Organic Checkoff PREAMBLE

- VERSION 3.0 -

Introduction

In 2013, the size of the U.S. organic sector reached 35 billion dollars a year, with an overall growth rate of 11.5%. According to OTA’s 2014 Organic Industry Survey, the industry has grown from 9 billion dollars a year in 2002 when the USDA National Organic Program was established. (Farm-gate sales of organic crops reached 3.53 billion dollars in 2011 from 3.6 million certified acres (according to USDA’s NASS 2011 Certified Organic Production Survey). Eighty-one percent of U.S. families now report buying some organic products at least occasionally (according to OTA’s 2014 U.S. Families’ Organic Attitudes and Beliefs Study). While the sector has experienced healthy growth, a number of critical factors create the need for investment in public education and promotion as well as research.

Although the industry as a whole has continued to grow, in the last three years there has been a decrease in the number of certified organic acres in the United States. Closing the gap between demand for organic products and U.S. organic production is a top objective in which research plays a critical role. Organic agricultural innovation, tools and alternative inputs are necessary to reverse this trend.

While 81% of families’ report purchasing organic products at least occasionally in 2013, one-third of organic consumers are new to the market—having purchased organic for less than two years. This market dynamic creates an ongoing educational burden for the sector to reach new families with education about the organic seal, production practices and benefits. Consumer research indicates a high level of confusion among consumers regarding verifiable organic claims and unregulated ‘natural’ and other eco-claims in the market place. Long-term success of the organic sector requires a consistent investment in research and education, and promotion of certified organic that does not exist today.

Essentially, organic is a regulated production system and marketing claim housed at USDA. While USDA supports regulation and oversight of claims, the USDA Organic seal is a common brand shared by over 17,500 organic operations in 50 states without dedicated marketing, research and development funding.

It is from this recognition that the Organic Trade Association (OTA) has facilitated a preliminary conversation in the organic sector to determine if there is a fair and equitable way to pool funds for the purpose of organic research and promotion.

2011-2013

The OTA steering committee established Guiding Principles in advance to initiating town hall meetings, and those Guiding Principles were updated once during the process to reflect input from the first set of meetings and webinars.

In 2011, OTA formed a steering committee to evaluate the possibility of establishing a USDA Certified Organic Research and Promotion Board. OTA has hosted six webinars and 20 town hall meetings in 2012 and 2013, with 540 individuals participating in locations across the country including VT, Washington DC, FL, OH, WI, CA, OR, MT, WA, MN, RI and NM. Three panel debates were held in VT, WA, and WI. After concluding a complete review of the input from town hall meetings and an analysis of all existing research and promotion orders, the Steering Committee has identified Options for a Framework for establishing an organic research and promotion order.

2014

In March of 2014 OTA hosted a panel at Natural Products Expo West with 100 attendees. In late spring and summer of 2014 OTA engaged in direct outreach to organic certificate holders across the United States. In late May and June, 17,500 organic businesses (producers and handlers) received a direct mail brochure and postcards with information on the emerging framework for an organic research and promotion order. 1,004 responded to a phone survey. In August 2014, based on feedback from the first survey, OTA again completed an updated informational direct mailing to 11,000 organic businesses with a follow-up survey. 1,124 phone surveys were completed.

Additionally meetings were held with the Board of the National Organic Coalition (NOC) in June, and representatives of the National Farmers Union (NFU) in September to discuss the process and framework.

The following are highlights from the process and stakeholder input to the Options for a Framework. USDA-AMS reviewed the ‘framework 2.0’ and provided direct feedback on the proposal. As the organic community takes steps towards a consolidated vision for a framework, or structure, to an organic order, version 3.0 of the framework represents the latest thinking.

A note about the Law
The Commodity Promotion, Research, and Information Act of 1996 (7 U.S.C. 7411-7425) (known as the “Generic Act”) was passed to authorize the establishment, by the Secretary of Agriculture, of effective and coordinated generic promotion, research and information programs regarding agricultural commodities.  These programs, known as “checkoff” programs, pool industry funds for promotion, research and education efforts regarding the particular commodity.  Since 1996, over 15 checkoff programs have been established under the Generic Act.  Should an organic checkoff program be created, it would fall under the Generic Act, and be subject to its rules and regulations.

Process

Early in the process, a small number of stakeholders referenced the National Organic Coalition’s (NOC) National Organic Action Plan (NOAP) process as the ideal model for stakeholder engagement. The NOAP process hosted meetings at 11 venues with 300 participants between 2006 and 2008. More information on NOAP is available online. OTA drew from the NOAP model and actively reached out to all 17,000+ certified organic operations across the country. OTA has hosted six webinars and 20 town hall meetings, sent 3 brochures and 5 postcards, and followed-up with thousands of phone calls to share information and gather input.

General stakeholder feedback

The town hall discussions demonstrated an overwhelming consensus on need for public education/ promotion and research to support organic food, fiber and farming. The need was acknowledged at all the town hall meetings, and included comments such as,

We can be solely dependent on others for research funds to help solve challenges, or we can generate a pool of funds to help ourselves.

We fight so hard for a few resources and this could be a way to leverage appropriate public investment with the industry’s own small contribution to help move organic forward.

It would really support the bigger picture in terms of health and wellness for young families. We really think it would grow the organic segment.

Negative headlines continue to cast doubt on the benefits of organic, and consumers are more confused than ever about what it means to be organic. We need a clear, unified message telling the organic story.

 Let’s set up something that can work for everyone to really start moving organic to where it needs to be … and get out with our messages to the public.

A number of commenters and organizations raised questions as to whether USDA was the right vehicle to pool funds under or whether a voluntary program not affiliated with USDA would be better.

Two organizations–the Northeast Dairy Producers Association (NODPA) and the Organic Farmer Agency for Relationship Marketing (OFARM)—formally weighed in with opposition to the effort. Attempts were made to reflect their concerns in the options presented, and the official statements can be found online.

A number of individuals referenced Sustainable Agriculture Research and Education Program (SARE) as an alternative model to pool funds for organic research and promotion. SARE is a federally funded program and therefore is not a vehicle applicable to pooling of private sector (industry) dollars. However, many elements of SARE were incorporated into the options for a framework offered below. Elements incorporated based on stakeholder feedback at town hall meetings include a cap on administrative overhead, a system to allocate funds regionally, and regional producer representation in governance. More information about SARE can be found online.

Many commenters at town hall meetings indicated concern that the sector couldn’t raise critical mass of funds unless it’s compulsory. “This is the only way we can think of that brings everyone to the table.” This sentiment stems from a belief that a handful of organizations have funded these activities to date, while all certified organic businesses benefit. “The principle of pooling funds is that it needs to be fair and equitable. Only way to be fair and equitable is to be mandatory.

Commenters indicated that the supply chain is so diverse (geographic spread, size, type) that you need to do it this way. “You could conceivably do a voluntary program in a much more consolidated industry.”

No viable alternative emerged that moved beyond the status quo. The Options for a Framework reflected are based on the industry funded/USDA- administered research and promotion program model, accepted through referendum and based on mandatory assessments.

Commenters in a number of locations expressed a general distrust of existing research and promotion programs, with the most commonly cited being the beef check-off program. Much discussion centered on how the organic sector could construct an order that reflects the values and thinking of organic businesses, improving upon identified inadequacies in governance and oversight while reaping the benefits of pooled funds and a unified voice.

Keys areas of discussion and input were: governance, assessments, programs and utilization of funds. The options below are based on the aggregate of feedback across the open town halls and webinars as well as other meetings sponsored by regional groups. They are also designed to conform to the requirements of the law (generic act).

The first phone survey in 2014 indicated the majority of certified operations were undecided about an organic research and promotion order and that the #1 concern raised was the need for more information. The second phone survey indicated that an increased number of organic business, after receiving more information, support the program.

Governance

The Generic Research and Promotion Act (Generic Act) requires that the governing board reflect geographic distribution of production domestically, and the quantity/value for imports.

Most commenters at a range of town halls raised the importance of diverse representation from across the organic sector. A number of commenters specifically referenced the National Organic Standards Board (NOSB) as a model.

A number of commenters at town halls and other meetings stressed the importance of producer representation on the board, and one commenter suggested 50% plus one was the appropriate number of seats on the board for farmers/producers.  A few other commenters suggested its proportionality should be based on the size of assessments. The SARE model was considered in the development of options for board composition, and specifically is reflected in regional producer representatives on the board. The NOSB composition was also considered in developing options. The options below represent a higher percentage of producer seats than the NOSB composition. NOSB includes four of 15 seats for producers or 27% of the board, while the options for the USDA Certified Organic Research and Promotion Board includes 6-9 of 17 seats for producers or 35-53% of the board.

There was an acknowledgement that decision-making should be in the hands of assessed parties. The options proposed reflect that with the addition of one at-large seat to represent the perspective of small business/farms participating on a voluntary basis, all seats are occupied by assessed entities.

Assumptions were made about the optimal size of a board based on concerns raised by town hall participants about 1) efficient decision-making, and 2) high expenses potentially allocated to board functions rather than research and promotion programming. The options assume that more than 17 Board members would become ineffective and administratively costly.

Additionally, commenters encouraged board diversity in terms of: commodities, based on proportion of assessment, regions, point in the supply chain, marketing expertise, and research experience.

A number of commenters in town halls suggested that board-only authority to suggest amendments to the order was less consistent with the expectations of the organic sector than a more democratic or decentralized decision-making. Options suggested in the frame work below reflect that sentiment by incorporating an option for petition by assessed entities to amend an order.

A number of commenters expressed concern about whether future referendums regarding continuing with an order would take place. A few commenters referenced the NOSB concept of Sunset on materials allowed for use in organic production and handling. That sentiment is reflected in the option to have automatic referendum on a 7-year cycle as required by law.

Programs, Plans, Utilization

The Generic Act defines promotion as “Any action to present a favorable image of an agricultural commodity to the public with the intent of improving the competitive position of organic in the marketplace and to stimulate sales of an agricultural commodity.”

Of entities providing input, there was a range of opinions about the balance of funds to be allocated to promotion versus research. Additionally, concerns were raised about being too prescriptive in allocation requirements that wouldn’t allow flexibility to adjust to the needs in the market place. Others felt allocation decisions would need to be weighted, to ensure that either research or promotion (depending on the view) did not dominate. The options below reflect that range of opinion.

At many town halls, interest and questions were raised about allocation of funds, particularly in the area of research to local, regional or crop-based needs. This is an area where the SARE model was utilized in the development of options. Alternately, a number of commenters cautioned against spreading funds across too many areas, thus weakening any real effectiveness of impact from the investments.

During 2014, as supply constraints have become prominent, many industry stakeholders rasied the question regarding applicability of funds to support transition of acres to organic production in the United States. Consultation with USDA-AMS indicated that this would be permissible under the information service programs. Support for transition was added to the framework in the version 3.0 revision.

The Generic Act prohibits lobbying. The options developed reflect the sentiment expressed by stakeholders regarding an iron-clad prohibition on lobbying, and lobbying the NOSB is called out as a specific additional prohibition.

The Generic Act sets a limit of 15% of assessments to be expended on administrative overhead after the first three years. To reflect the sentiment of stakeholders, that limit is communicated explicitly in the framework.

Assessments and Exemptions

Discussions focused on the best way to accomplish fair and equitable participation by certified organic entities. Broad consensus favored the assessment of imports. There was also discussion of partial credits being given to entities subject to State orders, and the options reflect that input.  A discussion of the range of profitability across commodities and points in the supply chain led to options for assessment that are based on gross margin/profit and gross sales.

Many commenters weighed in on whether producers/farmers should be assessed or not. Some said producers should never be assessed; others said they should be assessed in order to participate in decision-making. While many said producers should not be assessed, the general sentiment reflected a concern for small operators rather than excluding the largest producers from assessments. Options reflect the range of perspectives, and include a provision to exempt producers and handlers whose gross revenue is below $250,000 per year.

The general sentiment of a broad and shallow assessment resonated with most stakeholders. Version 2.0 of the framework proposed a 1/10th of 1% assessment on gross revenue above $250,000/ year for all producers and handlers throughout the supply chain. More detailed feedback during late 2013 and 2014 raised concerns about duplicative assessment throughout the supply chain as well as varying profitability amongst commodities and product types in organic. Version 3.0 reflects a revised value added model that would assess 1/10 of 1% of Net Organic Sales (total gross sales, minus your certified organic cost of goods such as feed, seed and planting stock for producers or fluid milk, organic chocolate etc. for a processor).

Certified operations are encouraged to review in detail and weigh-in with detailed feedback and preference on the following pages. Feedback is also being collected online as well as through meetings with stakeholder groups: Complete the draft proposal feedback survey. You can also print the survey and submit it by mail.

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