food business

By: Peggy Kirk Hall, Friday, May 22nd, 2020

There’s much disagreement over what we know about COVID-19, but one thing we can agree upon is that it has left an impact on the food supply chain.  For some food producers, that impact is creating opportunity.  Many growers see the potential of filling the gaps created by closed processing facilities, thin grocery shelves, and unwillingness to shop inside stores.   If you’re one of those growers who sees an opportunity to sell food, we have a few thoughts on legal issues to consider before moving into the direct food sales arena.  Doing so will reduce your risks and the potential of legal liability.

1.  Follow COVID-19-related guidelines

Perhaps this goes without saying, but businesses should take COVID-19 guidelines seriously.  Doing so will hopefully reduce the potential of a COVID-19 transmission in the operation while also minimizing the risk of an enforcement action and potential legal liability for failing to protect employees and customers.   Follow the Ohio Department of Health Responsible RestartOhio Guidelines that are now in effect.  Engaging directly with customers places a grower in the “Consumer, Retail and Services” sector guidelines, which are here.  Mandatory requirements include protecting the health and safety of employees, customers and guests by establishing six-foot distances or barriers, wearing face masks, handwashing and sanitizing, checking for symptoms daily, posting signs, deep cleaning, and dealing with suspected and confirmed cases of COVID-19.   The FDA has also issued “Best Practices for Retail Food Stores, Restaurants and Food Pick-Up and Delivery Services” here, and OSU’s direct marketing team has many helpful resources for implementing the practices here.   Develop protocols based upon the guidelines, carefully train employees on protocols, and document your compliance.

2.  Determine what food safety regulations apply to you

For food safety purposes, the Ohio Department of Agriculture and local county health department require licensing or inspection of certain types of food sale activities.  The regulations are a bit messy, and it’s challenging to know when an operator is affected by these regulatory requirements.  We’ve explained licensing laws pertaining to sales directly at the farm in this law bulletin, “Selling Foods at the Farm:  When Do You Need a License?”   There are more stringent requirements for those who sell meat, process food, or sell higher risk foods or several different types of foods.   We’ve provided a few simple guidelines in the chart at the end of this post, but please refer to the above law bulletin for further details.  Additionally, produce growers need to comply with Good Agricultural Practice (GAPs) and Food Safety Modernization Act (FSMA) rules.  Learn more about those on our Fruit and Vegetable Safety Program website here.

3.  Check your zoning

If you’re within a municipality, you may have zoning regulations that apply to your production and sales activities.  Check your local zoning regulation to ensure that those activities are “permitted uses” within your designated zoning district.  If not, you may need to seek a “conditional use” permit.  Also be aware that some municipal zoning regulations regulate “home businesses,” and a home bakery or cottage food operation that has customers coming to the home to purchase the goods might fall into that category. 

If you’re outside a municipality, Ohio’s agricultural exemption from county and township zoning applies to your production and sales activities.  Local zoning can’t prohibit your activities regardless of your zoning district, with limited exceptions if you’re in a “platted subdivision” situation (on a lot under 5 acres in a platted area of at least 15 other contiguous lots).  Note, however, that county and township zoning can regulate a “farm market” that receives more than 50% of its gross income from goods that weren’t raised on the owner’s farm.   You might need to comply with a few zoning regulations that pertain to the size and setback lines for your structure, the parking area, and ingress and egress points for customers.

4.  You may have to collect sales taxes on some items

Most takeaway food items to be consumed off-site, such as meat and produce, aren’t subject to Ohio’s sales tax.  But if you sell items that are not exempt from sales tax, you’ll need to collect sales taxes on the items.  If you’re planning to sell ready-to-eat items on site, beverages, flowers, or container plants, you must charge and collect sales taxes and obtain a vendor’s license in order to submit the taxes to the state.  Find more details in our law bulletin on vendor’s licenses and sales taxes here.

5.  Review contracting situations

You’ll likely be presented with a contract or agreement in many situations, such as a farmers’ market contract or an agreement for selling on an online sales platform.  Or you may need to generate your own contract for selling whole animals or establishing a “community supported agriculture” operation.  In either instance, read your contracts carefully.  Be sure to include and review important terms such as price, quality delivery dates, payment processes, late fees, data use, and other provisions related to your type of sale.   Don’t hesitate to involve an agricultural attorney to be sure that you’ve minimized your legal risk.

6.  Talk to your insurance provider

Direct food sales might not be adequately covered by your insurance policy.   You’ll need to know whether you have sufficient premises liability coverage if a customer is harmed on your farm, coverage for transporting foods or for selling at a farmers’ market (typically required by the market) and product liability coverage in case someone claims illness or other injury from consuming your food.  You may need to increase coverage or purchase additional riders to the policy, depending on your risk level.  Reviewing your policy with your provider and aligning coverage with your food sales activities is imperative to reducing your liability risk.

7.  Do you need a separate business entity?

Consider whether your food sales activities put other assets at risk, and whether your insurance is sufficient to address that risk.  If not, you should consider forming a separate business entity for your direct marketing business.   Forming a Limited Liability Company for your direct food sales activities can help shield your other assets from the liability of the food sales.  Talk with an agricultural attorney to assess your needs and determine what type of entity is best for your situation.

8.  Keep great records

This one applies to everything above.  Maintain records of what you do in regards to COVID-19 precautions, employee training, food safety compliance, and financial records of your expenditures and sales.  If a liability incident arises, document it carefully.  Keep the records for the required amount of time, which is typically three years for receipts for purchases and sales, ten years for insurance and employee records, and permanently for other records.

9.  Don’t stop here

This list is a starting point for legal considerations for direct food sales, but it shouldn’t be the end.  There may be other legal issues that affect your particularly situation.  To learn more and fully consider all risks of direct marketing, talk with others who’ve directly sold food, visit with your accountant, lawyer and insurance provider, and learn the best practices for growing and marketing your food products. 

 

Do you need a license for your direct-to-customer food sales?

Peggy Kirk Hall, OSU Agricultural & Resource Law Program

Emily Marrison, OSU Extension Coshocton County

We offer this chart as guidance and not as legal advice. Please confirm your specific situation and needs with the Ohio Department of Agriculture and your local county health department.

Selling meat for custom operator processing.  You don’t need a license to sell an animal to a customer who will have it processed by a custom operator.  But you can’t bring custom operator processed meat back to the farm and sell it to customers in individual portions; that type of sale requires processing by a federally approved processor.

Selling meat in individual portions.  You may sell cuts of beef, pork and other livestock if the meat is processed and labeled by a processor that meets federal regulations and is deemed “fully inspected” by ODA (see a list of such facilities here). 

  • The meat must display the inspection symbol on the package and contain an ODA approved label.  The processor can use its approved label unless you plan to make special marketing claims about the product, such as “certified angus.” In that case, the processor will need to submit your special label claims to ODA for approval. 
  • You don’t need a license to deliver the frozen meat directly from the processor to a customer.
  • If you bring the frozen meat back to the farm for storage and direct sales at the farm, you’ll need to obtain a “warehouse license” from ODA (referred to by ODA as “Registration for food processing facilities and warehouses).  This involves an inspection of the storage area, which should be in a barn or garage and not inside the house, clean and free from pests.  The application for this license/registration is here.
  • You might also need a Retail Food Establishment license from your county health department, so check in with the county.  You’ll definitely need an RFE license to sell the meat at a farmer’s market or from a transported freezer, both of which require proper temperature control.  The county might require a Retail Food Establishment license for selling the meat directly from the farm.  Once you obtain it, you may use the same license to sell in any Ohio county.

Selling chickens processed at the farm.   Growers may be surprised to learn that no license is required to process and sell up to 1,000 birds per year at the farm where the birds are raised.  But if a grower sells the birds along with other food items such as produce, then the grower must register as a Farm Market and be inspected by ODA.  The Farm Market registration form is here.

Selling eggs.   A grower does not need a license to sell eggs produced at the farm where sold, as long as the grower has 500 or fewer birds.   But if a grower wants to sell eggs through a farmer’s market or sells other low risk foods along with eggs, either a Farm Market registration and inspection from ODA (here) or a Retail Food Establishment license from the county health department is necessary.

Selling produce.  Selling only fresh, unprocessed produce does not require any licensing.  However, if selling other low risk foods along with produce, a grower must either register as a farm market through ODA or obtain a Retail Food Establishment license from the county health department. 

Selling multiple food items.  Regulation increases when a grower offers multiple types of food items for sale.  If those items are “low risk,” the grower must register as a Farm Market with ODA, which involves a site inspection.  If higher risk foods are involved, such as meat, eggs from offsite or from more than 500 birds, dressed poultry from offsite or from more than 1,000 birds, the grower must obtain a Retail Food Establishment license from the county health department.

Selling cottage foods and home bakery goods.  Many home-prepared foods such as cookies, breads, jams, granola, snack mixes and more fall under Ohio’s cottage food law and require no licensing, but there are labeling requirements.  See our law bulletin on Ohio’s Cottage Food Law here.

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