Farm Legal Series #4: The Law on Raw... Produce.
The fourth episode in Barn2Door's series in partnership with the Farm to Consumer Legal Defense Fund. FTCLDF is a non-profit organization of lawyers supporting Farmers across the country and helping them navigate the unique legal challenges Farmers face. In this episode, we focus on Produce, FSMA, how laws vary across the country, and the resources FTCLDF has to help Farmers sell their products direct-to-consumer.
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James, Barn2Door: 0:26
Hey, welcome everyone to the Direct Farm Podcast. We've got a great conversation for you today with a Farm to Consumer Legal Defense Fund or FTC LDF. They're a nonprofit organization made up of lawyers, serving farmers all across the United States by protecting, defending, and broadening the rights and viability of independent farmers, artisinal food producers and their consumers. This is the fourth episode, we're really delighted to host in a series of podcasts with the Farm to Consumer Legal Defense Fund that is highlighting different farm products and their legal challenges associated with it. Today, we'll be discussing legal issues associated with the cost and operations of our produce farms. And I'm delighted to welcome back with me again today. Alexia Kulwiec she's the Executive Director of the Farm to Consumer Legal Defense Fund. She's a licensed attorney in Illinois and Wisconsin, and has practiced law for over 20 years. She's got deep experience and inspired the interest and US agriculture, promoting small scale farmers and sustainable farming while protecting the rights of independent producers across America. Welcome Alexa. It's great to see you again.
Alexia, FTCLDF: 1:32
Great to see you. Thanks so much for having me back.
James, Barn2Door: 1:34
Oh, really appreciate it. I know we've been getting such great feedback on these podcasts that people are really appreciate your counsel. For those listeners who've never heard from you before. Can you give a recap and an overview of what is the Farm To Consumer Legal Defense Fund specifically?
Alexia, FTCLDF: 1:50
Right. Thank you. So we are, as you said, a nonprofit organization and we are membership-based where farmer members join for a pretty low fee of a $125 generally a year. And for that price, we provide legal counsel, we work with members drafting agreements, such as a cow share agreement, herd share agreements. We provide legal representation to farmer members and to other small food producers and have consumer members as well want to support a better food system in the United States. And we are also trying to do some work on policy changes to make sure that policy is more favorable to smaller, independent, sustainable farms. So we're really focused on helping folks the regulatory process, dealing with the legal obstacles that smaller farms face, and then trying to change those policies so that farmers can have an easier chance of producing and selling directly to consumers.
James, Barn2Door: 2:48
Well, thank you so much. You guys are doing very noble work and we're indebted to you and all of your colleagues who are putting in the time and the effort to help provide such a valuable service for farmers. And it's such an affordable price at $125 a year. I don't see how every farmer in America doesn't sign up and become a member because it just seems like such a practical service to give them good legal advice in any state for that matter. Now, today, we're going to be focusing in specifically on produce farmers right. Now, obviously there's a lot of nuances and some potential legal issues they may face from time to time. So just to start out with produce is a product, you know, that generally raw and on a small scale is often fairly unregulated. We often see that, you know, people see people selling produce on the sides of the road, that type of thing, but just generally speaking, you know, what are some of the common limitations or boundaries in terms of selling direct to market before a farmer might trigger regulatory requirements, selling produce.
Alexia, FTCLDF: 3:44
Sure before I even get into that, I think what I'd like to say is, with produce the issue is, not so much whether they can sell directly to consumers or not, but whether they are of a size such that they have to meet certain regulatory requirements. And so the kind of way I look at it is there's the the food safety modernization act, or FSMA, places some regulation on produce producers, but only if they're growing more than $25,000 in revenue. So I'd like to talk a little more about those exemptions, but in addition to FSMA, then you have a host of different state and county regulations to think about. And for produce, that's really going to be more about business licensing, if anything. So depending on where someone is and you know, this is the problem with these kinds of discussions, is it really depends on the state or county that someone's in. Some places might require a license to sell directly from the property. If it's just a farm stand, some places will not. Some might require a food establishment license, a retail establishment license. And, but some places it will be just fine to sell directly to the consumer. So it really depends on where you're at.
James, Barn2Door: 5:02
Got it. So let's talk a little bit about the numbers you just mentioned. If you're below $25,000, like you said, sounds like there's a blanket exemption for producers at that level. Right. Based on the number of farms in America, I think there's 2.1 million farms. Last data I looked at from the USDA about 1.5 million of those farms about 70% make less than 50 grand. So it sounds like that exemption is going to cover many of those farms, but for the 600,000 plus that make more than $50,000 a year. What did some of those regulations begin to look like? Once you trigger this FSMA?
Alexia, FTCLDF: 5:36
Yeah. So if you don't mind, I just want to be clear on the exemption and then I'll talk FSMA itself. I just want to be clear that you are exempt as a small farmer, if you are growing and selling less than $25,000 of produce annually. So that's not the total farm size, but it's of produce. With that exemption, you were completely exempt from FSMA. You are also exempt. If you were selling a raw agricultural commodity, that means produce that you would normally cook like, beans, or squash as opposed to really your raw fruits and vegetables that you eat raw. And then one last thing I just want to be clear about is there is something called the qualified exemption, and that is if the farm sells less than $500,000 per year in food total, so that one's not just produce but in anything, there's what they call a qualified exemption where folks will have to meet some of these requirements, but not in super great detail. And for produce the really important requirement under FSMA is found in the produce safety rule. So if, you are covered by the law there will be specific requirements to be testing water, to make sure water is clear of e.coli or other kinds of potential contaminants, biological soil amendments. So making sure that you know, raw manure is not covering the produce, that kind of thing. Stabilized compost, you know, an assessment of contamination from any animals, if you're a diversified farm, there will be rules about making sure that animals are not contaminating the produce in any way. And then pretty strenuous worker training and pretty strenuous record keeping requirements.
James, Barn2Door: 7:22
Wow. That sounds like lot of details for somebody to think about if they start to have a fairly successful farm. Right. Cause I know a lot of small farms who want to grow and become a successful farm, and sadly, you know, as you take on more revenue, you're likely to be subject to more regulation is what it sounds like. Maybe we take one step back too, because that just even for my own education, can we make sure we understand what the definition of produce includes?
Alexia, FTCLDF: 7:46
Yeah. So when I look at the guidance on the FSMA produce safety rule, it does explicitly say fruits and vegetables. And I think that if someone were concerned about a product, that's not one of those. Like nuts or mushrooms or something like that. We really should take a closer look because the guidance specifically talks about fruits and vegetables. So I would think for the most part, it will be limited to that. There is also, it's clear that grains are not covered. And it's clear that produce I would consider produce. But again, a re a raw agricultural commodity, something that you typically cook like beans and squash is not covered by the rule.
James, Barn2Door: 8:25
That's a really good one to know. So, thank you for that clarification. So let's, let's move forward because I know we have a lot of farms we serve at Barn2Door and many that we talk with too, who, you know, get started selling produce to friends and family. They might start off with a nice small CSA and they start to really gain some traction and gain some momentum. And before you know it, they start eclipsing that $25,000 threshold you mentioned.
Alexia, FTCLDF: 8:48
Right, and we want them to!
James, Barn2Door: 8:50
And we want them to, we want them to be successful as a farmer. So what, what's it look like if I'm a farmer and I want to start selling that raw produce a lot of farms start immediately thinking, man, I really want to just start selling direct to some restaurants. I know some local chefs who would love some of my fresh products. And, and that can be a great business channel for them. What are some of the legal things they might have to think about? They start selling into a wholesale buyer, like a restaurant?
Alexia, FTCLDF: 9:13
You know, you mentioned that $25,000 threshold, and I just, if you're selling less than that amount in produce, you're exempt. If you're selling less than $500,000 total, you're selling directly to consumers or you're selling to restaurants or retail food establishments, you can get what's called a qualified exemption, which means that you do need to meet certain requirements of the produce safety rule, but not necessarily all of them that I mentioned, but it will require sanitation requirements say for workers and training for workers. It will require ensuring that you're not having any contaminants through animal manure or that animals aren't bringing in contaminants in any way to your produce. And there certainly will still be some kind of, there's still some water testing requirements that will be in place.
James, Barn2Door: 10:03
And this is just under FSMA right? I mean, I imagine that states could vary dramatically. I'm based here in Washington state, which tends to be pretty aggressive on environmental protections and laws. And there might be some other states that might have more loose standards. Right. So I would expect too farmer, if they're hitting these types of thresholds, that they may want to talk with you or someone on the team really do a state assessment too, would that be correct?
Alexia, FTCLDF: 10:28
Yeah, absolutely. I mean, the federal law will need to be met, but in many areas, states are in fact, much stricter. For instance, I think the states are often more strict in terms of record keeping requirements and sometimes in terms of licensing or other ordinances that might need to be followed.
James, Barn2Door: 10:47
Got it. So you bring up licensing as an example, right? So it's one thing we see a lot of farmers will sell direct to consumer, just take a simple payment over Venmo or PayPal or cash. Right. And nobody's keeping any records of that. They're probably just, you know, putting in, into their bank account or just using the cash and never get it, never reporting it. Very different when you become, you know, a bonafide business and you start making real money, you might be subject to audit, et cetera. You know, can you talk a little bit about the business licensing side and like, you know, some of these triggers that you need to start to think about, particularly if you start selling into some of these wholesale buyers.
Alexia, FTCLDF: 11:20
Sure. So there's a couple of things. One thing that I'll just mention that's coming to mind is first and foremost, in terms of regulation, how the land is zoned is going to be important, right? You don't see this very much say with livestock or dairy but we do see a fair amount of produce producers that may not be in agriculturally zoned land. So that's one thing I would look at. Then once you have reached a certain level of profits and revenues. That is going to have to be a taxable product and the producer should be keeping records of that and paying taxes on the product. Typically, taxes on the sale of food, will be at a lesser rate, under the federal IRS rules. And a lot of states will have complete waivers for any taxes on agricultural products. But it is something that folks would need to look into. As far as selling to a retail establishment or to a restaurant, for example, lot of states or counties or townships will require just some kind of operational license. So that the state department of Ag for example, keeps track of who's growing and selling what to who. Obviously with these kinds of products, traceability is a big issue. So having the records and it doesn't always require sharing those records, but keeping good records of what you've grown and who you've sold it to in terms of restaurants or retail establishments. The state will want some kind of recognition of who you are and where you're operating. So sometimes it might just be registering with the state. Sometimes they'll come out and look at your operations and license the operations but both of those things are gonna probably be necessary when selling off farms. So selling to a farmer's market, selling to a restaurant, selling to a retail establishment.
James, Barn2Door: 13:13
Yeah. We often see farms, once they start to get to that size, 25, $50,000 oftentimes are properly setting up a business, getting a business license, using a system of Something like an example, where it's tracking all your sales and every customer who goes through so that you can just produce click of a button type of thing, and then managing your expenses with something like a QuickBooks or something like that for your accountants and bookkeepers to properly file your taxes, just like you said, right? Because
Alexia, FTCLDF: 13:41
right.
James, Barn2Door: 13:41
At some point, you know, you are going to have to pay taxes if you start exceeding certain thresholds. Let's talk a little bit about, you brought up traceability. And in Washington. I know we've had some e.coli breakouts in the past, you know, that have been attributable to some some produce farmers in the past. And unfortunately some children died. right. And so, Yeah. it's awful. But, and, and nobody wants that, but you can understand why some of these regulatory requirements are in place, right. Particularly with respect to manure and stable compost. Can you talk a little bit about, like, if I'm a farmer, it's one thing to sell to a restaurant, but if I want to start selling into a school or a hospital, or, you know, a proper grocer of any size. How does that start to, you know, you know, kind of step up the regulatory obligations and perhaps even once you exceed that $500,000 threshold, because I know we work with many farms that are well above that already. So just kind of curious to hear your feedback on that.
Alexia, FTCLDF: 14:35
Yeah. I mean, again some of this has differences in one geographic location versus another. But I guess what I would just say is, as a general matter, if you get over the $25,000 or even over the $500,000 the issue is going to be, keeping good records of what you've produced and who you've sold it to, including packaging that has the producer's name and address and other information on it potentially. And having some kind of license issued by probably your local Department of Agriculture because they want to collect data or have access to data that is quickly available if something were to happen. Right? So if somebody does get sick, they want to trace back, they'll trace back to say a retail establishment and they need to be able to trace that back to the producer. So that's generally what I know about it. I will say in terms of the traceability issues, one thing that we have seen proposed and has not passed. But it was proposed by FSIS to a USDA advisory committee to start keeping records of like GPS coordinates of where the crops are and you know, our members certainly there, they're just, some of them are so rurally located that that's a real problem. And it's a real problem if you rotate crops. Right. Because trying to keep that up to date is really problematic. And it, you know, I I'll just plug for smaller, independent farms that are members of ours. Right. They do a good job of ensuring these sanitation measures are met. And most of instances of infection that we hear about really come from sort of these very large, big operations, but certainly it can happen. And so I would say the record keeping is important, but also just meeting these sanitation requirements. My understanding is a lot of those contaminants it's as simple as you know, animal treatment or manure and just making sure that, you know, there's no contaminants in your, in your produce growing.
James, Barn2Door: 16:42
And one thing too would be insurance. Right? I know sometimes folks have certain insurance requirements in order to sell into schools or hospitals or certain wholesales establishments. Can you speak to that a little bit?
Alexia, FTCLDF: 16:53
There are certainly insurance companies that just represent farms and issue policies covering farm and farm products. And those are always a good idea to have period. but certainly I think you're right that certain schools and other institutions would probably require those require proof of having that, yeah.
James, Barn2Door: 17:13
So, Hey Alexia, before we switch topics and start talking about prepared goods, I have one last question I wanted to ask you about selling raw products you and I both know, you know, starting with produce is oftentimes an early entry point, you know, for farmers to start to build a business. Can you talk to me a little bit about, you know, are there any special requirements, if a farmer wants to sell their product or represent It as an organic product, right. Or something that has some sort of certification that invoke or, you know, involve additional regulatory parameters that are different from FSMA?
Alexia, FTCLDF: 17:46
It does. Thank you for that question. There's rules regarding labeling your products as well as how you produce them, as well as having any kind of licensing and for a farmer to label a product as organic that requires that it has gone through a USDA certifier who certifies your produce as being organic. And that is true, even if you are a super small producer. And that's under the USDA national organic program. I know an awful lot of small organic producers who they are producing organic goods, but they do not have that certification because it is a bit of an arduous process and it can be an expensive process. So, it's a frustration for our members. I see on a pretty regular basis that they cannot use the label organic, unless a certifier has certified them.
James, Barn2Door: 18:40
Yeah, that's a great point. Like you said, it can be arduous time consuming and a bit expensive to go through that certification process. Even if they are employing those practices. Just a little plug here from some of our other partners, there are alternative labels to organic you know, we know a lot of folks who work with A Greener World and who have, you know, a variety of certifications for their products, Certified Naturally Grown is also another one that also offers some certifications as well, that can give your buyers confidence without using the term organic per se. Right? So it's a good feedback. Alexia let's shift gears. Let's shift over to talking a little bit about prepared goods because you know, sometimes they're not going to be able to sell and move them, but they sure could make a good jammer jelly. Right. Or maybe they could dry it cause it's a really hot summer and they didn't get it off the vine quick enough. And all of a sudden you've got sun dried tomatoes. How does this begin to impact a farmer if they start to manipulate or manually change the composition of a raw good into something that's now prepared? Does that create some sort of additional regulatory requirements?
Alexia, FTCLDF: 19:42
Yeah. So I think, like a true lawyer, the answer is, it depends, but what I do want to say. For what you described, right? Jams and jellies for the most part or canned goods, that's going to be regulated by your state's cottage food regulation. And so typically what you see in a state's cottage food regulation is allow for some home produced goods to be sold directly to those consumers, without needing to say, convert your kitchen to a commercially licensed kitchen, because that's where you get into the trouble in preparing food. It typically has to be prepared in a commercial kitchen, commercially licensed, but most states will allow for home produced foods what's considered foods. one way I think of it as like shelf stable foods. Right? jams and jellies, like you mentioned, are, are very often going to be able to be prepared at home and sold, baked goods, as long as there's no dairy, that can go bad. Right. As long as it's a little bit more stable or very typically permitted by a state to be sold. Some canning or jarring of vegetables, depending on the level of acidity. And so most states will allow some of those to be produced and sold from the home. The one thing, when you talk about prepared food, is that if you're actually talking about cooking a food or like, particularly if you're talking about meat, that's not going to be allowed to under the cottage food regulation. Now you're talking about needing to be licensed, to be preparing food and selling food. But for the most part, the cottage food regulations do allow you to sell the dried food, the baked goods, jams, and jellies, things of that nature that are quote unquote non-hazardous non-potentially hazardous foods is what the states usually allow. I'll also mention that we have seen improvements in the cottage food regulations just in the last year, in at least eight more states, making it easy to do this. We saw a slew of new states. Last spring pass a lot of passed some cottage food regulations. We at Farm to Consumer Legal Defense Fund will soon be updating our cottage food regulation map, because there are some new updates to be put on there, but that's generally what's allowed.
James, Barn2Door: 22:09
So what you just highlighted there is that there's a wide degree of variation from state to state, because this is generally regulated at the state. I know the same is true with respect to taxes, some of these things you know, if they're prepared depending how they're prepared may or may not be taxable where generally most raw produce is generally not taxable or at least to some degree.
Alexia, FTCLDF: 22:30
Cottage foods typically won't be considered quote, agricultural products and the state tax codes will specifically exempt agricultural products. So yeah, you can get into the taxation issue for sure.
James, Barn2Door: 22:43
So for any farmers listening, we have a, another fantastic webinar on this exact topic called Death and Taxes that we did with Avalara. And interestingly enough for produce farmers who are listening to this, you, if you might have a CSA box, right, if you have a CSA box, that's all raw produce. If you stick one jar jam or jelly in there, it will actually quote unquote infect the entire value of the entire box. Where it may all become taxable. So be very careful choosing to prepared items that may to Alexa point may no longer be considered an agricultural product could be taxable. Best feedback for you here again is to talk to Alexia and talk to other, talk to lawyers and get some counsel. So let's talk about that. How could a farmer who's listing today here in the myriad of regulations and the myriad of scenarios where it may or may not apply to them. What should they do? Where do they go to learn more about the Farm to Consumer Legal Defense Fund, and how do they sign up to become a member?
Alexia, FTCLDF: 23:37
So the easiest way to do that is to go to our website, which is FarmToConsumer.org and there's information about joining and details about the different kinds of members that we have on there. And of course, we'll also take phone calls at (703) 208-3276. (703) 208-FARM, or 3276.
James, Barn2Door: 24:05
That's fantastic. Like that phone number go to farmtoconsumer.org. That's probably your easiest bet and you'll be able to go you know, sign up and just for $125 to get access to Alexia and her colleagues at the Farm to Consumer Legal Defense Fund, can get counsel on these types of topics and more importantly, gain peace of mind about your practices. So, you know, for a fact that you're going to be in a good position where you understand the regulatory scheme that applies to your farm. Hey, lastly, Alexia. I want to talk about your upcoming membership drive that starting on February 1st, 2022, and going through March 15. So 45 days, what can you tell us about the membership drive? Is this just for farmers or is it for consumers too? Like what's the goal.
Alexia, FTCLDF: 24:47
Thank you. It's, you know, we do have different kinds of members, so we have farmer members artists, artisan food producers, consumer members that drive will encompass everyone. But the drive itself, we are having it open on February 1 and it will run through March 15th. We are partnering with Stockman Grass Farmer many farmers, particularly those doing grazing, those doing produce may certainly be familiar with that as a publication. They also have a lot of courses. So managing soil health or you know, tips on grazing, just a wide variety of things. Some business courses smaller farmers that are really well-run courses. And they're giving fantastic discounts to Farm to Consumer Legal Defense Fund members and new members only available during the membership drive. And so by, and let me rephrase it. When I say only available during the drive, you must become a member during the drive to get that benefit, current members will have access as well. And new members that join up during the drive will have access to these benefits. So we're really looking, that will probably be a bigger benefit to our farmer members than anyone else. But we are definitely looking For anyone to join in that time period, we feel this is a really good time to do this. A lot of farmers as a general rule, come to us in about time period, because it's when they can take a step back and say, I need to think about the business aspects of this farm, depending on where they are. And they might not be as doing as much growing in this time of year. yeah, we will be, we'll be using social media to be advertising this. We'll have some more information on our own website. But one of the main benefits to joining right now will be really serious discounts on some products available through Stockman Grass Farmer.
James, Barn2Door: 26:40
That's fantastic. And those are simple mental benefits to just being a core member of the Farm to Consumer Legal Defense Fund. So maybe we can take one step back and talk about, like, what does a core membership of farm to consumer legal defense fund look like if I signed up today or I'm an existing member, what are the three or four things that I get access to on an ongoing basis as a member?
Alexia, FTCLDF: 27:00
In the first six months of membership any member can receive two hours of legal consultation. After that time period, because we do are concerned about our funding model, but after that time period, then you have unlimited access to legal consultation. We have a 24 hour hotline because one of the things we are most concerned about is government regulation of smaller farms. And so say there is an MSIS inspector at the gate unexpectedly. We will get phone calls and help members through that process. Maybe they've received some kind of legal documentation or a citation, and they're expected to be at a hearing. They can call the 24 hour hotline and speak with someone quickly. Not that I'll talk to them at 2:00 AM, but I'll find out pretty quickly that they have called and call as soon as we can do. Another real benefit is any farmer. That's doing things with individual consumers by contract. We will draft those contracts for you, whether it is a dairy cow share for example, or even a meat share. Another is that we are working consistently on potential policy changes. And so they'll get action alerts. When anything is happening in your state, your locality to be involved in potential policy change, I'm just going to add, it's not what you were calling a core thing of membership, part of our membership drive that I did not mention is that if you go on our website, farmtoconsumer.org, we have resources. And once you're a member and you log in, so now you can't see this just as a member of the public, but once you join and you're a member and you can log into the site, we have some members only benefits, which includes webinar recordings from webinars that we've done in a wide variety. And then some things that might be more about business formation or other things that will be of interest to farms, but not necessarily the kind of legal work that we do for our members. We're really beefing up that member's only resources site. And so, as we roll out with the new membership drive, those benefits will become available very soon as well.
James, Barn2Door: 29:08
Well, this has been a fantastic conversation today, Alexia really appreciate your time. And if you're aspiring farmer today, you know, perhaps you're well below the FSMA thresholds and you're unregulated. Maybe you don't have any concerns, but if you are at a planning phase, like Alexia said, and you're looking ahead to this year, perhaps you want to double or triple in size, and you're going to begin to trigger some of those regulatory requirements. Now's the best time. Now, more than ever, you can sign up with the Farm to Consumer Legal Defense Fund for just $125 a year. And now all of a sudden get access to Alexia and her colleagues to give you advice that you can again, navigate these hurdles do so planfully well ahead of time. So you're not, you're still, you're not surprised you know, when something happens or you trigger something so much better to plan ahead, all the information you need, so you can make good business decisions for your farm. So I want to extend my thanks again to Alexia. Thank you for everyone who's listened in today. Tune in next time to hear from Alexa when we'll dive more into the nuances laws and costs associated with pork operations for more information on the Farm to Consumer Legal Defense Fund, visit farmtoconsumer.org that's FarmtoConsumer.org. And to learn more about Barn2Door and how we're providing access to a number of free resources, including details from the Farmer to Consumer Legal Defense Fund and any of the other partners we've mentioned today, just go to Barn2Door.com/resources, you can access all the information completely free. Thank you for tuning in and we'll see you next week.
Alexia, FTCLDF: 30:36
Thank you.