small-business#country-of-origin-labelling) including:
- Businesses need to use their best endeavours to communicate to consumers in an effective way when there have been changes in the manufacturing process or supply chain changes for ingredients and should take reasonable steps to correct any country of origin claims that become incorrect due to such manufacturing or supply chain changes. This could include corrective stickers on packaging or corrective point of sale material.
- The ACCC takes a proportionate approach in considering any compliance or enforcement action in relation to country of origin labelling and has said that it is unlikely to take enforcement action where a business has made genuine and reasonable efforts to comply with the country of origin labelling requirements, and to ensure consumers are informed about any changes to a business’ country of origin claims.
What is best practice for food production employees?
Even without the presence of COVID-19, food businesses should have food safety and food contamination processes in place to ensure good hygiene practices, sanitation and appropriate storage and handling procedures at all points of the supply chain. In the current circumstances, global food authorities have emphasised the importance of workers practising good personal hygiene when preparing and handling food, to minimise or eliminate the risk of food surfaces and packaging becoming contaminated with the virus (for more of what global food authorities are saying on this point see: WHO, FSANZ, US Department of Agriculture, US FDA, EU Food Safety Authority, BfR, New Zealand Food Safety).
In summary, these authorities have variously recommended the food industry implement the following measures to help reduce the risk of COVID-19 spread:
- incorporating stringent hygiene and sanitation measures, along with requiring frequent and effective handwashing and sanitation at each stage of production (e.g. food processing, manufacture and marketing);
- wearing personal protective equipment (e.g. gloves and masks);
- increasing employee physical distancing (WHO recommends at least 1 metre distance where possible and positioning workstations so that workers are not facing each other);
- implementing training to ensure staff understand the COVID-19 situation, take it seriously, and know how to meet health and hygiene requirements;
- if an employee is unwell, WHO recommends they be quickly removed from the workplace and any surfaces they may have come into contact with should be cleaned. Employees who have had close contact with the infected employee should be asked to stay at home for 14 days, while other staff may continue to attend work as usual. WHO does not recommend closure of the workplace; and
- businesses may consider organising workers into small teams with separate shifts to minimise disruption in the event that an employee is unwell.
For a more general discussion on COVID-19 issues from an Australian employment law perspective, see this KWM alert: https://www.kwm.com/en/au/knowledge/insights/covid-19-issues-from-an-australian-employment-law-perspective-20200322
How do I manage my supply chain agreements?
As businesses have been forced to close over recent weeks, events have been cancelled and social distancing restrictions have been tightened, food businesses are being faced with circumstances where for reasons outside of either party’s control:
- they are unable to perform obligations under certain contracts; and/or
- various counterparties are unable to perform their obligations under contracts.
While most contracts entered into prior to March 2020 are unlikely to have a specific COVID-19 clause, there are likely to be applicable provisions in your contracts which can help navigate these circumstances and allocate risk between the parties. Contract management considerations include:
- Term: How long is there to run on the contract? If there are minimum spend obligations, can you extend the Term to allow more time to hit these targets?
- Force majeure: How is “force majeure” defined? Is the “force majeure” actually preventing performance of obligations under the contract (or just making it more expensive, slower, less efficient etc)? What steps are required under the force majeure clause, e.g. notice, mitigation of the effects, alternative sourcing etc?
- Forecasts: Are forecasts binding? Do you need to adjust them up or down for current circumstances?
- Exclusivity: If the arrangement is exclusive, are there exceptions in circumstances where there is an inability to supply?
- Price: Is there a price adjustment mechanism, e.g. to take into account increases in the cost of raw materials, foreign exchange rates, etc? If rebates have been paid in advance, can they be clawed back?
In addition to considering your contractual rights and obligations, in many cases where you have a commercial relationship, it will be in both parties interests to resolve these matters commercially, particularly in the current circumstances. You can agree together what is the best way forward for your arrangements, how you are going to get through this time together and how you can support each other’s mutual business interests. Whatever you agree, make sure that your variation is clear and recorded in writing!
During this unprecedented time for all Australian consumers and Australian food businesses, the challenges have never been higher but Australian food producers and retailers have done an amazing job maintaining a great food supply. We’ll be here to help continue to navigate these challenges as we get through this together.