On August 5, 2020, the United States Department of Agriculture (USDA) Agricultural Marketing Service (AMS) published a proposed rule that would amend the USDA organic regulations in an effort to strengthen oversight and enforcement of the production, handling, and sale of organic agricultural products. The proposed changes come in response to concerns about the risk of organic fraud and criticism of weaknesses and gaps in oversight and enforcement. According to the notice announcing the proposed rule, AMS intends for the proposed changes to “(1) [s]trengthen organic control systems; (2) improve organic import oversight; (3) clarify organic certification standards; and (4) enhance supply chain traceability.” This proposed rule is likely to affect businesses across the organic industry. Interested stakeholders may submit comments on the proposed rule before October 5, 2020.

The proposed rule would amend the regulations in 7 C.F.R. Part 205, as shown in USDA’s side-by-side comparison of the current and proposed regulatory text. Most of the proposed changes are in four main areas, each discussed in turn below.

1. Reducing the types of businesses exempt from organic certification. 
2. Requiring electronic National Organic Program (NOP) Import Certificates for all organic products entering the United States.
3. Amending recordkeeping and fraud prevention procedures.
4. Standardizing requirements for on-site inspection of organic operations.
     

Organic Certification

Section 10104(a) of the Agriculture Improvement Act of 2018 (the “2018 farm bill”) requires USDA to limit operations excluded from organic certification. Under the proposed rule, businesses that buy or sell organic products, or negotiate sales of organic products between buyers and sellers, would need organic certification. Some retailers would be exempt from certification, as depicted in AMS flow chart of the retail exemption under the proposed rule.

Of note, the proposed amendments will require certification of private-label operations—both for the contract manufacturer and the “brand name” or distributor that sells the product under its label. The notice announcing the proposed rule explains that AMS considered but did not include amendments to the packaged product labeling regulations. The current product labeling regulations are unclear as to which certified operation and certifying agent must be listed on private-label organic products. AMS acknowledges that this ambiguity is problematic, and that amending the labeling requirements may offer other advantages in terms of traceability and transparency. Therefore, AMS is seeking public comment on questions regarding labeling of private-label organic products.

NOP Import Certificates

The proposed rule would require the creation and review of electronic NOP import certificates for all organic products entering the United States, for each shipment. Currently NOP import certificates are only required for imports from countries with established organic equivalency.  Mandatory use of NOP import certificates is another change authorized by the 2018 farm bill.

Recordkeeping and Fraud Prevention Measures

AMS proposes additional recordkeeping and other measures primarily aimed at improving supply chain traceability. Certified operations would need to maintain audit trail documentation and identify products as organic on records, as well as document their monitoring practices and procedures. Certifying agents would be required to have procedures for conducting supply chain audits for high-risk products and for reporting credible evidence of organic fraud to USDA. They also would be required share compliance information with other certifying agents in certain circumstances, but AMS states that the rule would not change existing confidentiality requirements.

On-Site Inspection Requirements

The proposed rule would impose several requirements on USDA-accredited certifiers and increase minimum qualifications for inspectors. Certifiers would need to conduct unannounced inspections of at least 5% of the operations certified each year. On-site inspections would need to include mass-balance and trace-back audits to verify that organic products and ingredients are traceable from production or purchase to sale or movement of product, and vice versa. Lastly, certifiers would be required implement practices for inspecting grower groups.

Other Amendments

AMS also proposes to amend the regulation for calculating the percentage of organically produced ingredients in multi-ingredient products. The stated goal of this change is to improve consistency across the industry and in enforcement. The proposed rule would clarify that the calculation should be performed at the time of formulation, regardless of further processing. 

Other topics addressed in the proposed rule include labeling of nonretail containers, foreign conformity assessment systems, certification of grower group operations, annual update requirements for certified operations, standardized certificates of organic operation, NOP oversight of certification activities, and compliance and appeals processes.

The notice of the proposed rule explains the need for increased oversight as driven by growth in the organic market, supply chain complexity, and price premiums for organic products. These conditions have heightened concerns about organic fraud and revealed vulnerabilities due to limited oversight and enforcement. For example, a 2017 Office of Inspector General report found that AMS needed to strengthen its controls over organic imports. The notice also acknowledges stakeholders’ repeated calls for improved oversight and enforcement. In response, the proposed changes are intended to address gaps in the current regulations. 

AMS believes the organic industry will benefit from the proposed rule. AMS reasons that stronger tools and processes, robust and consistent enforcement, and improved farm to market traceability will all result in (1) “[s]trong consumer and farmer trust in the organic label” and (2) a “[l]evel playing field for organic farms and businesses” (USDA NOP Fact Sheet). 

AMS is seeking comments on the proposed rule during the 60-day period from August 5 to October 5, 2020. AMS specifically requests comments on several questions for each topic in the proposed rule, as well as five overarching questions set forth in the Instructions:

1. The clarity of the proposed requirements. Can certified operations, handlers, and certifying agents readily determine how to comply with the proposed regulations?
2. The implementation timeframe. AMS is proposing that all requirements in this proposed rule be implemented within ten months of the effective date of the final rule (this is also one year after publication of the final rule).
3. The accuracy of the estimates in the Regulatory Impact Analysis and Regulatory Flexibility Analysis, which describe the expected costs of this proposed rule on all affected entities and on small businesses, respectively.
4. Are there alternatives to regulations, or less stringent requirements, that could achieve the same objectives as this proposed rule?
5. How will certifying agents cover the costs of additional actions required under this rule, such as the required unannounced inspections and the issuing of NOP Import Certificates? Will certifying agents charge fees that are consistent for expanded handlers, brokers, importers and exporters?

The additional specific questions on each topic are provided at the end of each subsection in the Overview of Proposed Amendments section of the Federal Register notice.

The USDA NOP provides guidance on how to write an effective comment, including a sample comment format, general instructions, and important elements to include in comments. Comments on the proposed rule are due by October 5, 2020.  

If you have any questions concerning the material discussed in this client alert, please contact the following members of our Food, Drug, and Device practice.