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Becoming a Cottage Food Producer: Get Ready to Learn the Rules

By Barbara Quick | Small Business

[NOTE – for the purposes of this article we are following the regulations and rules for cottage food businesses in California. Most US states now have similar cottage food laws. You can find out more about the state and situation of cottage food laws in this Harvard Law blog review of the state of cottage food laws. Make sure to research your particular state and location’s laws and the steps you will have to take to protect yourself legally. Most will be somewhat similar to those in California which we cover here. Even the states that do not yet have laws are actively looking to add them.]

Have you always wanted to start a food-based business out of your home kitchen? You’re in luck!  Under the California Homemade Food Act, signed into law in 2012, home-based food entrepreneurs can now sell their goods after passing a “food processor course” (which can be done online), properly labeling their goods and practicing common-sense sanitation when cooking and baking.

The National Environmental Health Association (NEHA) has developed an extensive list of HACCP (“Hazard Analysis & Critical Control Points”) training resources incorporating the principles of risk-based inspections and management into comprehensive training programs. Their educational offerings are sanctioned by the International HACCP Alliance, and follow the principles of both the US FDA Food Code and the international Codex Alimentarius.

Here’s how to sign up for their self-paced online course, “HACCP Basics for Processors and Manufacturers,” which has been used to train hundreds of food safety professionals each year and costs $219: https://nehahaccp.org/default.php

In California, the only legal requirement for starting your own cottage food business is to register or obtain a permit as either a Class A or Class B operation. The two permits distinguish between the types of cottage food business an entrepreneur may want to run.

  • Class A businesses are exempt from routine inspections, but can only engage in “direct sales”—straight to the customer. That includes farmers’ markets, bake sales and purchases from the home business itself.
  • Class B operations require inspections, but also allow “indirect sales” to third-party retailers, such as restaurants, bakeries, delis, groceries and food trucks.
  • Both Class A and B businesses can directly sell throughout the entire state. Indirect sales are still limited to the county where the Class B operation is based.

Assembly Bill 1616 permits food businesses in California to sell online, as long as the buyer picks up the products from your home.

Got that?

The California Department of Health has produced a very clearly laid out, seven-page document that will tell you pretty much everything you’ll need to know about starting a cottage food business in California.

All states that have cottage food laws make it pretty easy to find contact information for the local public health departments that oversee home-based food operations. Do an Internet search using the name of your state and the words cottage food laws.

If you’re making jams and jellies—and calling them jams and jellies (rather than preserves or conserves)—there are special safety rules mandated by the federal government. Here’s a great article to get you started, with links to a lot of useful resources, whatever your home state.

In 2013, the cap for a cottage food business in California was set at $35,000 in annual gross sales. In 2014, that figure rose to $45,000. From 2015 onward, the number will rise until it tops out at $50,000.

Doesn’t seem quite fair, does it? But when your sales get to that point, you can think about renting a commercial kitchen—or having a co-packer produce your product to your specifications. But then you won’t be a cottage business any more. You’ll be playing with the big boys (and girls).

According to a report by the Harvard Food Law & Policy Clinic, 20 states have no sales cap whatsoever on selling homemade food. That’s almost half of all states that have a cottage food law.

California is definitely one of the better states for homemade food producers. You could be in Minnesota where, despite those 10,000 lakes, your sales will be limited to $5,000 per year. For less than $100 per week, it’s hardly worth the trouble of starting a home food business there, unless it really is a labor of love.

For you non-Minnesotans feeling depressed by all the restrictions governing the sale of cottage foods, here’s a bit of schadenfreude to ease your pain: Cottage food entrepreneurs in Minnesota can only sell at farmers’ markets and special events. Unlike California, online orders and indirect sales there are simply banned. Renegade bakers in Minnesota can face fines of up to $7,500 or three months in jail.

The Federal Food, Drug, and Cosmetic Act requires packaged foods and dietary supplements to have nutrition labeling unless they qualify for an exemption (Click here for a complete description of the requirements). One exemption, for low-volume products, applies if the person claiming the exemption employs fewer than an average of 100 full-time equivalent employees and fewer than 100,000 units of that product are sold in the United States in a 12-month period. That would be every single cottage food business in the country, if we’re not mistaken.

Most anyone making food products at home or on a small scale should apply for the Small Business Nutrition Labeling Exemption, at least in the first year of doing business. That’s enough time for you to know if you want to invest to expand your business—which will involve shelling out the money needed for the nutrition labels and bar codes.

Here’s what you need to know, once you’re ready to add nutrition labeling and bar codes to your packaging.

Our previous article on successful food business entrepreneurs should provide some courage and inspiration from three cottage food producers who ran the maze of all these rules on their way to success!

Information for this article was culled from many sources, including a 2014 article in Forbes and Susie Wyshak’s food and beverage blog, http://foodbeverage.about.com/od/StartingAFoodBusiness/ss/Home-based-Food-Business-FAQs-For-Cottage-Food-Success.htm

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