Food & Beverage Crystal Ball: Trends we’re following

August 04, 2021

Food, Beverage & Agribusiness Newsletter

Author(s): Anthony V. Bova II, Jessica Schachter Jewell, Jason C. Kravitz, Ian T. O'Banion, Dana P. Stanton

In the 2021 third-quarter edition of Nixon Peabody’s Crystal Ball newsletter, our Food, Beverage, & Agribusiness (FBA) team shares insights into various industry trends, including:

  • the ransomware disruptions in the meat industry
  • Massachusetts ABCC decision affecting local breweries
  • insurance issues related to the West Coast wineries
  • worker shortages in restaurants
  • the impact of New York State’s Food Donation and Food Scraps Recycling Law

We will continue to watch closely as these issues, and others, unfold in the months ahead.

Ransomware disrupts another important U.S. industry: Meat processing

A ransomware attack on Brazil-based JBS, the world’s largest meat processor, forced the shutdown of nine beef plants in the US in early June and also affected production at poultry and pork plants, according to the New York Times. The NYT reports that JBS accounts for 20% of the daily US cattle harvest. This cyberattack follows on the heels of the hack on Colonial Pipeline, which severely disrupted the supply of gas to a large swath of the East Coast, triggering shortages and surging prices. While Colonial Pipeline acknowledged paying $4.4 million to recover its data from the hackers, a group called DarkSide, it is not yet known whether JBS had made a similar decision. Ransomware attacks continue to surge throughout the world, and no industry is immune. While no one can predict the next industry to be targeted, the frequency of these incidents underscores the importance and urgency of every company to take steps to harden their network defenses and to develop disaster recovery plans. Relying on “what are the odds?” is proving to be a dangerous strategy. There are many legal considerations companies should be mindful of to prepare themselves for the possibility of a ransomware attack, and legal counsel should play an integral role in any response taken in the event of an attackJason Kravitz

Massachusetts ABCC Section 25E½ decision affects brewery distribution agreements

The Massachusetts Alcoholic Beverages Control Commission (the “Commission”) recently issued an important decision on an issue of first impression: does the Commonwealth’s new small-brewer exception to its alcoholic beverage wholesaler franchise protection law apply retroactively to wholesale distribution agreements in place prior to the exception’s enactment? The Commission determined in Night Shift Distributing, LLC v. Loverboy, Inc. (June 23, 2021) that provisions of the new law, M.G.L. c. 138, § 25E½ (“§ 25E½”), do alter existing brewer distribution agreements and give the law retroactive effect. As a result, small brewers have gained more power to break free from their existing wholesale distribution agreements if they choose. The Commission’s Night Shift decision gives more power to breweries, which may terminate pre-existing wholesale agreements using § 25E½. The Commission noted that although statutes generally are “prospective in their operation”—particularly where they affect contractual terms—they can be given retroactive effect in industries subject to “pervasive regulation” like the alcohol industry. The Commission inferred retroactive intent from the language of the Act creating § 25E½, too. This is an impactful decision for Massachusetts wholesalers and craft breweries, who should review their existing distribution agreements to determine whether § 25E½ will alter their relationship. Retailers should also be aware. Small breweries can now change wholesalers with ease, meaning retailers may need to seek out new wholesale distribution partners in order to continue purchasing favored brands. As craft brewing continues to gain popularity in the United States, wholesalers and small producers nationwide should expect similar changes to their own regulatory structure, particularly in franchise states. Anthony Bova II

West Coast wineries focus on wildfire prevention while facing insurance uncertainty

In 2020, the West Coast wine industry was heavily impacted by wildfires. California alone had one of its worst wildfire seasons in modern history due to record setting temperatures, high winds, and lighting strikes. This summer, many parts of the West Coast are already under drought conditions and wineries are focusing on wildfire prevention efforts—from installing perimeter sprinkler systems, to clearing brush to increase defensible space around the wineries, and training teams to combat small spot fires. Despite these efforts, some wineries are finding that the property insurance they once relied on is no longer available or is prohibitively expensive. With fewer insurance options available to mitigate risk, certain contractual provisions dealing with casualties and potential smoke damage, take on new importance when parties are buying or selling wineries and vineyards in fire prone areas. With careful planning and cooperation between purchasers and sellers and their respective legal counsel, parties can still reach mutually beneficial agreements despite the many challenges. Ian O’Banion

Why are restaurants facing labor shortages at this stage in the pandemic and what can they do to address the issue?

The story remains the same in many cities across the US—restaurants are hanging “Help Wanted” signs in the windows, decreasing business hours, or worse, shuttering doors because of the current labor shortage. Fast-food establishments with traditionally lower wage work are promising hourly rates of up to $15/hour. Many believe that the pandemic exacerbated problems that existed pre-COVID: stressful work environments, low wages, long hours, and a lack of benefits. Some owners are attempting to entice workers back by changing the environment—altering menus, shortening restaurant hours, investing in newer and/or better equipment—while others are promising higher wages and benefits. While there is not a one-size-fits-all approach, restaurants, regardless of size or locale, may need to find a way to address these challenges in some manner. As restaurants seek to increase labor forces to meet increased consumer demands, it is pivotal that employers consult a labor and employment attorney before instituting changes to ensure they comply with federal, state, and local laws. Jessica Schachter Jewell

How is New York State’s Food Donation and Food Scraps Recycling Law going to affect the food and beverage industry?

In an effort to reduce food waste, New York State enacted the Food Donation and Food Scraps Recycling Law in 2019 and rolled out proposed implementing regulations in January 2021, which are anticipated to be finalized later in 2021. The law, which takes effect on January 1, 2022, requires food and beverage companies that generate large quantities of food scraps (two tons or more per week) to donate excess edible food. In addition, companies that are located within 25 miles of an organics recycler, such as a composting facility or anaerobic digester, must recycle all remaining food scraps. Finally, beginning in 2023, companies must submit annual reports to the New York State Department of Environmental Conservation (NYSDEC) detailing the amount of edible food donated and the amount of food scraps recycled. Companies may petition NYSDEC for temporary waivers if they can demonstrate, for example, that these requirements are unduly financially burdensome. Companies seeking to plan compliance strategies, implement donation and recycling programs, or request waivers should consult their environmental regulatory counsel. Dana Stanton

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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