Deregulate Home Food Businesses

By Chris Edwards of Cato.

"The pandemic has created lasting changes to the economy. More employees are working from home, videocalls are replacing business travel, and home‐​based entrepreneurship is booming. The internet is a key driver of home entrepreneurship—the number of arts‐​and‐​crafts businesses on Etsy​.com, for example, jumped from 2.6 million in 2019 to 7.5 million by 2021.

Another thriving area of internet‐​driven entrepreneurship is home‐​based food production for retail sale, often called the cottage food industry. Popular cottage foods include baked goods, canned goods, pickled goods, chocolates, candies, jams, fruit pies, honey, and pasta.

Home‐​based food businesses offer entrepreneurs cost savings and lifestyle advantages. Aspiring entrepreneurs may not be able to pursue their dreams if they have to rent commercial kitchen space and pay for childcare and commuting. Homes are a low‐​cost incubator to test business ideas before making larger investments. The vast majority of commercial craft brewers, for example, got their start brewing at home.

However, cottage food industry growth faces a major barrier: government health and zoning rules that ban, restrict, or raise costs for home‐​based businesses, as I discuss here. State and local rules vary widely regarding food items that can be sold, where they can be sold, and the sales volume allowed. At one end of the freedom spectrum, Wyoming home businesses can sell any type of food except meat within an annual sales limit of $250,000. At the other end of the spectrum, Rhode Island only allows farmers to sell food made in their homes, and even sales from farmers are tightly restricted.

The New York Times on Monday profiled the rise in internet sales of food produced by small businesses, including home businesses. The article captures the tension between restrictive regulations and the desire of individuals to earn a living from their passion for food.

Several days a week, Juliet Achan moves around the kitchen of her apartment in Greenpoint, Brooklyn, stirring up dishes from her Surinamese background: fragrant batches of goat curry, root vegetable soup and her own take on chicken chow mein.

She packages the meals, and they are picked up for delivery to customers who order through an app called WoodSpoon. “Joining WoodSpoon has made a huge difference during the pandemic, giving me the flexibility to work safely from home and supplement my income,” Ms. Achan said in a news release from the company in February.

However, in the state of New York, there are no permits or licenses that allow individuals to sell hot meals cooked in their home kitchens. And WoodSpoon, a three‐​year‐​old start‐​up that says it has about 300 chefs preparing foods on its platform and has raised millions of dollars from investors, including the parent company of Burger King, knows it.

… start‐​ups like WoodSpoon and Shef have emerged, pushing what has been an underground industry of selling food to friends and family into the mainstream through apps.

… The companies paint themselves as part of the new gig economy, a way for the people making the food to earn a little or a lot of money, working whatever days and hours best fit their schedules. Selling meals online presents an opportunity for women who have struggled to work outside the home because of limited child care options or for refugees and recent immigrants, said Alvin Salehi, a senior technology adviser during the Obama administration and one of the founders of Shef.

… From her kitchen in the Lower East Side of Manhattan, María Bído uses WoodSpoon to sell classic Puerto Rican dishes like mofongo, bacalaitos and sancocho, using recipes she learned from her grandmother. “My whole life, people told me, ‘You need to do something with your food,’ but I always shut myself down without even trying,” Ms. Bído said. “How are you going to do that? How is it going to happen? How is it going to work out? “Now I have weekly income. I can see my earnings. And I’m getting reviews.” She believes this will help toward her next goal of moving to a commercial kitchen and offering her specialties across the country.

Some people may think that tight restrictions make sense for safety reasons. One problem with that position is that if laws are too strict, cottage food goes underground. Atlanta magazine examined Georgia’s cottage food laws. Before reforms, producers “were prohibited, under most circumstances, from selling any type of food that was not prepared in a commercial‐​grade kitchen used solely for commercial purposes.” So “if you wanted to sell birthday cakes out of your home, you had to build a second kitchen used only for that purpose.” The result was “a lot of home cooks selling baked goods under the table, without licensing or food safety training.” With reforms in Georgia, home entrepreneurs can now sell many foodstuffs, including “breads, cakes, cookies, fruit pies, jams and jellies, dried fruits, herbs and mixtures, cereals and granola, nuts, vinegars, popcorn and candies.”

Another problem with overly restrictive rules is that they strangle nascent entrepreneurship and undermine the economy. Harvard Law School’s Food Law and Policy Clinic profiled Mark Stambler, who was shut down by Los Angeles County for selling bread made in his home. Stambler fought back and was successful in getting local cottage food laws liberalized. His business grew, he won baking awards, and he ultimately founded a successful brick‐​and‐​mortar business. The Harvard researchers noted that because “Mark was able to start his business out of his home kitchen, he was able to test the market for his product and take a risk that ultimately led to a very successful business.”

I don’t know what level of cottage food regulation is ideal. I do know that markets generally work better than regulations, and that when regulations are too tight, activities go underground to nobody’s benefit. Cottage food laws vary widely by state, and so an obvious way forward is for the most restrictive states to consider reforms to match the freest states. Rhode Island, which shuts down moms for selling home‐​baked cookies, could learn from Wyoming, which “is a model for the food freedom approach.”

People want to produce food at home to earn income, to test business ideas, and to benefit their communities. Other people want to buy the products, and a general rule of markets is that voluntary exchanges are mutually beneficial. So rather than knee‐​jerk banning home food production, governments should work to facilitate the growing industry and expand opportunities for food entrepreneurs."