Loyola University Chicago School of Law, JD 2023
When people hear the phrase “regulatory compliance”, they often think about the finance, banking, or tech industry – not the business of loose and pressed leaves. In fact, the tea industry has been on the rise and is projected to reach almost $69 billion by 2027. Within that market, the green tea segment is the highest growth contributor with an estimated $16 billion in 2019 and is projected to reach almost $26 billion by 2027. This leafy market comes with its own set of compliance issues and a potential for growth this year.
So what is the tea (market)?
Tea, an aromatic beverage derived from the Camellia Sinesis plant, is the second most consumed drink in the world, only bested by water. In fact, black, green, oolong, white and all types of tea come from the same plant. The major players in the tea market include Hain Celestial Group, Unilever, and Ito En Inc. The tea market itself can be divided by type of tea, packaging (plastic containers, loose tea, paperboards, aluminum tins, and tea bags), and distribution channels. The United States imported about $473.8 million worth of tea in 2020, just behind the lead importer Pakistan which imported about $589.8 million in the same year.
Currently, the tea market is expanding rapidly especially with recent developments from Starbucks and Lipton. Starbucks, in 2018, introduced Teavana packaged tea in the North American retail market at the premium level. In the same month, Lipton brands introduced new product lines, including the fruit-infused iced herbal teas, to the market. The tea market is also expanding into new categories. For example, teas and herbal blends are being developed for use in alcoholic beverages as well as in personal care and beauty products. Due to their antioxidant properties, tea leaves are a key ingredient in the new “clean” beauty trend.
Spill the (compliance) tea!
Nationally, regulatory compliance awareness has been vital to run a tea business smoothly and successfully. The Food and Drug Administration (FDA) regulates the tea market as any other type of food because it is classified as a food. Additionally, in 2014, President Obama signed the Food Safety Modernization Act (FSMA) into law, which modified and added new laws regulating food and has brought an onslaught of onsite facility audits to tea companies all over the country. The grace periods, or a set length of time after the implementation of an obligation, enacted for this new act are coming to an end and the FDA will be allowed to hand out citations. Since the majority of tea consumed in the United States originates from other countries, the FSMA’s provisions concerning imported food safety will have a direct effect on the tea industry. If a tea company receives a citation from the FDA auditor, it then, on average, as 15 days to comply with whatever law or rule was violated. For example, the FDA has been taking a close look at the Foreign Supplier Verification Program (FSVP) and giving companies citations for either not having a FSVP or having an incomplete FSVP.
Another compliance issue in the tea market stems from the USDA organic certification. According to the USDA, to be organic, the product has to come from land that has been free from pesticides, herbicides, and chemical-free for three years prior to certification, have no engineered nano-particles, or GMOs. With the popularity of organic products increasing in recent years, tea companies strive to be certified as organic to increase their consumer-appeal. However, in December 2019, a new organic flavoring law went into effect. Many tea companies struggled with its implementation and had to drop the certification from several of their tea products. The new law requires all flavorings to also be certified organic, and companies are struggling to find flavorings that have the same aroma and taste in the requisite quality and strength that are not cost-prohibitive.
Additionally, consumers are viewing their health through a holistic lens. Tea is a great way to support that trend and causes more growth in the industry. Here, tea companies must navigate compliance with importer and organic certification laws. With the increasing regulation in the tea industry, tea companies have to be certain that their products inspired by new trends comply with the regulatory framework.