Compliance for Food Manufacturers: The High Cost of Doing Nothing

Do you feel like there are so many new compliance regulations that you don’t even know where to start? The compliance landscape for the food industry is already complex. And between FSMA (rolling out now), NFPA 652 (finalized September 2015, compliance dates starting in 2018), and OSHA’s combustible dust standard (tentatively planned for 2018), that complexity is only increasing.

This understandably puts many food companies in a bind. They want to do what’s right for their customers and employees, but they also need to keep their doors open. The food industry has low margins to begin with. So investing in things that help with compliance but don’t directly affect the bottom line — like sanitation equipment — can feel like a risk.

However, as much as compliance may cost, the cost of doing nothing is much, much higher.

Here, we take a look at the high cost of doing nothing.

FSMA non-compliance

FSMA amended Section 415 of the Federal Food, Drug, and Cosmetic Act to give the FDA the authority to suspend a food facility’s registration if there is a “reasonable probability of [the food it produces] causing serious adverse health consequences or death to humans or animals.” A suspended license means the food produced in that facility can no longer be sold.

But even in much less drastic cases, FSMA non-compliance can be expensive.

The new law is funded in part by non-compliance fees. Two types of tasks will incur these fees:

Tasks related to reinspecting facilities found to be non-compliant
Tasks related to non-compliance with a recall order

Every year, the FDA puts out a fee schedule. Here’s the schedule for FY2017, which is in effect now (as of October 1, 2016) through September 30, 2017.

The current hourly fees are:

$221 if domestic travel is required
$285 if foreign travel is required

What this means is that if you don’t comply with FSMA, and the FDA has to reinspect your facility, you’ll receive a bill. Billable time consists of “direct hours spent on such reinspections, including time spent conducting the physical surveillance and/or compliance reinspection at the facility, or whatever components of such inspection are deemed necessary.”

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This understandably puts many food companies in a bind. They want to do what’s right for their customers and employees, but they also need to keep their doors open. The food industry has low margins to begin with. So investing in things that help with compliance but don’t directly affect the bottom line — like sanitation equipment — can feel like a risk.

However, as much as compliance may cost, the cost of doing nothing is much, much higher.

Here, we take a look at the high cost of doing nothing.

OSHA non-compliance

As you’re probably well aware, OSHA fines went up 78% on August 2. Going forward, they will be adjusted for inflation every year.

Here are the maximum penalties per violation for the current year:

$12,471 for Serious, Other-Than-Serious, and Posting Requirements violations
$12,471 for Failure to Abate violations
$124,709 for Willful or Repeated violations

The trick with OSHA citations is that they don’t always come in one at a time. Any given inspection could result in penalties related to multiple violations.

Between October 2015 and September 2016, OSHA performed 460 inspections of food manufacturing facilities and issued 1,666 citations to the tune of $5,780,988. That’s an average of almost four citations, resulting in penalties of more than $12,500, per inspection. Note that most of these citations occurred before the fines went up. At the current rates, those same penalties would be more than $20,000 per inspection.

In addition to inspection-based fines, OSHA now has the power to issue citations without first performing an inspection. For example, imagine you have four baking facilities that all produce the same type of bread using the same process. If OSHA finds a violation at one of them, you can automatically receive a fine for the same violation at the other three facilities. In this case, your per-inspection penalty just quadrupled.

Recalls

The direct costs of regulatory non-compliance are high and growing. But, they’re nothing next to recalls.

Both the number and the cost of food recalls are rising. This 2015 report from Swiss Re shows that 52% of recalls cost food producers more than $10 million each.

Importantly, this number is direct costs only. It doesn’t include damage to the brand, which can be significant. In some cases, recalls have led food companies to declare bankruptcy or even face criminal charges.

Compared to these potential consequences, we hope you agree that the cost of compliance is miniscule…and worth every penny.