What Does Sriracha-geddon Say About California's Business Climate?

Perhaps Huy Fong officials will seek out locations that don't subject them to lawsuits and costly production stoppages.

SACRAMENTO -- The Internet is abuzz with cracks about the "Sriracha apocalypse," as foodies prepare to survive without the popular hot sauce after state health officials directed Sriracha's maker to halt production for 30 days. But this is no laughing matter to the owners, employees, distributors, and suppliers who depend on the business.

The dispute has become a nationwide story—the latest example, perhaps, of the way California governments treat entrepreneurs. Huy Fong Foods has been partially shut down not only by the California Department of Public Health, but by a judge after the San Gabriel Valley city of Irwindale filed a lawsuit complaining about the plant's spicy odors.

The state health department says it reviewed the company's manufacturing process—it involves mashing fresh ingredients rather than cooking them—and decided that the product should be held for 30 days before distributing it to ensure there are no problems with microorganisms. There are no actual problems with the sauces. It is solely a regulatory issue, according to the company.

Health officials confirm as much: "While our safety concerns are minimal and don't warrant a recall, we believe that given Huy Fong's new method of manufacturing, the safest course of action is for them to hold it for 30 days in the same way many other food manufacturers do, consistent with federal food regulations," said department spokeswoman Anita Gore, in a statement.

The company was founded by David Tran, who fled Vietnam in 1979, borrowed $50,000 and began distributing sauces out of his van. It has turned into an international phenomenon— the winner of praise from gourmet magazines, the subject of a documentary, and now a potato-chip flavor. It's reportedly a $60-million-a-year business.

Problems started after Huy Fong Foods was lured out of its older Rosemead facility into a $40-million plant on 23 acres in Irwindale. The city financed the plant with an interest-only loan as it sought tax-generating businesses. But some residents claimed that the plant caused them health problems including nosebleeds and heartburn.

In November, a judge ordered the company to halt any odor-causing operations even though, as the Los Angeles Times reported, he found a "'lack of credible evidence' linking the stated health problems to the odor, but said that the odor appears to be 'extremely annoying, irritating and offensive to the senses warranting consideration as a public nuisance.'"

I haven't been near the plant, but have lived near a Midwestern refinery. Smells can be irritating, but they are part of the deal if a community seeks a manufacturing base. If a processing plant cannot operate in an industrial area such as Irwindale—known for its speedway, gravel pits and MillerCoors brewery—where can it operate?

It's ironic that the city would at one point help a facility and then punish it for doing what it is supposed to do. If one lives by city deals, one can die by them, too, given that political priorities change. As the city's Web site explains, it has embraced "a new vision as the city begins the early stages of transitioning from a mining town to a more suburban, metropolitan community." Emerging suburbs have less tolerance for smells. But there may be other explanations for the state's actions.

"California has a large tax load that in turn funds a large administrative state that has to be busy," notes former California Assemblyman Chuck DeVore, now vice president at the conservative Texas Public Policy Foundation in Austin. He has authored a forthcoming study showing that California employs far more regulators than most other states.

But perhaps Huy Fong officials will solve the problem by seeking out locations that don't subject them to lawsuits and costly production stoppages. A spokeswoman for Texas Gov. Rick Perry's office confirmed that it has "reached out" to Huy Fong Foods. The company has also been contacted by an official in Pennsylvania. There's an old economic saying that you get more of what you subsidize and less of what you punish. That doesn't apply only to the production of hot sauces.