What is the organic checkoff?

The Facts: The Organic Research, Promotion and Information Order
Proposed Rule and Referendum Procedures

Written by, Ed Maltby, NODPA Executive Director

WHAT ARE THE NEXT STEPS:

  1. Interested parties will send in comments on the Proposed Rule. The date by which comments need to be received is currently April 19, 2017.
  2. USDA will analyze all the comments on the Proposed Rules and reach a decision about whether to continue with Organic Trade Association’s (OTA) request for an Organic Research, Promotion and Information Order (organic checkoff).
  3. If the USDA decides to continue, they will publish a Final Rule which will address the comments they have received and lay out the details of the organic checkoff, which would be implemented under the Commodity Promotion, Research and Information Act of 1996.
  4. A separate Final Rule will lay out the details of the referendum that would be held at a date set by the USDA for those that will be assessed [anyone grossing over $250K in organic sales] to determine whether they favor implementation of the program prior to it going into effect.
  5. Timeline – since the Final Rule for both the program and the referendum will have to go through all of the vetting by internal agencies, plus through the OMB, at the earliest we are probably looking at 2019 for any implementation.

WHO IS ASSESSED?

  • Mandated Assessments: Organically certified producers and handlers who have gross organic sales for the previous marketing year in excess of $250,000, plus importers (not necessarily organically certified) who import greater than $250,000 in transaction value of organic products for the previous marketing year.
    • §1255.16 Gross organic sales means the total amount the person received for all organic products during the fiscal year without subtracting any cost or expenses.
    • §1255.15 Fiscal year and marketing year. Fiscal year and marketing year means the 12-month period ending on December 31 or such other period as recommended by the Board and approved by the Secretary.
    • Transactional value for importers: “The price actually paid from the buyer to the seller for the merchandise.” This is currently reported by importers on CBP Form 7501 as ‘Entered Value’.
  • Voluntary Assessments: Those organically certified producers and handlers plus importers of certified product who are not mandatorily assessed but choose to participate in the program.
  • Producers and handlers who are in an existing Federal checkoff program have the choice between becoming part of the organic checkoff or continuing to pay assessments to the conventional checkoff program. If the organic checkoff is implemented there will be no exemptions from other checkoff programs for organic producers and handlers.

CHECKOFF FEE:

  1. Each certified organic producer or certified organic handler with gross organic sales greater than $250,000 during the previous calendar year shall pay one-tenth of one percent (0.001) of net organic sales to the organic checkoff program. Sales of exports are currently excluded in any calculation of assessments. Nothing is mentioned about whether the value of exports is excluded from a calculation of gross organic sales.
    • §1255.21 Net organic sales means total gross sales in organic products minus (a) the cost of certified organic ingredients, feed and agricultural inputs used in the production of certified products and (b) the cost of any non-organic agricultural ingredients used in the production of certified products.
    • §1255.2 Agricultural inputs means all substances or materials used in the production or handling of organic agricultural products (e.g. fertilizer, lime, soil conditioners, agricultural chemicals, beneficial insects, other approved materials for pest control, seed, plants, vines, trees, feed purchased for livestock, etc.).
  2. Importers who have a transactional value of organic imports greater than $250,000 for the previous calendar year shall pay one-tenth of one percent (0.001) of net organic sales to the program. For example: those who have $500,000 as Entered Value on their CBP Form 7501 for organic imports would be assessed $500.

CHECKOFF DOLLARS GENERATED: The USDA estimates that the assessments will total $25.3 million in the first year based on USDA census information, reports from importers and their projection of net organic sales.

PAYMENTS: All payments must be received by the organic checkoff program no later than March 31st for the previous calendar year in which the product was ‘produced, handled or imported.’

PAPERWORK:

  1. For those producers and handlers that self-determine that they are assessed:
    1. They will calculate their net organic sales for the previous year ending on December 31st multiply it by 0.001 and submit a check to the program by March 31st.
    2. Under the 1996 Act, organic producers and handlers “would submit a report that would include, but not be limited to, the entity’s name, address and telephone number” and the value of its net organic sales. They would need to maintain books and records needed to “carry out the provisions of the proposed program, including for verification of any required reports” and retain those records for at least two years beyond the applicable calendar year.
    3. If they are part of a commodity with an existing conventional checkoff they would have to apply annually for exemption from assessment by that program. Prior to the start of the calendar year, the entity would apply to the Secretary of Agriculture on a form supplied by the program, for an exemption to assessment by the conventional program to ensure that they would not have double deduction. They would also have to prove that they have paid into the organic checkoff for the previous year. These entities would need to request refunds if conventional checkoff deductions are taken at source, for example dairy on their milk check, beef and lamb at auctions.
    4. If the entity is part of a State promotion program rather than a Federal program, the USDA will “encourage” those programs to recognize the Federal program. Entities can apply for an offset of 25 percent of the payment to the federal program to compensate for monies paid to a State or Regional program if the State and Regional programs agree.
  2. For those producers and handlers that are not mandatory assessed and choose not to be voluntarily assessed:
    1. They would apply annually, prior to January 1st, for exemption supplying proof that they had gross organic sales of under $250,000 in the previous year.
    2. They would submit to the program past shipment/sales data that would validate their gross organic sales. They would need to maintain books and records needed to “carry out the provisions of the proposed program, including for verification of any required reports” and retain those records for at least two years beyond the applicable calendar year.
    3. The Organic Research and Promotion Board (Board) would then issue, “if deemed appropriate,” a certificate of exemption for that calendar year.
    4. Those producers and handlers that are part of a conventional checkoff program, and not paying into the organic checkoff, would have to pay into their conventional program. The existing exemption that organic producers and handlers have, exempting them from the conventional programs would disappear.

ENFORCEMENT: The organic program would be subject to the enforcements under the 1996 generic Act (SEC. 520. Enforcement).  Essentially the Secretary could issue fines and penalties (up to $10,000 per incident) for nonpayment of checkoff assessments under Federal Law.

HOW ARE FUNDS USED:

  • Reimbursement to the USDA for costs involved in running the program. There is no limit on what this might cost. This is paid out first.
  • Staff and administrative costs for the Board and program will be deducted next before evaluating what funds are available for Programs, Plans or Projects. The program staff and administrative cost, plus whatever costs the Board has, can be no more than 15 percent of total assessment raised. Reimbursements to the USDA are not included in the 15 per cent.
  • Program, Plan and Project Funds:
    • All use of funds have to be approved by the Secretary of Agriculture. No program using checkoff funds can disparage or degrade the qualities of any other agricultural commodity or product (no “better than” or “more healthy than”). Wording of promotional programs must reflect the government’s positions on policy. No funds can be used to advocate to or support the NOSB or any regulation.
    • The remaining funds will be allocated as follows:
      • No less that 25% allocated to Research (as defined in § 1255.32) with a majority allocated to agricultural research (12.6%).
      • 25% allocated to Information (as defined in § 1255.18) with a majority allocated to producer information.
      • 25% will be allocated to Promotion (as defined in § 1255.30).
      • 25% of the funds shall remain discretionary.

 

Organic Checkoff Budget Breakdown $ million
USDA AMS Projection of total assessment raised 100% $ 25.3
USDA administration cost (OTA’s projection) $ 0.3
Board and program administration at 15% of total Budget $ 3.80
     
Available for Programs, Plans and Projects (PPP) 83% of Budget $ 21.21
                             Agricultural research 25% of PPP
Agricultural Research @ 60 percent of Research allocation $ 3.18
Other Research $ 2.12
                             Information for Producers 25% of PPP
Information for Producers @ 60 percent of Information budget $3.18
Industry and Consumer Information $2.12
Promotion for expanding organic markets 25% of PPP $5.30
Discretionary Funds 25% of PPP $5.30

GOVERNING BOARD:

  1. 17 member Board including 1 non-voting member and a quorum of 9 members
    • 7 either mandatorily or voluntary assessed producers
    • 1 voluntarily assessed producer
    • 5 mandatorily or voluntarily assessed handlers
    • 2 mandatorily or voluntarily assessed product processors
    • 1 mandatorily or voluntarily assessed importer
    • 1 public member at-large who is a non-voting member
  2. The Board members will be appointed by the Secretary
  3. For the first Board the regulation says: ‘Nominations for the initial Board will be handled” by the Department and OTA.’ The terms for service of the initial Board shall be staggered for two, three and four years.
  4. Board members will only be reimbursed for travel and other expenses but not for their time
  5. Nominations to the Secretary for future producer seats will be based on geographic region and expressed wishes of producers voting in those regions.
  6. Nomination to the Secretary for the other Board seats will be based on voting by that class of assessed entity and the top  2-4 vote winners would be recommended to the Secretary

REFERENDUM: Voting to approve the Final Proposal to establish an Organic Checkoff

There are contradictions about how ballots are distributed and what is required to be eligible between the proposed rule for an organic checkoff (ORPIO) and the proposed rule for the referendum process.

  1. Each assessed entity will have one vote. Organic importers can request one ballot per “business entity” that meets the definition of importer.
  2. In ORPIO Rule: All currently certified domestic entities in the list maintained by the USDA NOP will be mailed a ballot. Importers of organic products with the existing 38 Harmonized Tariff Schedule (HTS) codes from the previous year will also be mailed a ballot. Any entity requesting a ballot will have to provide an affidavit attesting to either (a) an importers participation in the organic industry or (b) a voluntarily assessed entity commitment to be assessed for 4 years.
  3. In the propose rule on the referendum: Assessed entities are defined above and may request and receive a ballot by mail. No person that claims to be an assessed entity shall be refused a ballot.
  4. Entities will be identified by its individual tax identification number.
  5. All ballots will be cast by mail, in-person at Farm Services Agency or “by other means.”
  6. The program will be implemented if a majority of those voting agreed to it.

SUBMIT COMMENTS TO USDA TODAY TO STOP THE CHECKOFF.    DEADLINE IS APRIL 19

Submit Online: http://bit.ly/NoOrganicTax

Mail comments: Promotion & Economics Div., Specialty Crops Program, AMS, USDA, 1400Independence Ave.SW., Rm 1406-S, Stop 0244, Washington, D.C. 20250-0244;

Fax comments: (202) 205-2800