Prop 37: A Two-Edged Sword for Small Businesses
The advent of Prop 37 portends great things for the small business organic and natural food industry, which has been forced until now to compete with big corporate agriculture. Prop 37 exempts from GMO labeling any food that is certified organic under the U.S. Department of Agriculture (USDA) National Organics Program (NOP). It also exempts food that is certified GMO-free by an independent organization approved by the State of California. Thus, Prop 37 rewards organic producers and distributors that follow the rules and can afford to go through the certification process.
As with all regulations, there are unintended consequences for industry, however. Oftentimes, regulations created to improve consumer safety and product quality end up hurting small business the most. This is because, unlike larger companies, small business finds it difficult to cover the costs of compliance or the costs of litigation involving minor violations. Prop 37 is no different.
Litigation and GMO Labeling
Like California Proposition 65, Prop 37 provides for private enforcement, rather than just government enforcement. We believe this will lead to many more civil lawsuits, with the bulk of jury awards going into the pockets of opportunistic plaintiff’s attorneys. While this lifts the costs of enforcement off the backs of taxpayers and increases the likelihood of compliance, it also portends great danger for small businesses that may fail in the most minor item. Under Prop 37, a failure to comply can lead to lawsuits and settlements. In addition, even the appearance of a violation, such as containing corn or soy (GMO or not) can lead to a lawsuit that will cost more to defend than to settle. Thus, small firms that are organic or contain no GMO can be victimized by Prop 37’s easy pleading standards that don’t even require proof of harm.
Proposition 37 appears to be a blessing for firms that can successfully navigate the labeling requirements and exemptions, but a curse to firms that otherwise comply but fail on the most technical labeling requirements or that simply cannot afford the proper certification. Thus, firms need a compliance plan and counsel to take advantage of the opportunity to meet consumer demand in the much-needed market in non-GMO, natural and organic foods.