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Business Law Today

Seeing Red over "Green"
The Fight over "Organic," "Natural," and "Sustainable"
By Ricardo Carvajal and Riëtte van Laack
Spurred on by rewards in the form of higher prices and increased market share, more and more food companies have begun using "green" labeling claims. Some companies seek to capitalize on consumer demand for products perceived as being healthier and better for the environment by shifting to the use of organic ingredients and marketing their products as "organic." Other companies seek to achieve the same ends through the use of more nebulous claims, such as "natural," and other claims that suggest that the food was produced with the use of ingredients and processes that would be familiar to a home cook or in a manner that has low environmental impact. Differences of opinion as to whether particular foods should be permitted to bear these claims, as well as apparent abuses on the part of some companies, have led to the filing of trade complaints by competitors, lawsuits by public interest groups and consumers, and regulatory action by federal agencies. This is a primer on the current status of voluntary "green" labeling claims in foods, including an update on recent legal and regulatory actions and what they portend for the future.

Don't Panic—It's Organic
Perhaps the most tightly regulated of all "green" marketing claims is "organic." Any food labeled and marketed as "organic" must meet standards set by the U.S. Department of Agriculture (USDA) through the National Organic Program (NOP). The NOP was established by the Organic Foods Production Act of 1990 (OFPA). The OFPA came about largely as the result of pressure from industry and consumer groups, who grew disenchanted with the increasingly unmanageable patchwork of state standards that had sprung up in the absence of a federal standard. Thus, the OFPA was intended by Congress to create national organic marketing standards, assure consumers that organic foods meet a consistent standard, and facilitate interstate commerce in organic foods.

The OFPA applies to agricultural products only, and focuses on the production of raw materials, although it also addresses finished food products. The NOP standards specify the methods, practices, and substances that can be used in production and handling of organic foods, and requires certification of both producers and handlers. A "producer" is any person engaged in the business of growing or producing food or feed. A "handler" is any person engaged in the business of selling, processing, or packaging agricultural products, not including final retailers. The NOP standards require that organic production and handling operations be certified to be in compliance by a USDA-accredited inspector. The NOP has established accreditation standards for inspectors.

Under the OFPA and the NOP regulations, the use of a "nonagricultural substance" or a "synthetic" substance in a food product labeled as organic is prohibited, unless that substance is on the National List of Allowed and Prohibited Substances. Although the terms "nonagricultural substance" and "synthetic" are defined by regulation, the definitions themselves have proven difficult to interpret and apply. To complicate matters further, the NOP has recently classified numerous seemingly nonagricultural substances, such as color extracts, as agricultural. The NOP took this action because nonagricultural substances cannot qualify as organic, and producers of nonagricultural substances thus have no incentive to use organically produced raw materials as sources for those substances. Once a substance is classified as an agricultural substance, then the nonorganic version of that agricultural substance can be used only if an organic version of the substance is not available. Because of this restriction, the NOP's action creates an incentive for the use of organic raw materials in the manufacture of color extracts, and can be expected to provide manufacturers who use organic raw materials with a competitive advantage.

In addition to prohibiting the use of certain substances, the NOP prohibits certain practices and requires others. For example, operations certified as organic cannot use ionizing radiation or other excluded methods, such as genetic engineering. As for the production and handling requirements that might apply to a given operation, these include land requirements for crop production, practices to maintain soil fertility, health care practices and living conditions for livestock, and those that address prevention of commingling.

As a grocery shopper, you may have noticed that the claim "organic" is used in different ways on different products. This is because the composition of a given product will determine how the claim "organic" can be used. Under the OFPA, a product that is comprised of 100 percent organic ingredients can display the claim "100 percent organic," can use the term "organic" to modify the product's name on its label, and can display the USDA organic seal. A product that is comprised of 95 to 100 percent organic ingredients can use the term "organic" to modify the product's name and can display the USDA organic seal. A product comprised of greater than 70 percent organic ingredients can display the claim "made with organic X, Y, and Z" (where the letters correspond to the names of the ingredients) but cannot display the USDA organic seal. Finally, a product comprised of less than 70 percent organic ingredients can display the claim "X percent organic ingredients" if it also identifies those ingredients, but it cannot display the USDA organic seal.

Given the premium paid by consumers and the emotional commitment that many consumers make to the organic sector, it is not surprising that producers that are alleged to misuse the organic label can incur significant liability. As an example, last year the USDA threatened a large dairy producer with revocation of its certification due to alleged noncompliance with NOP standards. Although the dairy worked out a settlement with USDA and denied any wrongdoing, it was promptly sued by a consumer group. The lawsuit charged the dairy with defrauding consumers, and demanded as partial relief the repayment to consumers of the difference in price between organic milk and conventional milk for all milk sold during the period in question. Shortly thereafter, the litigation expanded to include other deep-pocketed defendants in the chain of distribution. It is thus critically important for producers and handlers to have a good understanding of what requirements apply to their products, to implement robust compliance programs, and to assiduously maintain required records.

Let's Be Natural
Unlike the term "organic," use of the term "natural" is not governed by a comprehensive set of requirements. Nonetheless, surveys suggest that consumers express a preference for products labeled as "natural" over those labeled as "organic." The ambiguity of the "natural" claim, coupled with its value to consumers, has resulted in great controversy over its use.

The Food and Drug Administration (FDA) and USDA, the two agencies with primary jurisdiction over food, have different policies on the use of "natural." Under FDA's policy, a claim of "natural" is permitted if the food does not contain an added color, synthetic substance, or flavor, or anything artificial or synthetic that would not normally be expected in the food. Thus, FDA places emphasis on the nature of the substance at issue, and on consumer expectation. Notably, FDA has no preapproval authority over labeling. Thus, if FDA objects to a given use of the term "natural," its only recourse would be to take enforcement action against the offending product to get it off the market.

Different segments of industry have attempted to convince FDA to engage in rulemaking to define "natural," thus far to no avail. Powerful interests have lined up in opposing camps on particular ingredients. For example, the sugar industry and some consumer groups take the view that high fructose corn syrup is not "natural," whereas corn syrup manufacturers maintain that it is. Use of the term "natural" on products containing high fructose corn syrup has been the subject of litigation, which has prompted manufacturers of beverages such as Capri Sun and 7UP to abandon use of the term in product labeling. Earlier this year, FDA caused a small sensation when it stated in response to a question from a trade publication that FDA does not consider a food that contains high fructose corn syrup to be eligible for use of the term "natural." However, after meeting with industry and learning more about the manufacture of high fructose corn syrup, FDA partially reversed course and advised that products containing high fructose corn syrup may be eligible for use of "natural" depending on how the syrup is made.

The use of "natural" on USDA-regulated products, including meat, poultry, and egg products, has been no less controversial. Under USDA's policy, a claim of "natural" is permitted in labeling if no artificial flavor, color, chemical preservative, or any other artificial or synthetic ingredient is added, and if the product and its ingredients are not more than minimally processed. USDA's policy differs from FDA's in that it emphasizes the degree of processing of the product and its ingredients, and doesn't explicitly concern itself with consumer expectation. Unlike FDA, USDA does have premarket authority over labeling. This has forced USDA to grapple with the ambiguity of the term more directly, and to limit the term's misuse.

As with FDA-regulated industries, USDA-regulated industries have pressured USDA to include or exclude certain substances from products eligible to be marketed as "natural." As an example, in 2005, USDA modified its policy to allow use of sodium lactate in products labeled as "natural." Shortly thereafter, USDA was petitioned to define "natural" by regulation, and to exclude the use of sodium lactate from products labeled as natural. In response, USDA rescinded the policy modification to permit use of sodium lactate in products labeled as "natural," and announced its intention to define "natural" by regulation. Those decisions became the subject of litigation that remains unresolved. As an additional example, USDA has been criticized by some producers, consumer groups, and congressional representatives for allowing poultry injected with certain solutions to be labeled as "natural."

Given the ambiguity of the term "natural" and the absence of clear standards governing its use, companies should make decisions about whether use of the term on a particular product is appropriate on a case-by-case basis. Typically, that decision will require the input of personnel with expertise in the methods and substances used to manufacture the food in question. For USDA-regulated products, the fact that labeling is preapproved by USDA provides some margin of comfort, notwithstanding USDA's occasional reversals. For FDA-regulated products, challenges are more likely to come from competitors and consumer groups than from FDA.

Sustainability: Coming of Age?
The concept of sustainability has special resonance in food production and marketing. After all, if our systems for producing and distributing food cannot be sustained into the future without damaging the resource base on which they depend, then our future looks decidedly bleak. The importance of the concept has been recognized by Congress, which defined "sustainable agriculture" in the 1990 Farm Bill to mean
an integrated system of plant and animal production practices having a site-specific application that will, over the long term (1) satisfy human food and fiber needs, (2) enhance environmental quality and the natural resource base upon which the agricultural economy depends, (3) make the most efficient use of nonrenewable resources and on-farm resources and integrate, where appropriate, natural biological cycles and controls, (4) sustain the economic viability of farm operations, and (5) enhance the quality of life for farmers and society as a whole.

Neither FDA nor USDA has offered definitions for terms such as "sustainably produced" for use in the marketing of food. There is a nongovernmental standard-setting effort under way under the auspices of the Leonardo Academy, a nonprofit organization that is accredited as an American National Standards Institute (ANSI) standards developer. That effort has resulted in publication of a Draft Sustainable Agriculture Practice Standard (Draft Standard). If finalized, the resulting standard would be a voluntary ANSI standard that could be used by producers to help support claims of sustainability. Even though use of the standard would be voluntary, the effort to develop the standard may prove to be at least as controversial as FDA's and USDA's attempts to elaborate on the use of "natural." Early on, substantive and procedural concerns about the development of the Draft Standard prompted a number of prominent food and agriculture sector companies and trade associations to write letters expressing their displeasure to the Leonardo Academy and to numerous high-level government officials. The dispute escalated to the point that USDA then asked ANSI to revoke the Leonardo Academy's standing as an ANSI-accredited standards developer, a request ANSI recently denied.

Because the Draft Standard is regarded only as a reference document, the content of the standard is likely to evolve as the process of standard development moves forward. Nonetheless, it is worth pausing to list some of the major elements of the Draft Standard to convey a sense of its ambitious scope. The elements include (1) sustainable crop production, (2) ecosystem management and protection, (3) resource conservation and energy efficiency, (4) integrated waste management, (5) fair labor practices, (6) community benefits, (7) product quality, and (8) product safety and purity. The inclusion of energy efficiency and community benefits as elements is particularly notable, given increasing consumer interest in locally produced foods. The Draft Standard also includes annexes that address specific sectors, such as biofuels and cut flowers.

Pending development of an ANSI standard, general guidance on the use of sustainability claims can be found in the Federal Trade Commission (FTC) Environmental Marketing Guides (also known as the Green Guides). Although these were last revised in 1988, they continue to provide a useful point of reference. As a point of departure, all claims made in advertising must have a reasonable basis, or what FTC refers to as substantiation, in the form of competent and reliable evidence. Beyond that, the Green Guides discuss both general principles and specific categories of claims (e.g., biodegradable, compostable, recyclable).

In keeping with the goal of avoiding deception, all qualifications and disclosures in an advertisement should be clear, prominent, and understandable. Also, it should be clear whether an environmental attribute or benefit claimed in an advertisement refers to the product or to the packaging. Broad claims can be especially problematic, as these tend to overstate environmental attributes or benefits, and often are not supported by a life cycle analysis. Comparative claims can also be problematic if the basis for the comparison is unclear, or if the claimed comparative advantages are not substantiated.

For the moment, it appears unlikely that use of sustainability claims will be the subject of regulatory challenges. They may, however, become the subject of more frequent challenges by competitors and consumers, particularly if the efforts to establish an ANSI Sustainable Agriculture Practice Standard are successful. Thus, businesses with an interest in making sustainability claims would be well advised to participate in the standard-setting efforts that are underway. In addition, as scrutiny of sustainability claims increases, it would be advisable to line up scientific and legal support for any sustainability claims prior to the launch of a marketing campaign based on those claims.

Beyond Marketing
Just as consumer interest in "organic" and "natural" foods has increased dramatically in the past decade, so has consumer awareness of environmental issues more generally. This trend can be expected to continue as the effects of global climate change and other threats to the environment become more apparent. As we finished writing this article, the U.S. Climate Change Science Program issued a draft report concluding that climate change already has begun, and containing a number of disturbing observations about the potential impacts of climate change on agricultural productivity. It remains to be seen whether "green" marketing claims (and the production practices that they ostensibly reflect) will play a significant role in ameliorating environmental degradation, or will serve primarily as a means to differentiate products in a competitive marketplace.

Carvajal is of counsel and van Laack is an associate at the Washington, D.C., office of Hyman, Phelps & McNamara, P.C., a law firm that specializes in federal regulation of food, drugs, medical devices, and cosmetics. Their respective e-mails are rcarvajal@hpm.com and rlaack@hpm.com.

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