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Addressing Risk Factors of Organic Production; Certification
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by Bob Turnbull and Kathleen Delate
02/01/07 Organic Producer
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At something less than 2 per cent, organic agriculture is a tiny segment of a very large market despite a decade of double digit growth in consumer demand. Whether at the farm, processing or retail level, premium pricing driven by the high demand is often cited as a major, though not sole, incentive for assuming the risks associated with organic production. Other reasons include long-term environmental, health and societal benefits.
However, the demand is outpacing domestic production of primary and processed organic products. In response, retailers are seeking overseas sources of certified organic products at an unprecedented rate. This suggests the incentives that drove current producers to assume the risks associated with organic agriculture are inadequate to drive additional production despite the opportunity for profit. If domestic production is to keep pace with consumer demand and compete with similar organic imports, the risk profile of organic agriculture should be well understood by the entire value-chain. With this understanding strategies and products can be designed and implemented to spread some of the risk thereby encouraging additional production.
Agricultural is an inherently risky business. Weather, insects, disease and market conditions often dictate success or failure. With an eye to securing a consistent domestic food supply public and private sectors have cobbled together various schemes to mitigate some of the risks. These schemes include subsidized crop insurance and price supports, relatively transparent markets and a sophisticated crop financing and distribution system. Though not without criticism, these schemes work reasonably well in part because they address major risks associated with large scale agriculture and are well understood by the stakeholders. Importantly, the associated costs are spread among the entire spectrum of the food production industry including the consumer and taxpayer.
In contrast, organic production risks are not well understood nor can the costs of mitigation strategies be readily spread among a wide array of participants. A major reason for not understanding the risks of organic production is the rapidly evolving nature of the system. Currently regulated by way of a federal-private partnership that may or may not include state entities, it was for a number of years largely unregulated. This two to three way regulatory scheme introduces a level of uncertainty not present in the larger food system. For the risks of organic production to be economically addressed every potential market participant must acquire an understanding of the language and mechanics of the business beginning with organic certification.
Domestically, the United State Department of Agriculture (“USDA”) through the National Organic Program (“NOP”) ultimately controls all organic certification through the National Organic Production Act of 1990. With considerable input from the organic segment the rules (“Rules”) written by USDA were fully implemented in the fall of 2002 and form the basis for all domestic certification. There are currently 55 domestic and 40 foreign certification agencies accredited by the NOP to administer the program. Some of the certification agencies are state entities. The NOP has jurisdiction only in the US. There is no complete reciprocity with other organic markets such as the European Union and Japan at this time.
The NOP provides on-line access to the Rules and other key information as do many certification agencies. Some of the certification agencies have additional rules, but in all cases, as far the NOP is concerned, adherence to any requirements beyond those found in the Rules is optional. Additional certifications are either market or philosophically driven and have no effect on organic certification within the U.S. However, some agencies administer certification for markets in Japan and the European Union. For example if the product, raw or processed, is destined for overseas markets, additional certifications are required and involve following additional rules.
While access to the rules of organic certification is not difficult, understanding them may be. As a product of the legislative process, the Rules are written in a legalistic style and regulate a complex production-marketing system, literally from seed to shelf. Gaining a complete understanding the rules is a daunting task. Despite USDA’s efforts to be thorough, at times there may appear to be no rule addressing a particular situation. This may reflect a legislative attempt to account for variability in operations or it may reflect oversight that maybe addressed at a later date. Fortunately, the certification agencies can often provide answers to many if not all the questions an interested person may have.
Moreover, there is an active worldwide organic community who are more than willing to field questions including state land grant institutions such as Iowa State University’ Organic Agriculture Program or private non-profit groups such as Midwest Organic and Sustainable Education Service of Spring Valley Wisconsin. Finally, one of the most valuable resources are current organic market participants whether farmers, processors or retailers.
At first glance, entry to the organic market place may appear nothing more than a morass of indecipherable rules dictating behavior in what was either marginally regulated or unregulated areas of a particular operation. However, it is unlikely that a party interested in gaining access to the organic market will have to be concerned with every aspect of the Rules. Rather, the focus should be on those rules that will impact the operation seeking market access. Therefore in order to minimize the risk of failing to gain access to the organic market a workable understanding of the intricacies the desired market segment can be gained by:
1) Clearly identifying target markets;
2) Familiarizing yourself with all relevant Rules including those subject to controversy and likely to change;
3) Consulting at least 2-3 certification agencies regarding the rules relevant to target market;
4) Reviewing the required paperwork for application and continued certification;
5) Modifying your current record keeping system to conform to that required by Rules;
6) Contacting local and regional organic market participants to identify opportunities and potential problems of the target market; and
7) Attend a number of local, regional and national organic conferences and trade shows such as the Iowa Organic Conference, Upper Midwest Organic Conference and the Organic Trade Association’s annual conference.
Armed with the information gained from these resources you should be able to decide if this is a step you want to take at all and if so ways to address the next issue-managing the risks of transitioning to organic production.
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