Specialty Food Association
136 Madison Avenue
12th Floor
New York, NY 10016
www.specialtyfood.com
National Organic Program: Strengthening Organic Enforcement
Docket No: AMS-NOP-0065; NOP-17-02
Summary of Position
The Specialty Food Association (“SFA” or “the Association”) appreciates the opportunity to submit comments to the United States Department of Agriculture Marketing Service (“USDA AMS” or “the Agency”) regarding the proposed rule for “National Organic Program: Strengthening Organic Enforcement.” The Association values the Agency’s dedication to combatting and reducing organic fraud through increased oversight over complex organic supply chains.
As the trade association for the specialty food industry, the SFA provides a valuable perspective on the Agency’s effort to strengthen organic enforcement throughout the value chain. The Association bylaws define specialty foods to include “food, beverages, and accessory products that exemplify quality, innovation and style in their category” whose “specialty nature derives from some or all of the following characteristics: originality, authenticity, ethnic or cultural origin, specific processing, ingredients, limited supply, distinctive use, or specific channel distribution and sale.”1
The inclusion of organic ingredients or the status of a product as certified organic has become an increasingly important factor for many members to distinguish themselves as “specialty.” SFA members produce, make, sell, broker, or import certified organic products and products made with less than 70% organic ingredients. Our more than 3,900 members include companies subject to current organic certification requirements and uncertified operations that will be newly subject to requirements of the proposed rule. Many of these businesses are small businesses and very small businesses that benefit from and rely upon the price premium for organic products and will be directly impacted by increased compliance costs.
The SFA supports strengthening organic enforcement to reduce organic fraud. Certified organic products and products using certified organic ingredients are an important and growing segment of the specialty food industry. The Association appreciates that increased organic fraud activity threatens to undermine consumer trust and the value of the organic certification. However, this proposed rule will drive increased compliance costs throughout the supply chain by creating new requirements for certified operations and expanding the number of operations that must be certified. Certified operations are unlikely to be able to pass increased costs of compliance onto consumers through increased prices. In turn, such costs threaten to erode the organic premium that adds value to many small businesses.
The Association is equally concerned that, in its current form, the proposed regulation shifts too much responsibility to currently certified and expanded categories of certified operations to prevent organic fraud. The NOP and organic certifiers—not individual certified operations—have access to broader patterns of information and are better positioned to detect and prevent fraud because of their ability to trace products through the supply chain. It may be that the only organic operations with the resources and ability to access the information required for compliance with some aspects of this proposed rule are large, vertically integrated companies. Regulatory changes to strengthen organic enforcement should not privilege large, vertically integrated food companies over the smaller manufacturers, brokers, and importers that comprise most of the SFA membership. Throughout these comments, the Association provides feedback to enable very small, small, and medium-sized businesses that form the backbone of the organic supply chain to implement this rule.
1. The SFA strongly opposes the current redefinition of “handling” to expand the scope of operations required to be certified.
The SFA strongly opposes proposed revisions to the definition of handling to expand the number of operations certified as organic handlers. The proposed definition is unworkable for many businesses, does not appropriately balance the risk of fraud against increased compliance costs, and does not offer sufficient opportunity or flexibility for small or very small businesses to enter or continue participating as a thriving part of the organic market.
a. The SFA strongly opposes proposed changes to the definition of handling that would require import or brokering operations that do not physically handle products to become a certified organic handler.
By expanding the definition of “handle” to include the “trading, facilitating sale or trade, brokering, repackaging, labeling, combining, receiving or loading,” the proposed rule requires the operations that will never take physical possession of organic products to become certified as organic “handling” operations. The current requirements for certified handling operations to develop an Organic Production and Handling System Plan (“OSP”) and participate in an onsite audit are unworkable to and unreasonable for operations that do not take physical possession of any products.
The Association is particularly concerned about the impact of this expanded definition on small domestic brokers and distributors that serve a critically important role in helping specialty food makers sell their products. The structures of such brokering operations vary widely. Some brokers limit their activities to identifying products and marketing them to retailers and then charging a commission for each sale generated to the manufacturer, leaving the manufacturer to make arrangements for ensuring that their product is shipped to the appropriate retailer or distribution center. In other business models, a broker or distributor will contract with a shipper and third-party logistics providers to aggregate brokered products for transport to distribution centers or small, independent retailers. In almost all cases in the specialty food industry, the broker never takes physical possession of the product.
Such operations will not be able to develop an OSP under the current requirements. Current OSP regulations require that each certified handling operation must develop a list of each substance used as a handling input, indicating its composition, source, and location(s) where it will be used, and documentation of commercial availability and to describe management practices and physical barriers to prevent commingling of organic and non -organic products. However, operations that will not touch the product will not use “handling inputs” to include on such a list.2 Nor, likewise, would a broker who does not touch the product be able to describe management practices or physical barriers to prevent commingling.3 Accordingly, a broker handler would need to omit these required items entirely from their OSP even though they “must” be included in the plan under the current regulation.4 Alternatively, the requirements put brokers and distributors in a nearly impossible position of dictating to a party with whom they may or may not have contracted that they must develop and impose costly practices to document the substances used in their operations and to prevent commingling.
Further complicating matters, the transporters and warehouses with whom a broker or distributor works are likely to be exempt from certification under the proposed rule’s exemptions for transporters and storage warehouses. Small and regional brokers and distributors cannot be expected to exert sufficient market power to prescribe such costly procedures to larger transporter and warehouse businesses. In contrast, larger businesses that own trucks and warehouses would be able to exercise oversight over their warehouses and transporters to follow organic practices. Thus, a concerning unintentional consequence of the expanded handling definition is that it would offer a competitive advantage to larger businesses that wish to offer organic products.
Additionally, requiring annual onsite certification audits of operations that do not possess or handle products does not make sense. In such operations, there would be no products or practices to be observed by a certifying agent, limiting the purpose of the onsite audit to a review of the OSP (or changes to the OSP) and records maintained by the operation. The regulation thus wastefully burdens brokers and distributors with paying for an organic certifier to visit an operation where there is nothing to see physically.
USDA AMS also underestimates the costs of certification for these new operations. The initial forty reporting hours and ten hours of annual recordkeeping do not appropriately capture the costs these operations will encounter in becoming certified operations. First, the estimates assume that brokers, distributors, and similar organizations already employ an individual of appropriate expertise. However, this is not likely to be the case, and operations will incur additional costs in needing to hire someone with organic expertise or to train an existing employee. Nor do these estimates even consider the actual costs paid by the operation to become certified in having their OSP reviewed, or the travel and inspection time for a certifying agent to perform the onsite audit to become certified. Broker and distributor members believe that the organic certification process—as revised by this proposed rule—would be more costly and burdensome than any other third-party certification scheme, including kosher and allergen-free certification processes.
As a result of increased costs, SFA members are reasonably concerned that small and regional independent brokers and distributors will stop carrying certified organic products. The Agency must understand that this would be devastating to the small and very small specialty food makers and start-ups that rely on these local and regional brokers and distributors as the primary channels through which their products are marketed. At a minimum, those small brokers and distributors who continue to offer organic products would likely pass on the costs of compliance in charges to the producers and manufacturers and effectively reduce the profitability for these small businesses.
Thus, SFA strongly supports an exemption from certification for domestic brokers, distributors, customs brokers, organic importers of record, and freight forwarders that solely arrange for the sale and transport of agricultural products and do not take physical possession of organic products.
b. The SFA strongly opposes the elimination of the exclusion for operations that only handle packaged products.
The proposed elimination of the exclusion for operations which solely handle packaged products is an overreach that will dramatically increase costs of compliance throughout the supply chain without delivering a similar benefit in fraud reduction.
Opportunities for organic fraud are significantly reduced in the handling of fully packaged, sealed, and compliantly labeled agricultural products as compared to bulk products exposed to the environment. First, it is nearly impossible to substitute a conventionally produced product for a certified organic product when the product is already contained in sealed packaging. The recipient would easily be able to detect such tampering. Second, contrary to the assertion of the preamble, sealed packaging is typically sufficient to protect a product from exposure to prohibited substances. Third, sealed packaging acts as a physical barrier to prevent the commingling of certified organic products with non-certified products. Accordingly, the main remaining risk to organic integrity for a product that is fully packaged and handled is exposure to ionizing radiation, which is comparatively rare and can likely be tracked by the physical location of the product in the supply chain.
Record gaps in organic supply chains can be addressed in more straightforward and cost-effective ways than requiring certification of every entity in the supply chain. Specifically, the Association would be open to supporting requirements that operations that handle fully-packaged and sealed products be required to retain:
- quantitative records of all organic products purchased, sold, or brokered;
- specification sheets verifying the status of the organic product, its producer/handler, and certifying organization; and
- a representation that the operation did not expose the product to ionizing radiation.
The Association would also support a requirement that businesses that do not take physical possession of products make such records available to the USDA AMS or State Agency during normal business hours through an electronic record request. Such operations should also be required to develop procedures to report evidence of organic fraud to USDA AMS. These recordkeeping, access, and reporting responsibilities would enable the Agency to gain access to needed information to investigate potential fraud at a fraction of the cost of certification for such operations. Finally, the proposed clarifying revisions to the investigations section of the NOP regulations put such operations on notice that they can and will be held liable for indirectly perpetrating fraud. Thus, the Association strongly supports retaining an exemption from certification for all operations that solely ship, store, and transport fully-packaged and sealed agricultural products with the adoption of simplified record keeping and reporting requirements.
c. The SFA opposes broad exemptions for storage and transport activities.
The risk to organic integrity is a function of both the types of products produced and the activities performed by a particular entity in the supply chain. Accordingly, the Association disagrees with the characterization of storage and transportation as inherently low-risk activities. Rather, the risk to the organic integrity of a bulk or unpackaged product is high during transportation and storage activities because of the potential for substitution, exposure to prohibited substances, and commingling. Accordingly, the Association supports that all storage and transport operations that store, load, carry, and unload unpackaged bulk products should be certified as organic handlers. Conversely, because the same risks are not present for transporters and storers of sealed and fully packaged products, these operations should be exempt from certification as outlined under the previous section.
d. The SFA requests further clarification of the retail exemption.
The SFA appreciates the modernization of the retail definition to include direct-to-consumer virtual transactions. However, more clarification is needed to protect organic integrity and to provide clear direction to retailers regarding their organic compliance obligations.
The preamble raises a sound point that organic integrity may be compromised at the final point of sale to the consumer if retailers do not follow appropriate practices for handling bulk products or during processing. Accordingly, the Association would support a requirement that retail operations that sell goods that are not in fully packaged and sealed containers should be held to some minimal responsibilities for the final handling of products. These responsibilities include following labeling requirements and preventing the exposure of products to prohibited substances and commingling.
However, the proposed requirements for recordkeeping do not provide appropriate guidance to retailers handling bulk products or processing agricultural products onsite. Specifically, it is not clear what documentation would be sufficient to “prove that agricultural products identified as organic were organically produced and handled.” The SFA is concerned this could be interpreted broadly and impose a substantial burden on retailers to obtain detailed information about their supply chain and actual operations.
The SFA recommends that the language of “proof” be removed from the regulation. Instead, the rule should give clear directions for limited recordkeeping to retailers. The SFA suggests required records be limited to maintaining:
- specification sheets documenting the organic status of the product, identifying the handler that produced/processed the product, and the certifying agent;
- records of the quantities of processed products produced and sold from purchased quantities of agricultural products, and
- records documenting practices to prevent the products from being exposed to prohibited substances or commingled with non-certified products.
Finally, the regulation should clarify that retailers selling solely fully packaged and sealed products should be exempted from any additional recordkeeping requirements.
e. The SFA supports retaining an income-based exemption for organic sales and believes that the threshold for this exemption should be raised to support the entry of small and very small businesses into the organic market.
The proposed rule retains the income-based exemption at a level of $5,000 or less annual income from organic sales. Association members have long believed that this exemption is too low to provide a meaningful on-ramp for businesses to start organic production. Considering the increased requirements and costs imposed by the proposed rule, reworking the framework for income-based exemptions is one way that USDA AMS can increase organic oversight without driving away small and very small businesses from organic production and certification.
In other regulatory frameworks, such as the Food Safety Modernization Act (“FSMA”) regulations, much higher monetary thresholds are used for operations comparable to producers and handlers under the organic regulations. For example, under the Produce Safety Rule, an operation may grow up to $25,000, adjusted for inflation, in produce before needing to meet the requirements of the regulation.5 Under the Hazard Analysis and Risk Based Preventive Controls Regulation, one million dollars, adjusted for inflation, of products sold, prepared, or held is the threshold for a qualified facility. Qualified facilities are required to submit a biennial attestation of compliance, but are not fully subject to the rule.6
The Association acknowledges that the FSMA regulations are mandatory, while organic production is a voluntary decision that reflects the values of a producer or handler and allows them to enjoy improved marketability of the products. Nevertheless, organic producers and handlers of organic ingredients have come to rely on sourcing and selling organic products as essential to their business and their values. Organic certification reflects a comprehensive value system integral to the identity of many businesses that supports building soil, using non-genetically modified seeds, and producing without the assistance of synthetic pesticides and herbicides. However, the increased costs of compliance imposed by this proposed rule may be so high as to drive some small businesses from the market and take away the public recognition of this value system for very small and small businesses. Moreover, the Association does not believe that raising the income limitations for the exemption would significantly increase the opportunities for fraud.
To strike a compromise between increased requirements to prevent fraud and keeping the organic regulations friendly to smaller businesses, the Association recommends that USDA AMS adopt similar thresholds for the agricultural production and handling of organic products as in the FSMA regulations. The Association would support a system in which all exempt operations must still comply with the labeling requirements and prohibitions on contact with prohibited substances and commingling. The Association would also support a requirement that such operations must make such records available to the USDA AMS or State Agency during normal business hours through an electronic record request. Granting access to records would enable the Agency to investigate potential fraud, without unduly burdening the small and very small businesses with significantly increased costs.
2. The SFA requests further clarification of the recordkeeping requirements for operations that only handle products containing less than 70% organic ingredients or only identify organic ingredients on the information panel.
While SFA agrees that there should be increased oversight over operations that only handle agricultural products that contain less than 70% organic ingredients or only identity organic ingredients on the information panel, the current proposed rule does not provide certainty to such operations regarding their new responsibilities. Nor do the proposed regulations indicate what such operations can expect for regulatory oversight or enforcement.
The proposed rule directs that such operations must follow all labeling regulations and keep sufficient records to “prove that agricultural products identified as organic were organically produced and handled.” However, no guidance is provided in the preamble as to what documentation would meet this requirement. Proof that the product was organically produced and handled suggests an operation would have insight into the full supply chain for an organic ingredient and maintain that on record. Large ingredient suppliers and distributors simply do not make that kind of confidential commercial information available to purchasers. A more reasonable expectation would be for a purchaser to obtain a specification sheet from the supplier documenting the organic status of the product, supplier, and certifying agent.
As for investigation and oversight, this new requirement invites questions about the manner and frequency with which this new requirement will be enforced by USDA AMS or a state organic program. Given that these operations are not required to be certified, how will the USDA AMS even know what operations must comply with this requirement? In the estimated costs for the rule, the impact on this category of uncertified operations is not even considered. Developing and preparing procedures for inspection by a government body requires considerable time and resources for an operation, and such visits are highly disruptive. To minimize costs and disruption to these businesses, the SFA recommends that the Agency specifically allow for an electronic record request instead of requiring them to prepare for an in-person record inspection by the USDA AMS or a State organic program.
3. The SFA supports the labeling of non-retail containers with certain revisions.
The Association supports the labeling of non-retail containers to reduce fraud and inadvertent mishandling of organic products in the supply chain. However, the name of the certified producer or the name of the certifier that processed the product should be a mandatory requirement, as this is a critical piece of information if non-retail container labeling is to be used effectively as a traceability tool. Moreover, the regulation should be more flexibly drafted to permit identifying the organic status by using abbreviations or alternate forms of signifying organic status. The Association also supports the development and issuance of guidance documents to provide example formats and to indicate how this requirement can be met on a variety of non-retail containers.
4. The SFA requests that USDA AMS clarify and increase the flexibility of the onsite audit provisions.
While the SFA agrees with the general approach of the revisions to the onsite audit requirements, the Association is concerned that the proposed provisions do not afford sufficient protection for the legal rights of certified operations subject to unannounced inspections and that ambiguities in the provisions could lead to uneven patterns of enforcement by certifiers and potentially significantly increased costs for certified operations.
a. Additional protections are needed for certified operations with mandatory unannounced inspections.
The SFA supports the requirement for operations to conduct unannounced onsite inspections to protect organic integrity. However, with onsite audits becoming a mandatory requirement, the Association believes appropriate protections should also be put into place to protect the rights of certified operations. Specifically, SFA encourages suggestions from the NOP Instruction 2609 be adopted into regulation, including that a certifying agent must (1) carry appropriate identification and credentials, and (2) perform the inspection in compliance with all applicable laws, and (3) that all inspection protocols and fees be disclosed from the outset of the inspection. In the event of a randomized unannounced inspection, the operation should have an option to elect to have their full annual onsite audit at the time of inspection.
This would prevent operations from needing to pay duplicative fees within an annual certification period. Finally, the regulation should direct that organic certifiers prioritize unannounced inspections based upon responses to a complaint and investigation over high-risk or randomized inspections.
b. The USDA AMS should clarify additional onsite requirements to reduce the potential cost burden to certified operations.
Many certifiers already perform mass balance and traceability reviews for individual products during onsite audits. However, current practice by certifiers is to perform these reviews with only a sample of products. In its current drafting, the wording of the regulation suggests that these reviews must be performed for all products handled by an operation.
Certified operations pay hourly rates for organic certifiers to perform an onsite audit, and mass balance and traceability audits are time- consuming for a certifying agent to review. If a certifier were to perform a mass balance and traceability audit for all products handled by an individual operation, certified operations would pay dramatically increased costs for an onsite audit. For smaller operations that handle multiple products, paying for a certifying agent to perform a mass balance audit and traceability audit for all products within their operation could make the cost of obtaining an onsite audit prohibitive. Many specialty food makers, brokers, and distributors have built their businesses by offering many different products, and this regulation could impact the variety of products available to the consumer.
The estimated cost analysis for the proposed rule does not account for any increase in cost to certified operations based on these provisions, indicating that the intent is not to have these changes increase the duration of the inspection and cost of compliance for certified operations. Accordingly, the Association recommends that the regulation adopt specific language to follow the current practice to review a representative sample of ingredients and products for mass balance and traceability during an onsite audit.
The Association is also concerned that the phrase “and that certifying agents can verify traceability back to the source per §205.501(a)(21)” would hold the certified operation responsible for something outside of its control. A certified operation can only collect and maintain the information their suppliers and customers give them. Without insight into the whole supply chain, a certified operation cannot ensure that the information they provide will allow the certifier to trace an ingredient or agricultural product throughout the supply chain. This phrase could imply that there would be grounds for a certified operation to fail their onsite audit if they cannot furnish the information needed to enable source traceability – at no fault of their own. Thus, the Association strongly recommends that this phrase be removed from the proposed regulation.
c. The Agency should permit increased flexibility in the performance of onsite audits.
While the Association agrees that annual onsite inspections are a valuable tool to be able to observe the products and practices of a certified operation, the unpredictability of doing business, unprecedented disruption to organic supply chains created by COVID-19, and the increasing availability of alternate means to assess and review information suggests a need for increased flexibility in performing onsite audits. Accordingly, the Association would support the authority of the USDA AMS to allow certifiers to waive the onsite audit requirement and perform a record-based review during the annual certification period due to Acts of God, infectious disease outbreaks, or other circumstances outside of the control of the operation.
5. The SFA requests revisions to the proposed NOP import regulations to make them more risk-based and to reduce their impact upon small and very small businesses.
a. The SFA supports the requirement for NOP Import Certificates and proposed timelines for requests from organic certifiers and submission to the ACE system.
The SFA supports the adoption of a requirement for NOP import certificates for all incoming products. Required specification of the type and quantity of organic imported products on each incoming shipment to the United States will make it easier to pinpoint a fraudulent substitution in the supply chain. Likewise, SFA supports adopting a uniform format for the NOP Import Certificates and the ten-digit NOP operation ID. The current variation between international certificates can be one of the more challenging issues in detecting potential fraud. The SFA also supports the current timeframes proposed by the rule for the organic certifier to issue an organic certificate to the organic exporter within thirty days, and the ten calendar day timeline for ensuring that the NOP Import Certificate is uploaded to the ACE system.
b. The SFA supports aligning the new definitions of “organic importer of record” and ‘organic exporter” with the definition of “handling” toward developing a risk-based system for requiring certification of such operations
The SFA does not support the proposed definitions for organic exporter and organic importer of record nor the requirement that these operations must be certified as organic handlers. First, both the definitions for organic exporter and organic importer of record would include operations that do not ever take physical possession of the products, presenting similar problems for the development of an OSP and conduct of an onsite audit, as discussed above. Second, these definitions are not appropriately aligned with the handling definition to permit any appropriate exemption based on operational scale, risk of the products exported or imported, or activities performed by the organic exporter and importer. The Association supports aligning the definitions of organic importer and exporter with the handling definition so that exemptions from the handling definition would similarly apply to these categories of businesses.
Compared to bulk products exposed to the environment, the Association emphasizes that fully-packaged and sealed products do not present the same risk for potential fraudulent substitution, exposure to prohibited substances, or commingling during export and import activities. Thus, to require organic certification for these operations is unnecessarily burdensome. As an alternative to full certification for importers of solely packaged products, it would be more reasonable to require that these operations maintain all records of NOP Import Certificates and the organic products purchased and sold. Similar to the suggestion made for broker distributors, SFA would support a requirement that such operations must make such records available to the USDA AMS or State program during normal business hours through an electronic record request. For organic exporters, the Association recognizes the value of organic certification to be able to hold such operations accountable and to enable the performance of traceability audits. Accordingly, the Association would support a certification requirement for organic exporters that take possession of organic products even if they solely handle fully packaged products.
c. The SFA is concerned about increased costs and regulatory burdens for small and very small importers of packaged products due to changes in the organic import regulations.
The SFA is particularly concerned about the potential impact of the new import requirements on smaller importers. FDA regulated importers have already devoted considerable compliance resources to meet the requirements of the Foreign Supplier Verification Program regulation. For smaller importers of packaged products where organic products make up only a small percentage of their business, the increased costs of compliance in paying for the development of an OSP, an annual onsite audit, and the proposed audit trail and fraud prevention plan requirements may result in such importers dropping packaged organic products from their product offerings. The Association notes that these importers are often an important source of products for smaller specialty food distributors and retailers and may lead to fewer organic products in the market and limited consumer choice.
6. The SFA supports the revisions for the adoption of foreign conformity systems and requests clarity on the status of current recognition agreements
Importer members of the Association support organic equivalence and recognition agreements to expand access to high quality imported organic agricultural products. In turn, the Association supports the adoption of specific requirements for equivalence agreements and assessing compliance with such agreements. However, the proposed revisions do not address recognition agreements. The Association requests clarity on the status of recognition agreements and how such agreements will be reviewed going forward. Association members do not see a significant difference in risk between recognition and equivalence agreements and would support a parallel framework for continuing to review and support recognition agreements.
7. The SFA strongly supports the authority of the NOP to enforce the organic regulations to investigate and enforce against organic fraud.
The Association supports the addition of proposed § 205.660(c) and revision to the title of § 205.661, which clarifies that the NOP may enforce the NOP regulations and OFPA against uncertified operations and operations which misrepresent the organic status of an agricultural product directly or indirectly. Even though the Agency already has this authority, the Association believes that this revision will help to put uncertified operations on notice that they bear a responsibility to prevent the perpetuation of organic fraud.
8. The SFA supports the clarification that the percentage of organic ingredients be calculated at formulation, and not after manufacture.
The SFA believes that this amendment adopts the more readily implementable approach for the industry and will result in the uniform calculation of the percentage of organic ingredients.
9. The SFA supports the inclusion of expiration dates on organic certificates generated by INTEGRITY, and that USDA AMS consider expiration of certification in a future rulemaking.
The Association supports the proposed inclusion of an expiration date on organic certificates generated by the Organic Integrity Database (INTEGRITY). While not a perfect measure for ensuring that a purchased product is in compliance because a product with a long shelf-life could have been produced prior to the current organic certification period, obtaining a current organic certificate would at least allow other entities in the supply chain to verify whether they are receiving information and product from an operation currently in compliance.
Later in the proposed rule, the Agency requests comment on whether USDA AMS should consider the expiration of certification for entities that fail to maintain their certification by submitting revisions to their OSP to their organic certifier and procuring an onsite audit of the operation. The Association would support the expiration of certification being explored in a later rulemaking. Members believe that this is a matter of fairness. It is simply not right for operations that dedicate time and resources to maintaining their certification to be treated equally to operations that do not. Furthermore, mandating the expiration of an operation’s certification should protect organic integrity by preventing an operation from holding themselves out as certified when they have not been subject to an onsite audit in the prior certification period.
10. The SFA strongly supports proposed increased regulations for the oversight of organic certifiers and encourages USDA AMS to specify minimum requirements for the performance and reporting of traceability audits.
Increased oversight and requirements for certifiers are an important part of fraud prevention in organic supply chains. Bidirectional traceability along the entire supply chain by a third-party is a critical element of a successful traceability system and to identify vulnerabilities to organic fraud. In turn, SFA appreciates that the regulation puts into place changes to support that process in requiring that certifying agents must share information to verify supply chains and conduct investigations.
However, it is not enough to require certifiers to develop written procedures for the conduct of risk-based supply chain audits and reporting of credible evidence of organic fraud. Instead, similar to the new requirement that certifiers must perform unannounced inspections on at least 5% of the operations they certify, certifiers should also be required to perform a minimum percentage of supply chain audits annually. The regulation should also require that certifiers prioritize audits in reported incidences of fraud and perform a minimum number of high risk and randomized supply chain audits. Moreover, organic certifiers should be required to publish the anonymized results of such investigations annually to educate certified operations to understand fraud risks in their supply chains. Such data will help certified operations to be more effective in recognizing potential fraud.
11. The SFA strongly opposes new and ambiguously drafted requirements for audit trail documentation and the development of fraud prevention plans because they will increase costs and place an unfair burden upon small certified organic operations.
a. The SFA strongly opposes adopting the currently proposed audit trail documentation requirements.
The ambiguous audit trail definition is likely to create confusion and uneven patterns of compliance and enforcement. The Association agrees with the Agency’s preamble position that the certified operation’s traceability responsibilities should be limited to tracing organic products one-step-back to their supplier, within their operation, and one-step-forward to their customers. This approach is similar to that of the Food Safety Modernization Act Supply Chain Program and many third-party auditing schemes and can be readily implemented by the industry. However, the adopted definition of “audit trail” does not reflect this limited responsibility. Instead, the adopted definition requires operations to obtain and retain “documentation that is sufficient to determine the source, transfer of ownership, and transportation” of any certified product produced or handled or any organic ingredient in a less than 70% organic product.
The Association is concerned that this audit trail definition will be interpreted to make an individual certified operation responsible for tracing their entire supply chain and for providing their certifier with sensitive commercial documentation that may not be relevant to traceability. First, the word “source,” though undefined, is used elsewhere in the regulation to indicate the original agricultural producer of the product. (See proposed § 205.403(d)(5) and proposed § 205.501(a)(21)). Requiring suppliers to document origin is not practical because distributors and large companies are typically unwilling to provide this information to a customer. Second, documentation sufficient to determine the “change of ownership” may be used to require operations to disclose sensitive commercial information and may not support a traceability function at the product level. Specifically, supply contracts, not shipping documents, typically indicate a change of ownership. Such contracts contain confidential commercial information operations that should not be disclosed to a certifier for the certifier to perform a traceability function. Instead, the more critical documentation for traceability is the invoice or bill of lading that arrives or ships out with a product when it is consigned to a carrier.
The SFA encourages USDA AMS to make significant revisions to clarify this definition to align what appears to be intended in the preamble with what is stated in the regulation. Specifically, SFA recommends that AMS does not adopt the existing ambiguous definition of “audit trail.” Instead, the regulation should clearly state what is intended. For example, the Association would support a requirement that each certified operation must maintain documentation sufficient to:
- identify the supplier of an agricultural product and the inbound shipment,
- trace how the product was handled or used in production while the agricultural product was under the control of the operation, and
- identify the certified operation’s customer and outbound shipment.
b. The SFA opposes requiring certified operations to specify the status of organic products on all records.
The preamble’s assumption that operations are already keeping records that identify all agricultural products specifically as “100% organic, organic, or made with organic ingredients/food groups” is misplaced. While operations typically keep individual records of incoming ingredient lots and produced lots, the organic status of the ingredient or finished product will not necessarily be readily apparent from the lot code or an individual production or batch record.
Instead, products are more typically tracked by lot or batch number, with additional information about the product stored in an inventory management system to determine the particular organic or conventional status of the lot or batch. When a certified operation can retrieve the organic status of a product from receipt through sale, a certifier can access the information necessary to perform a traceability audit. The additional task of documenting the organic status on each record will not provide a material benefit to the certifier in performing this traceability function or preventing fraud. However, changing product codes and recordkeeping practices requires multiple working hours for quality and operations personnel within an organization, and would significantly increase costs for operations with existing traceability systems.7
Thus, SFA would support removing the requirement that records must identify the specific status of the organic ingredient when the status of such products can be traced using an appropriate inventory management system.
c. The SFA strongly opposes the requirement that certified operations develop fraud prevention plans.
The Association agrees with the position taken by the Agency throughout the proposed rule that full supply chain traceability should be a responsibility of the organic certifier and not the certified operation. Because certifiers have this insight into the full supply chain, certifiers are also best positioned to detect and identify fraud. Yet, inexplicably, the requirement for certified operations to develop fraud prevention plans shifts a significant part of this burden onto certified operations. Requiring certified operations to develop fraud prevention plans is inconsistent with the commercial realities of information sharing in organic supply chains and will present potentially insurmountable challenges to certified operations, especially small and very small businesses.
The fraud prevention plan provisions direct that an operation “must include a description of the monitoring practices and procedures used to verify suppliers in the supply chain and organic status of products received, and to prevent organic fraud” (emphasis added). The preamble further describes that a robust plan would identify “critical control points in the supply chain where organic fraud or loss of organic status are most likely to occur” and include “vulnerability assessment to identify weaknesses in the operation’s practices and supply chain.”
Required verification of suppliers in the supply chain is not a commercially reasonable mandate for a certified organic operation, especially for businesses that rely on ingredient distributors and large commercial suppliers to purchase organic ingredients. As justification for this requirement, the preamble incorrectly asserts that certified operations have “first-hand knowledge of their supply chains and are therefore better placed to detect and prevent fraud than a third party.” In reality, certified operations that rely on ingredient distributors or large commercial suppliers have only limited insight into their supply chains. Ingredient distributors and suppliers typically regard detailed information about their supply chain as confidential commercial information because they have dedicated time and resources to cultivate a relationship with a producer or manufacturer to supply the certified agricultural product consistently.
The Agency recognizes the commercial reality that operations are unwilling to share confidential sourcing information in other parts of the proposed rule. As evidence of this understanding, the rule directs that organic certifiers must share information with other certifying agents to enable organic certifiers to perform supply chain audits and conduct investigations. The very need for this mandate reflects the sensitive and confidential nature of supply chain information. Yet, without any parallel provision mandating information sharing between certified organic operations, certified operations are expected to verify suppliers within the supply chain. This requirement is particularly unfriendly to small and very small businesses. The only operations that are likely to have insight into the supply chain of their ingredients are large, vertically integrated operations where a single corporation owns the production, transportation, and manufacturing. To enable very small, small, and medium-sized businesses to comply with the proposed rule, USDA AMS must remove this requirement from the proposed rule.
The second requirement to “verify the organic status of products received” is similarly frustrating for certified operations. The primary value of having an organic certifier review the practices of an organic operation and its products lies in the fact that, as a receiving operation, it is difficult to verify the status of an organic product through either physical inspection or even through product testing. Instead, certified operations place their trust in their supplier’s organic certifier to ensure that their supplier’s operation and products are produced and handled following organic standards. Again, this requirement unfairly shifts the burden of verifying organic status from the certifier to the organic operation and should also be removed from the rule.
Developing procedures to prevent fraud within an operation also presents practical challenges. Typically, the decision to commit organic fraud is a conscious choice made by the leadership of an operation. Because of the intentional element of fraud, it is challenging to build a practice or procedure to prevent it. If the organizational leadership wants to commit fraud, they will build procedures to carry it out. Meanwhile, detecting fraud to prevent it from being unintentionally perpetuated would require operations to receive significant training to recognize potential issues that have been or are likely to be associated with fraudulent activity.
If the Agency retains any fraud prevention requirement for certified operations, then the Agency must provide data, guidance, clarification, or training to train certified operations in how to recognize and detect fraud, or even what data should be used to understand existing vulnerabilities. Data currently published by the Agency is limited to a listing of fraudulent organic certificates and publishing ongoing enforcement actions. Certifiers performing traceback audits and investigations are not even required to publish their results to help operations understand how to begin to assess fraud risk. Nor does it appear that the Agency intends to provide any additional guidance, training, or resources to help operations implement these provisions.
Instead, the preamble predicts that the private sector will provide such training and cites to the Organic Trade Association’s (“OTA”) “Organic Fraud Prevention Solutions” project. However, the estimated costs for implementing this provision do not reflect the costs of providing such training, nor the robust effort envisioned by the preamble. The cited example fraud program from the OTA is estimated to cost between $320-6,000 per operation.8 OTA does not provide an exact estimate of the amount of time and resources required for an operation to complete the program and oversee its implementation as an ongoing obligation. However, OTA recommends that the program be staffed by a multi-disciplinary team led by the quality department, with support from procurement, legal, and human resources.9 Undoubtedly, the effort envisioned by OTA to develop such a plan far exceeds the estimated cost of 1.54 hours from one individual for the development of both a fraud prevention plan and to institute compliance with non-retail labeling requirements.
SFA proposes that the requirement that individual certified operations develop an organic fraud prevention plan be removed from the proposed rule in its entirety. Instead, an appropriate requirement would be for each certified operation to develop procedures for reporting potential organic fraud to its certifier and USDA AMS. The Association would also support a requirement for ongoing fraud prevention training to be offered by organic certifiers based on their investigations and traceback audits.
12. The SFA supports an extended timeline, which takes business size into account for the implementation of the Proposed Rule.
The scope of this proposed rule is ambitous and it will fundamentally change the way operations that produce or handl certified organic products do business. Accordingly, the Association believes that the current proposed timeline for implementation of one (1) year after publication in the Federal Register is too aggressive and that both large and small businesses will need more time to comply with the proposed rule’s increased requirements. This is especially true if the rule retains a structure that will require the certification of many new businesses as certified organic handling operations. The Association would support the following compliance timelines:
- two years for businesses that generate ten million dollars or more in income from certified organic sales or handle certified organic agricultural products valued at ten million dollars or more and
- three years for businesses with less than ten million dollars in income from certified organic sales or handle less than ten million dollars of certified organic agricultural products.
- five years for businesses with less than one million dollars in income from certified organic sales or handle less than one million dollars of certified organic agricultural products.
Conclusion
Organic fraud presents a significant threat to consumer trust in organic certification and how consumers value organic products. In turn, the SFA appreciates the attention that the USDA AMS has given to this issue in developing these proposed regulations to strengthen organic enforcement. However, the SFA firmly believes that efforts to reform the organic regulations must balance the risk of fraud against the cost of compliance, and adopt strategic requirements and reforms that will encourage small businesses to continue to be an important part of the organic industry. The SFA is concerned that this rule will drive increased costs of compliance throughout the supply chain that would make it difficult for small producers, manufacturers, brokers, distributors, and importers to continue to offer certified organic products. In turn, the SFA respectfully requests that the Agency consider our comments and suggested reforms to ensure that small specialty food businesses continue to play an essential role in the organic industry for years to come.
We look forward to cooperating with USDA AMS to develop a final rule that protects organic integrity while supporting small and very small businesses.
Very truly yours.
Ron Tanner
Vice President, Education, Government & Industry Relations
Specialty Food Association
1 Amended and Restated Bylaws of the Specialty Food Association, available at: https://ift.tt/2SyR0DL
2 7 C.F.R. § 205.201(b)(2).
3 7 C.F.R. § 205.201 (b)(5).
4 7 C.F.R. § 205.201 (b).
5 21 C.F.R. § 112.4(a).
6 21 C.F.R. § 117.5(a).
7 The economic impact analysis does not even consider these increased costs to operations.
8 See https://ift.tt/3nq0Ju9
9 See https://ift.tt/3nq0Ju9 -- “How much time and resources will it take? Time and resource commitment depend on the size, scope and complexity of the organic business. The program is designed to foster continuous improvement and provide each company with a reasonable entry point. Companies should expect to form a multi-disciplinary organic fraud prevention team with a designated and qualified lead to carry out a vulnerability assessment. Each company will be required first perform a prefilter or initial screening assessment followed by a more detailed assessment on high-risk ingredients or products. Quality departments are best positioned to take the lead in conducting the pre-filter and vulnerability assessment, but will be best supported by procurement, legal, and Human Resources. The program requires ongoing annual management.”
from Industry Operations https://ift.tt/3lj3k7x
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