[Federal Register Volume 82, Number 11 (Wednesday, January 18, 2017)]
[Proposed Rules]
[Pages 5746-5788]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-00601]



[[Page 5745]]

Vol. 82

Wednesday,

No. 11

January 18, 2017

Part III

Book 2 of 2 Books

Pages 5745-6166





Department of Agriculture





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Agricultural Marketing Service



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7 CFR Part 1255



Organic Research, Promotion, and Information Order; Proposed Rule

  Federal Register / Vol. 82 , No. 11 / Wednesday, January 18, 2017 / 
Proposed Rules  

[[Page 5746]]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 1255

[Document Number AMS-SC-16-0112; PR-A1]
RIN 0581-AD55


Organic Research, Promotion, and Information Order

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This rulemaking proposes the establishment of an industry-
funded promotion, research, and information program for certified 
organic products. The purpose of the program would be to strengthen the 
position of certified organic products in the marketplace, support 
research to benefit the organic industry, and improve access to 
information and data across the organic sector. The proposed program, 
the Organic Research, Promotion, and Information Order (proposed 
Order), was submitted to the U.S. Department of Agriculture (USDA) by 
the Organic Trade Association (OTA). Under the proposed Order, 
certified producers (producers) and certified handlers (handlers) with 
gross sales in excess of $250,000 for the previous marketing year of 
certified organic agricultural commodities would pay an assessment of 
one-tenth of one percent of net organic sales. Importers importing 
greater than $250,000 in transaction value of organic products for the 
previous marketing year would pay an assessment of one-tenth of one 
percent of the transaction value of certified organic products reported 
to the U.S. Customs and Border Protection (Customs or CBP). Producers, 
handlers, and importers that fall below these thresholds could choose 
to pay assessments into the program as a ``voluntarily assessed'' 
entity. The proposed program would be implemented under the Commodity 
Promotion, Research, and Information Act of 1996 (the Act) and would be 
administered by a board of assessment payers and one public member 
appointed by the Secretary of Agriculture (Secretary). An initial 
referendum would be held among mandatorily and voluntarily assessed 
entities (i.e. domestic producers, handlers, and importers) to 
determine whether they favor implementation of the program prior to it 
going into effect. This proposed rule also announces the Agricultural 
Marketing Service's (AMS) intent to request approval from the Office of 
Management and Budget (OMB) of new information collection requirements 
to implement the program.

DATES: Comments must be received by March 20, 2017. Pursuant to the 
Paperwork Reduction Act (PRA), comments on the information collection 
burden that would result from this proposal must be received by March 
20, 2017.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this proposal. Comments may be submitted on the Internet at: 
http://www.regulations.gov or to the Promotion and Economics Division, 
Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW., Room 
1406-S, Stop 0244, Washington, DC 20250-0244; facsimile: (202) 205-
2800. All comments should reference the docket number and the date and 
page number of this issue of the Federal Register and will be made 
available for public inspection, including name and address, if 
provided, in the above office during regular business hours or it can 
be viewed at http://www.regulations.gov.
    Pursuant to the PRA, comments regarding the accuracy of the burden 
estimate, ways to minimize the burden, including the use of automated 
collection techniques or other forms of information technology, or any 
other aspect of this collection of information, should be sent to the 
above address. In addition, comments concerning the information 
collection should also be sent to the Desk Office for Agriculture, 
Office of Information and Regulatory Affairs, OMB, New Executive Office 
Building, 725 17th Street NW., Room 725, Washington, DC 20503.

FOR FURTHER INFORMATION CONTACT: Heather Pichelman, Division Director, 
Promotion and Economics Division, Specialty Crops Program, AMS, USDA, 
1400 Independence Avenue SW., Room 1406-S, Stop 0244, Washington, DC 
20250-0244; facsimile: (202) 205-2800; or electronic mail: 
[email protected].

SUPPLEMENTARY INFORMATION: This rule is issued pursuant to the 
Commodity Promotion, Research, and Information Act of 1996 (the Act) (7 
U.S.C. 7411-7425).

Executive Summary

    This action invites comments on a proposed industry-funded 
research, promotion, and information program for certified organic 
products. Organic products are products produced under the authority of 
the Organic Foods Production Act of 1990 (7 U.S.C. 6501-6522) and its 
implementing regulations at 7 CFR part 205. The organic market includes 
a range of agricultural commodities such as fruits, vegetables, dairy, 
meat, poultry, breads, grains, snack foods, condiments, beverages, and 
packaged and prepared foods as well as non-food items such as fiber 
(linen and clothing), personal care products, pet food, and flowers. 
The program would be financed by an assessment on domestic producers, 
handlers and importers of organic products and would be administered by 
a board of industry members nominated by organic stakeholders and 
appointed by the Secretary. The proposed initial assessment rate would 
be one tenth of one percent of net organic sales for producers and 
handlers, and one tenth of one percent of the transaction value of 
organic products imported into the United States for importers. Citing 
domestic supply shortages, challenges with viable pest management, and 
market confusion, program proponents have proposed an organic research 
and promotion program for the purposes of: (1) Developing and financing 
an effective and coordinated program of research, promotion, industry 
information, and consumer education regarding organic commodities; and 
(2) maintaining and expanding existing markets for organic commodities.
    A referendum would be held among eligible domestic producers, 
handlers and importers to determine whether they favor implementation 
of the program prior to it going into effect. The proposal was 
submitted to USDA by the Organic Trade Association (OTA), a membership 
business association, in collaboration with the 7-member GRO Organic 
Core Committee. OTA is a membership-based trade organization 
representing growers, processors, certifiers, farmers associations, 
distributors, importers, exporters, consultants, retailers, and others 
involved in the organic sector. The GRO Organic Core Committee is a 
subset of OTA's larger Organic Research and Promotion Program Steering 
Committee. It included OTA subcommittee chairs and other industry 
leaders who built on the outreach and input from the larger committee 
to guide the development of a proposed Order.
    This proposed rule also announces AMS's intent to request approval 
from OMB of new information collection requirements to implement the 
program.

Table of Contents

I. General Information
    A. An overview of ``organic''.
    B. Does this action apply to me?

[[Page 5747]]

    C. What should I consider as I prepare my comments for AMS?
II. Executive Order 12988
III. Background
    A. Statutory and Regulatory Authority
    B. Overview of Proposal
    C. Industry Background
    D. Need for a Program
    E. Provisions of Proposed Program
    i. Definitions
    ii. Establishment of the Board
    iii. Expenses and Assessments
    iv. Promotion, Research and Information
    v. Reports, Books and Records
    vi. Miscellaneous Provisions
IV. Executive Order 12866 and Executive Order 13563
V. Regulatory Flexibility Act
VI. Executive Order 13175
VII. Civil Rights Impact Analysis
VIII. Paperwork Reduction Act
IX. List of Subjects in 7 CFR part 1255

I. General Information

A. An Overview of ``Organic''

    Organic is a labeling term that indicates that a food or other 
agricultural product has been produced in accordance with the Organic 
Foods Production Act of 1990 (OFPA) and the regulations in 7 CFR part 
205. USDA certified organic products have strict production and 
labeling requirements, and must be grown and processed according to 
federal regulations which address, among many factors, soil quality, 
animal husbandry practices, pest and weed control, and use of 
additives. Organic producers rely on natural substances and physical, 
mechanical, or biologically based farming methods to the fullest extent 
possible. Certified organic handlers must use certified organic 
ingredients (for a minimum of 95 percent of the product) and only 
approved non-organic ingredients to label processed products as 
organic. Organic producers and handlers must prevent commingling and 
contact of organic ingredients and products with non-organic products 
and substances not allowed under the USDA organic regulations.
    To make an organic claim or use the USDA Organic Seal, the final 
product must follow the applicable production, handling and labeling 
regulations and go through the organic certification process specified 
at 7 CFR part 205. To become certified, producers and handlers must 
apply to a USDA-accredited certifying agent, develop and implement an 
organic system plan, and be inspected. Organic certification allows 
producers and handlers to sell their raw or processed agricultural 
products as organic. Each production or handling operation that 
produces or handles crops, livestock, livestock products, or other 
agricultural products that are intended to be sold, labeled, or 
represented as ``100 percent organic,'' ``organic,'' or ``made with 
organic (specified ingredients or food group(s))'' must be certified 
according to the USDA organic regulations (7 CFR part 205).\1\
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    \1\ The USDA organic regulations at 7 CFR 205.101 provides for 
some exclusions and exemptions from certification. For example, a 
production or handling operation that sells agricultural products as 
``organic'' but whose gross agricultural income from organic sales 
totals $5,000 or less annually is exempt from certification but must 
comply with the applicable organic production and handling 
requirements as specified at 7 CFR 205.101(a)(1).
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B. Does this action apply to me?

    You may be potentially affected by this action if you are engaged 
in the organic industry. Potentially affected entities may include, but 
are not limited to:
     Persons (entities) that are currently certified to produce 
or handle organic products under the USDA organic regulations (7 CFR 
part 205);
    This includes entities that are currently eligible for organic 
assessment exemption under the regulations of 25 Federal marketing 
orders and 22 research and promotion (R&P) programs.\2\
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    \2\ Section 10004 of the Agricultural Act of 2014 (2014 Farm 
Bill) (Pub. L. 113-79) amended Section 501 of the Federal 
Agriculture Improvement and Reform Act of 1996 (FAIR Act) (7 U.S.C. 
7401) on February 7, 2014. AMS issued Final Rule ``Exemption of 
organic products from assessment under a commodity promotion law'' 
(80 FR 82006) on December 31, 2015.

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                                             Exempt commodities under
  Exempt commodities under R&P programs      Federal marketing orders
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Beef--7 CFR part 1260; Christmas trees--  Florida citrus--7 CFR part
 7 CFR part 1214; Cotton--7 CFR part       905; Texas citrus--7 CFR part
 1205; Dairy--7 CFR part 1150; Eggs--7     906; Florida avocados--7 CFR
 CFR part 1250; Fluid milk--7 CFR part     part 915; California--
 1160; Hass Avocados--7 CFR part 1219;     kiwifruit 7 CFR part 922;
 Highbush Blueberries--7 CFR part 1218;    Washington apricots--7 CFR
 Honey--7 CFR part 1212; Lamb--7 CFR       part 922; Washington sweet
 part 1280; Mangos--7 CFR part 1206;       cherries--7 CFR part 923;
 Mushrooms--7 CFR part 1209; Paper and     Southeastern California
 Paper-Based Packaging--7 CFR part 1222;   grapes--7 CFR part 925;
 Peanuts--7 CFR part 1216; Popcorn--7      Oregon/Washington pears--7
 CFR part 1215; Pork--7 CFR part 1230;     CFR part 927; Cranberries
 Potatoes--7 CFR part 1207; Processed      grown in the States of
 Raspberries--7 CFR part 1208; Softwood    Massachusetts, et al.--7 CFR
 Lumber--7 CFR part 1217; Sorghum--7 CFR   part 929; Tart cherries grown
 part 1221; Soybeans--7 CFR part 1220;     in the States of Michigan, et
 and Watermelons--7 CFR part 1210.         al.--7 CFR part 930;
                                           California olives--7 CFR part
                                           932; Colorado potatoes--7 CFR
                                           part 948; Georgia Vidalia
                                           onions--7 CFR part 955;
                                           Washington/Oregon Walla Walla
                                           onions--7 CFR part 956; Idaho-
                                           Eastern Oregon onions--7 CFR
                                           part 958; Texas onions--7 CFR
                                           part 959; Florida tomatoes--7
                                           CFR part 966; California
                                           almonds--7 CFR part 981;
                                           Oregon-Washington hazelnuts--
                                           7 CFR part 982; California
                                           walnuts--7 CFR part 984; Far
                                           West spearmint oil--7 CFR
                                           part 985; California dates--7
                                           CFR part 987; Pecans grown in
                                           the States of Alabama, et
                                           al.--7 CFR part 986;
                                           California raisins--7 CFR
                                           part 989; and California
                                           dried prunes--7 CFR part 993
------------------------------------------------------------------------

     Persons (entities) that import USDA certified organic 
products into the U.S.
     Persons (entities) that import products into the U.S. 
under an organic equivalency arrangement.\3\
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    \3\ The U.S. has established organic equivalency trade 
partnerships with Canada, European Union, Japan, Republic of Korea, 
and Switzerland (accessed on August 24, 2016). For more information 
on current partnerships, refer to the ``International Trade 
Partners'' page available at www.ams.usda.gov/NOPInternationalAgreements.
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C. What should I consider as I prepare my comments for AMS?

    Your comments should clearly indicate whether or not you support 
any or all of the provisions put forth for the research and promotion 
program being proposed. You should clearly indicate the reason(s) for 
the stated position(s). Your comments should also offer any recommended 
language changes that would be appropriate for your position. Please 
include relevant information and data to further support your position 
(e.g. industry and impact information, etc.). Specifically, AMS is 
requesting comments on the following items:
    1. Under the proposed Order, importers importing greater than 
$250,000 in transaction value of organic products for the previous 
marketing year would pay an assessment. AMS is seeking:
    a. Comments from importers on the proposed order, including their 
level of support and any alternatives for AMS to consider.
    b. Given the limitations of organic trade data, comments regarding 
the accuracy of information in the proposal

[[Page 5748]]

and any other data sources that AMS should consider.
    c. Comments on AMS' proposed approach of using transaction value 
rather than the proponents proposal to use gross organic sales for the 
purpose of determining assessments;
    2. Under the proposed Order, both organic food and organic non-food 
items (e.g., flowers, pet food, and personal care products) would be 
subject to assessment. AMS is seeking:
    a. Comments on the inclusion of organic non-food items under the 
proposed program.
    b. Comments regarding additional data that could support further 
analysis of the impacts and implementation of a program that includes 
organic non-food items.
    3. Under the proposed Order, producers, handlers, and importers, 
including those with trade in ``dual-covered commodities'' (i.e., 
commodities for which an existing commodity promotion program exists), 
could be subject to assessment. AMS is seeking:
    a. Comments on the proposed assessment approach, on the scenarios 
describing how entities, including those with ``dual-covered 
commodities'', could be assessed or exempted from the program, and on 
any tools that AMS should consider to minimize the burden of 
calculating assessments on the affected entities.
    b. Comments on additional procedures that would address assessments 
to be paid by or refunded to entities with ``dual-covered commodities'' 
that operate on different fiscal year calendars.
    c. Comments on the proposed de minimis level and its effects on the 
proposed program.
    4. The Regulatory Flexibility Act analysis, particularly on the 
number and size of entities covered under the proposed Order.
    5. The proposed definitions for ``gross organic sales'' and ``net 
organic sales'' given that these would be used to determine exemptions 
and calculation of assessments owed. In particular, AMS is interested 
on the impacts of using ``gross organic sales'' in instances when 
profits could be low.
    6. The proposed requirement that ``voluntarily assessed entities'' 
would need to pay assessments for the majority of years after initial 
referendum and leading up to any subsequent referenda. AMS is also 
interested in comments about the requirement that such entities would 
need to be active assessment payers should they serve on the Board.
    7. The proposed approach for the distribution of Board seats.

II. Executive Order 12988

    This rulemaking has been reviewed under Executive Order 12988, 
Civil Justice Reform. It is not intended to have retroactive effect. 
Section 524 of the Act provides that it shall not affect or preempt any 
other Federal or State law authorizing promotion or research relating 
to an agricultural commodity.
    Under section 519 of the Act, a person subject to an order may file 
a written petition with the U.S. Department of Agriculture (USDA) 
stating that an order, any provision of an order, or any obligation 
imposed in connection with an order, is not established in accordance 
with the law, and request a modification of an order or an exemption 
from an order. Any petition filed challenging an order, any provision 
of an order, or any obligation imposed in connection with an order, 
shall be filed within two years after the effective date of an order, 
provision, or obligation subject to challenge in the petition. The 
petitioner will have the opportunity for a hearing on the petition. 
Thereafter, USDA will issue a ruling on the petition. The Act provides 
that the district court of the United States for any district in which 
the petitioner resides or conducts business shall have the jurisdiction 
to review a final ruling on the petition, if the petitioner files a 
complaint for that purpose not later than 20 days after the date of the 
entry of USDA's final ruling.

III. Background

A. Statutory and Regulatory Authority

    The Organic Foods Production Act of 1990 (7 U.S.C. 6501-6522), as 
amended, provided the authority for USDA to establish the USDA organic 
regulations at 7 CFR part 205. The regulations in 7 CFR part 205 define 
`organic' as a labeling term that refers to an agricultural product 
produced in accordance with the Organic Foods Production Act of 1990 
(OFPA) and the regulations in 7 CFR part 205.
    The Act authorizes USDA to establish agricultural commodity 
research and promotion orders which may include a combination of 
promotion, research, industry information, and consumer information 
activities funded by mandatory assessments. These programs are designed 
to maintain and expand markets and uses for agricultural commodities. 
To date, there are 10 commodity promotion programs (i.e., research and 
promotion programs or R&P programs) operating under the authority of 
the Act. On February 7, 2014, section 10004 of the Agricultural Act of 
2014 (2014 Farm Bill) (Pub. L. 113-79) amended section 501 of the 
Federal Agriculture Improvement and Reform Act of 1996 (7 U.S.C. 7401), 
which authorizes generic commodity promotion programs under the various 
commodity promotion laws, to allow for an organic commodity promotion 
order. Specifically, the definition of ``agricultural commodity'' under 
section 513(1)(E) of the Act was amended to include ``products, as a 
class, that are produced on a certified organic farm (as defined in 7 
U.S.C. 6502); and certified to be sold or labeled as ``organic'' or 
``100 percent organic'' (as defined in part 205 of title 7, Code of 
Federal Regulations (or a successor regulation)). Should this proposed 
rule become final, pursuant to section 10004 of the 2014 Farm Bill, the 
regulatory language currently exempting organic commodities from 
assessment by generic commodity promotion programs created under the 
various commodity promotion laws (7 U.S.C. 7401(e)) shall no longer be 
in effect. Such commodities would then become ``dual-covered 
commodities'', and persons producing, handling and importing them would 
need to elect to pay assessments to the commodity-specific program, or 
the organic commodity promotion program. For example, an organic 
blueberry producer that is currently exempt under the Blueberry 
Research and Promotion Order may no longer be exempt upon finalization 
of an organic research and promotion order. If a blueberry producer 
would be subject to assessment under both the Blueberry Promotion, 
Research, and Information Order and the proposed organic Order, they 
would need to select which program to pay their assessments into and 
submit the required forms to effectuate that election. AMS provides 
several scenarios for how the ``dual-covered commodities'' provision 
would work in the ``Expenses and Assessments'' section of this proposed 
rule and requests public comments on this issue.
    The Act provides for a number of optional provisions that allow the 
tailoring of orders for different commodities. Section 516 of the Act 
provides permissive terms for orders, and other sections provide for 
alternatives. For example, section 514 of the Act provides for orders 
applicable to (1) producers, (2) first handlers and others in the 
marketing chain as appropriate, and (3) importers (if imports are 
subject to assessments). Section 516 states that an order may include 
an exemption of de minimis quantities of an agricultural commodity; 
different payment and reporting schedules; coverage of research,

[[Page 5749]]

promotion, and information activities to expand, improve, or make more 
efficient the marketing or use of an agricultural commodity in both 
domestic and foreign markets; provision for reserve funds; provision 
for credits for generic and branded activities; and assessment of 
imports.
    In addition, section 518 of the Act provides for referenda to 
ascertain approval of an order to be conducted either prior to its 
going into effect or within three years after assessments first begin 
under the order. An order also may provide for its approval in a 
referendum based upon different voting patterns. Section 515 provides 
for establishment of a board from among producers, first handlers and 
others in the marketing chain as appropriate, and importers, if imports 
are subject to assessment.
    This proposed rule also announces AMS's intent to request approval 
by the OMB of new information collection requirements to implement the 
program.

B. Overview of Proposal

    The 2014 Farm Bill amended the Act to allow the organic industry to 
submit a proposal for an organic R&P program. As the membership-based 
business association for the organic industry in North America, the OTA 
took on the role as a proponent group in the development of an organic 
R&P program proposal. OTA represents businesses across the organic 
supply chain and addresses all things organic, including food, fiber/
textiles, personal care products, and new sectors as they develop. To 
develop the proposal, OTA established and collaborated with the 7-
member GRO Organic Core Committee. The GRO Organic Core Committee is a 
subset of OTA's larger Organic Research and Promotion Program Steering 
Committee. It included OTA subcommittee chairs and other industry 
leaders who built on the outreach and input from the larger committee 
to guide the development of a proposed Order.
    Following the signing of the Farm Bill in February 2014, AMS met 
with OTA and other industry stakeholders, where they were informed that 
AMS works with program proponents once an industry proposal is 
submitted, and that implementing a program takes approximately 24-36 
months from the time a final proposal is submitted to AMS for review. 
Of note, AMS also shared that the timing for promulgation of an order 
depends mostly on industry support, the number of comments received, 
and whether the proposal becomes controversial.
    On May 15, 2015, OTA submitted a formal proposal for an organic R&P 
program to AMS. In its petition for a proposed organic R&P program, OTA 
outlined its outreach to the industry to garner whether there was 
support for the program. OTA stated that it, among other things, 
facilitated six webinars, six panel debates and twenty town hall 
meetings across the country between 2012 and 2013. OTA said that it 
continued through 2014 and 2015 with its outreach through participation 
in gatherings of the organic industry such as the Western Organic Dairy 
Producers Alliance Conference in California, the Minnesota Department 
of Agriculture Organic Conference, and the Pennsylvania Farmers Union 
Annual Convention, staffing booths and participating in panels at these 
events. OTA also sent direct mailings to over 17,000 organic operations 
with information regarding a proposed organic R&P program in May and 
June of 2014, with a follow up mailing to over 11,000 organic 
operations in August 2014 based on feedback from the first mailing. OTA 
also conducted phone surveys of over 3,700 organic operations in 2014. 
According to OTA, of those who responded to these surveys, twice as 
many certified organic operations supported the establishment of an 
organic R&P program as opposed the establishment of such a program. The 
proponent estimates that the completed surveys constitute a 
statistically representative sample with 11 percent of crop certificate 
holders, 13 percent of livestock certificate holders, and 8 percent of 
handling certificate holders completing the survey. The proponent group 
did not specify if any of these certificate holders were importers. AMS 
requests comments from importers conveying their views on this 
proposal.
    While OTA's advocacy for an R&P program for organic products has 
garnered many supporters in the organic community, AMS has also heard 
from some farmers and farm organizations expressing opposition. In the 
interest of correctly gauging the level and specific topics of support 
and opposition, AMS issued an announcement inviting the public to 
submit alternative proposals or partial proposals on May 18, 2015. AMS 
allowed 60 days for submissions and received eight partial proposals. 
Since this time, AMS has maintained communication with OTA as the 
agency evaluated the proposal and researched how to propose such a new 
and complex order in a manner that is both equitable and functionally 
sound.
    On April 1, 2016, AMS issued a Notice to Trade announcing a new 
procedure of posting all proposals for new R&P programs on the AMS Web 
site, with the first proposal being OTA's proposed organic R&P 
program.\4\ The eight partial proposals were also made publicly 
available.\5\ On May 3, 2016, OTA submitted a letter to the AMS 
Administrator to formally amend its proposal to include some 
stakeholder feedback and language from the partial proposals. OTA 
submitted an amended proposal along with its letter.\6\ In its amended 
proposal, OTA revised its proposed definition of ``research'' to ensure 
it included agronomic and other production oriented research. The 
proponents also revised its proposed allocation of expenditures to 
ensure the majority of funds for research would go to agricultural 
research and the majority of funds for information would go to producer 
information. In its revision, OTA clarified that regional organic 
producer Board members establish the priorities, including regional 
considerations, for investments in agricultural research. Finally, OTA 
made a number of technical edits such as staggering Board terms.
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    \4\ OTA's May 15, 2015 proposal is available on the AMS Web site 
at: https://www.ams.usda.gov/sites/default/files/media/OTAOrganicCheckoffApplicationUSDA_Combined.pdf.
    \5\ The eight partial proposals submitted are available on the 
AMS Web site at: https://www.ams.usda.gov/rules-regulations/research-promotion/proposals/organic. The following organizations 
submitted partial proposals: Food & Water Watch (FWW), the Food & 
Water Watch (FWW), the Midwest Organic & Sustainable Education 
Service (MOSES), the National Farmers Union (NFU), the Northeast 
Organic Dairy Producers Alliance (NODPA), the Northeast Organic 
Farming Association (NOFA), the Ohio Ecological Food & Farming 
Association (OEFFA), the Organic Farmers' Agency for Relationship 
Marketing (OFARM), and the Western Organic Dairy Producers Alliance 
(WODPA).
    \6\ OTA's May 2016 amended proposal is available on the AMS Web 
site at: https://www.ams.usda.gov/sites/default/files/media/Revised20Organic20TA20Proposal20Bundle200520022016.pdf.
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    Based on the information provided to date, AMS is publishing this 
proposed rule to invite comments on a proposed industry-funded 
research, promotion and information program for organic agricultural 
commodities. The program would cover the range of organic products that 
are certified and sold per the OFPA and its implementing regulations as 
well as organic products imported into the U.S. under an organic 
equivalency arrangement. Based on OTA's proposal, organic products 
would include both food items (e.g. fruits, vegetables, dairy, meat, 
poultry, breads, grains, snack foods, condiments, beverages, and 
packaged and prepared foods) \7\, and non-food items (fiber (linen

[[Page 5750]]

and clothing), supplements, personal care products, pet food, household 
products, and flowers). While the USDA organic regulations do not 
detail standards specific to non-food items, items that are 
agricultural products (e.g., pet food) and that meet the certification 
requirements of the USDA organic regulations can be certified and 
labeled ``organic'', irrespective of the end use of the product.\8\ AMS 
seeks comments about the inclusion of non-food items in the proposed 
Order and any data that could support AMS analysis of the impacts and 
implementation of a program on the non-food organic sector.
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    \7\ Of note, the USDA organic regulations at 7 CFR part 205 do 
not currently provide for organic certification of fish. Only upon 
issuance of a final rule on organic certification of fish would 
these commodities be subject to assessment under this proposed 
Order.
    \8\ In August 2005, the NOP issued a Policy Memorandum 11-2 to 
certifying agents, stating that agricultural products which meet the 
NOP certification standards can be certified and labeled 
``organic,'' irrespective of the end use of the product. Policy Memo 
11-2 is available on the AMS Web site in the NOP Handbook at: http://www.ams.usda.gov/rules-regulations/organic/handbook.
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    The program would be financed by an assessment on domestic 
producers, handlers and importers of organic products and would be 
administered by a board of industry members nominated by organic 
stakeholders and selected by the Secretary. The initial assessment rate 
would be one tenth of one percent of net organic sales for producers 
and handlers with gross annual organic sales greater than $250,000, and 
one tenth of one percent of the declared transaction value of organic 
products imported into the United States for importers of organic 
products declaring a transaction value greater than $250,000 for the 
previous marketing year. While the program would provide for an 
exemption for (a) producers and handlers with gross organic sales of 
$250,000 or less for the previous marketing year, and (b) importers 
with $250,000 or less in transaction value of imported organic products 
during the prior marketing year, it would also allow for such entities 
to voluntarily participate in the program by committing to pay 
assessments for the majority of years until the next referendum. While 
the proponent indicated a preference for mandating voluntarily assessed 
entities' participation for the seven years following the initial 
referendum, AMS has modified this period to a majority of years for the 
purpose of consistency with subsequent referenda. Exports from the 
United States would also be exempt from assessments. The purpose of 
this program would be to: (1) Develop and finance an effective and 
coordinated program of research, promotion, industry information, and 
consumer education regarding organic commodities; and (2) maintain and 
expand existing markets for organic commodities.
    A referendum would be held among eligible domestic producers, 
handlers and importers to determine whether they favor implementation 
of the program prior to it going into effect.

C. Industry Background

The Organic Marketplace
    Organic foods and non-food items started out as a niche market 
primarily sold in direct-to-consumer markets. Double-digit annual 
growth in consumer demand in most years since the 1990s have allowed 
organic products to expand from direct-to-consumer markets and 
specialty food stores to conventional supermarkets.\9\ In the following 
paragraphs, AMS used multiple data sources to describe the domestic 
production, imports, and export markets for organic products used to 
build the baseline and quantitative estimates for this proposed rule. 
Much of AMS' analysis for this rule focuses on organic production, 
which produces raw agricultural commodities, livestock feed, and 
ingredients for food and non-food items (e.g., organic grains could be 
used for flour, for animal feed, or for pet food). Further, food items 
are covered in greater detail as they comprise the majority of the 
organic market and data on non-food items is more limited. AMS invites 
comments on the justification and limitations associated with each data 
source provided and any additional information on the non-food organic 
sector.
---------------------------------------------------------------------------

    \9\ Catherine Greene, Organic Agriculture, Economic Research 
Service, USDA (last modified April 07, 2014), see Overview, 
available at http://www.ers.usda.gov/topics/natural-resources-environment/organic-agriculture.aspx.
---------------------------------------------------------------------------

    OTA's 2016 Organic Industry Survey was used as a data source in 
several sections of this proposed rule owing to its focus on 
summarizing market information and trends within the organic industry 
across both food and non-food sectors. The Nutrition Business Journal 
conducts this survey on behalf of OTA. Data from the 2016 Organic 
Industry Survey (Table 1) shows that total organic food and non-food 
sales in the U.S. tripled from 2005 to 2015.

                                                        Table 1--U.S. Organic Sales ($1,000,000)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              2005      2006      2007      2008      2009      2010      2011      2012      2013      2014      2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
Food......................................    13,260    15,629    18,188    21,571    22,497    24,123    26,336    29,023    32,335    35,952    39,754
Non-food..................................       745       938     1,182     1,649     1,800     1,974     2,195     2,455     2,770     3,152     3,555
                                           -------------------------------------------------------------------------------------------------------------
    Total.................................    14,005    16,567    19,370    23,220    24,297    26,097    28,531    31,478    35,105    39,104    43,309
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Growth (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Food......................................        19        18        16        19         4         7         9        10        11        11        11
Non-food..................................        33        26        26        40         9        10        11        12        13        14        13
                                           -------------------------------------------------------------------------------------------------------------
    Total.................................        20        18        17        20         5         7         9        10        12        11        11
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: OTA 2016 Organic Industry Survey, conducted 1/7/2016-3/25/2016

    Also shown in Table 1, sales of organic non-food items in 2015 were 
nearly five times what they were in 2005. Between 2005 and 2015, 
organic sales increased most significantly from 2005 to 2008. Non-food 
sales had its highest point in 2008 at 40 percent growth from the 
previous year. In 2009, growth of organic non-food sales fell to 9 
percent, and leveled off to between 10 and 14 percent in 2010 to 2015. 
Similarly, food sales hit a high point in 2008 at 19 percent growth 
before falling to 4 percent in 2009. Between 2010 and 2015, organic 
food sales experienced growth of 7 to 11 percent in each year.
    Sales of all food, organic and conventional, as shown in Table 2, 
has

[[Page 5751]]

increased between 3 and 5 percent in each of the last five years. In 
2005, about 2 percent of total food sales was organic; in 2015, organic 
food made up about 5 percent of total food sales. On average, organic 
food sales make up about 93 percent of total organic sales.

                                      Table 2--U.S. Sales of Organic Food Compared to Total Food Sales ($1,000,000)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              2005      2006      2007      2008      2009      2010      2011      2012      2013      2014      2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
Organic food..............................    13,260    15,629    18,188    21,571    22,497    24,123    26,336    29,023    32,335    35,952    39,754
                                           -------------------------------------------------------------------------------------------------------------
    Total food............................   566,791   598,136   628,219   659,012   669,556   677,354   713,985   740,450   760,486   787,575   807,998
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Growth (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Organic food..............................        19        18        16        19         4         7         9        10        11        11        11
                                           -------------------------------------------------------------------------------------------------------------
    Total food............................         4         6         5         5         2         1         5         4         3         4         3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: OTA 2016 Organic Industry Survey, conducted 1/7/2016-3/25/2016

    Organic foods continue to receive a price premium over their 
conventional counterparts, though the price premium fluctuates 
significantly depending upon the commodity. Organic produce and milk 
receive some of the highest price premiums over their conventional 
counterparts. These categories are also the top organic food sales 
categories.\10\ For the majority of organic produce, the price premium 
represents less than a 30 percent price differential. Milk, on the 
other hand, has been documented receiving a price premium anywhere from 
60 to 109 percent.\11\
---------------------------------------------------------------------------

    \10\ Catherine Greene, Organic Agriculture, Economic Research 
Service, USDA (last modified April 07, 2014), see Organic Market 
Overview, available at http://www.ers.usda.gov/topics/natural-resources-environment/organic-agriculture/organic-market-overview.aspx.
    \11\ Ibid.
---------------------------------------------------------------------------

    Studies show that the vast majority of American consumers purchase 
organic food products, with a 2014 Consumer Reports survey showing that 
84 percent of American consumers purchase organic food. The frequency 
at which they purchase organic food products, however, varies 
significantly. Of those surveyed, 18 percent purchase organic food 
every week. Another 18 percent purchase organic food two to three times 
a month, while 9 percent said they purchase organic food once a month. 
Thirty-nine percent said they purchased organic food rarely and 15 
percent said they never purchase organic food. One percent said they 
did not know or were unsure. Almost half of the 84 percent who buy 
organic foods, do so rarely.\12\ A study conducted by OTA and KIWI 
magazine from 2009 to 2015 on U.S. parent consumer attitudes and 
beliefs showed that 83 percent of parents say they have purchased 
organic products, and 40 percent of parents are ``making a great deal 
of effort'' to choose organic foods and products.\13\
---------------------------------------------------------------------------

    \12\ National Research Center, Organic Food Labels Survey, 
Consumer Reports (March 2014), p. 3, available at http://www.greenerchoices.org/pdf/CR2014OrganicFoodLabelsSurvey.pdf.
    \13\ Organic Trade Association, 2015 U.S. Families' Organic 
Attitudes and Beliefs--2015 Tracking Study (March 2015), available 
at https://ota.com/resources/consumer-attitudes-and-beliefs-study.
---------------------------------------------------------------------------

Domestic Producers and Production
    AMS also utilized information from the National Agricultural 
Statistics Service (NASS) 2014 Organic Production Survey.\14\ In this 
survey, NASS reports acreage, production and sales data for organic 
crops and livestock for the 2014 production year. While NASS data from 
the 2015 production year became available on September 15, 2016, AMS 
has primarily used data sources for 2014 to produce a conservative 
estimate of the quantity of assessments that would be collected from 
covered entities through this proposed program. Given the increase in 
organic acreage, sales and value of organic products in 2015, the 
quantity of assessments is likely higher than our conservative 
estimate.\15\ A high-level comparison of 2014 and 2015 survey data is 
provided in Table 3.
---------------------------------------------------------------------------

    \14\ National Agricultural Statistics Service, 2014 Organic 
Survey, U.S. Department of Agriculture (September 2015), p. 1, 
available at http://usda.mannlib.cornell.edu/usda/current/OrganicProduction/OrganicProduction-09-17-2015.pdf.
    \15\ This is also true with regard to AMS's analysis on imports.

                      Table 3--Value of Sales of Certified Organically Produced Commodities
----------------------------------------------------------------------------------------------------------------
                                                                      2014               2015           Growth
----------------------------------------------------------------------------------------------------------------
Crops, including nursery and greenhouse......................     $3,290,188,000     $3,509,632,000            7
Livestock, poultry and their products........................      2,164,792,000      2,653,840,000           23
                                                              --------------------------------------------------
    Total value of agricultural products sold................      5,454,979,000      6,163,472,000           13
----------------------------------------------------------------------------------------------------------------
Source: NASS 2014 Organic Survey and NASS 2015 Certified Organic Survey

    Prior to NASS's 2014 Organic Survey, USDA's Economic Research 
Service (ERS) collected information on U.S. organic production. Through 
analysis of USDA's Agricultural Resource Management Survey (ARMS) data, 
ERS continues to compare the costs of production and returns for 
organic and conventional production in major crop/livestock sectors, 
and analyzes other economic characteristics of organic agriculture. 
Accordingly, this proposed rule references both NASS and ERS data on 
organic production where appropriate.
    According to the NASS 2014 Organic Survey, there are 14,093 USDA-
certified organic and exempt operations in the U.S. Exempt operations 
are those with annual sales of less than $5,000, which are not 
certified, but may use the term ``organic'' to market their products. 
Exempt operations are prohibited from

[[Page 5752]]

using the ``USDA Organic'' seal. The total of certified organic 
producers in the U.S. amounts to 12,634 farms, with the remaining 1,459 
operations exempt from certification.
    Across the U.S., California has the greatest number of certified 
organic producers with 2,632 farms, 21 percent of the total U.S. 
population of certified organic producers. The next greatest is 
Wisconsin at 9 percent, followed by New York at 7 percent. The states 
of Iowa, Pennsylvania, and Washington each had 5 percent of total U.S. 
certified organic producers while Maine, Minnesota, Ohio, Oregon, and 
Vermont each have 4 percent. The following states have between 1 and 2 
percent of total U.S. certified organic producers: Colorado, 
Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, 
Kansas, Kentucky, Maryland, Massachusetts, Michigan, Missouri, Montana, 
Nebraska, New Hampshire, New Mexico, North Carolina, North Dakota, 
South Dakota, Texas, Utah and Virginia. The remaining 15 of 50 states 
have less than 1 percent of total U.S. certified organic producers.
    Because the proposed rule aims to cover all organic commodities, 
there are a variety of units of measurement that cannot be compared as 
they stand. For example, the unit of measurement for cotton is the U.S. 
Gin Universal Density Bale (bale), which is equal to 500 lbs. of lint 
cotton, while the unit of measurement for dairy products is the 
hundredweight (cwt). In an effort to address the Act requirement to 
quantify the geographical distribution of organic production in the 
United States, AMS used the 1992 ERS publication ``Weights, Measures, 
and Conversion Factors for Agricultural Commodities and Their 
Products'' to convert all data from the 2014 NASS Organic Production 
Survey into the measurement unit of pounds. While conversion factors 
for many commodities can change from year to year, this is the most up-
to-date publication by ERS with regard to conversion factors. The 
conversion factors for poultry and cattle, according to ERS, are as 
follows:

 1 dozen eggs = 1.6 pounds
 1 head of chicken = 4.3 pounds
 1 head of turkey = 20.56 pounds
 1 head of cattle = 1,091 pounds
    Using production data converted into a single, comparable unit, AMS 
has prepared an analysis of different aspects of the composition of 
organic industry production in the U.S. in 2014. Starting with Table 4, 
AMS estimated the makeup of the U.S. organic industry by production 
volume on a per pound basis.

                                      Table 4--U.S. Certified Organic Production by Agricultural Commodity Category
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Fruits         Vegetables      Field crops         Dairy           Poultry
--------------------------------------------------------------------------------------------------------------------------------------------------------
U.S................................................................              7%              13%              47%              30%               2%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: NASS 2014 Organic Survey; units of measure converted lbs. by AMS using ERS conversion factors.

    In terms of organic production volume in the U.S., field crops is 
largest with 47 percent of total volume, followed by dairy at 30 
percent, vegetables at 13 percent, fruits at 7 percent, and poultry at 
2 percent. Organic production of beef cattle, nuts and turkey makes up 
the remaining 1 percent of total organic production volume.

[[Page 5753]]

[GRAPHIC] [TIFF OMITTED] TP18JA17.039

    Figure 1 above shows the distribution of organic production by 
volume across the U.S. Of total organic production across the U.S., 
California accounts for 21 percent. Based on NASS 2014 Organic Survey 
data, California produces the majority of the volume in most 
agricultural commodities. In descending order, California produced the 
following portion of organic agricultural commodities across the U.S.: 
63 percent of nuts, 57 percent of vegetables, 50 percent of poultry 
(excluding eggs), 27 percent of fruit, 23 percent of dairy products, 23 
percent of beef cattle, and 10 percent of field crops.
    After California, Washington State is the next largest producer of 
organic commodities in the U.S. with 7 percent of total volume. The 
majority of Washington's production is in fruit, with 64 percent of the 
total organic non-citrus fruit production volume in the U.S. Florida's 
citrus industry accounts for 2 percent of all organic fruit production 
and 16 percent of U.S. organic citrus production. Washington also 
accounts for 12 percent of egg production, 6 percent production of 
vegetables, 5 percent of beef cattle, 3 percent of dairy products, and 
1 percent of field crops.
    New York, Oregon, and Wisconsin each produce 6 percent of total 
organic volume in the U.S. Second only to California, Oregon produces 8 
percent of organic vegetables. After California, New York and Oregon 
have the highest production of dairy products at 9 percent of total 
production each. New York and Oregon also produce 7 and 6 percent, 
respectively, of organic field crops. Wisconsin follows California in 
field crop production at 9 percent and in beef cattle at 3 percent. 
Wisconsin also produces 5 percent of organic dairy products, behind 
Pennsylvania at 6 percent and California.
    In summary, production of organic agriculture in the U.S. is 
primarily concentrated in five states: California with 21 percent; 
Washington with 7 percent; and New York, Oregon, and Wisconsin with 6 
percent total organic production each. In addition to these five top-
producing states, 19 states produced between 1 and 5 percent of total 
production. The remaining 26 states produced less than 1 percent of 
total certified organic production in the U.S. The total sum of 
production data at the state level does not equal total production as 
reported for the entire U.S. Rather, production data reported by state 
in each of the categories discussed previously makes up 80 percent of 
total production data as reported at the national level. The reason for 
this limitation is the withholding of data by state by NASS for 
proprietary reasons. The 20 percent absent data represent information 
that if disclosed by NASS would violate the anonymity of some of its 
survey respondents in their given states. This 20 percent absent data 
is mainly attributable to three commodities: Eggs, poultry, and cattle/
beef, which amounts to less than 2.1 of total production. The missing 
20 percent, however, would not likely alter the portions of production 
by state as they relate to each other as there are production values 
missing for 49 out of the 50 states. As discussed in Sec. Sec.  1255.40 
through 1255.47 of the proposed Order, which details the establishment 
and membership of the proposed Organic Research and Promotion Board, 
adding 2 of production to any of the proposed production regions would 
not alter the distribution of board seats. We invite comments on the 
determination that the 20 percent absent data would not be so 
significant as to modify the distribution of Board membership by 
production region.
Domestic Acreage
    The U.S. had less than 1 million acres of certified organic 
farmland in 1990. This number doubled between 1990 and 2002, and 
doubled again between 2002

[[Page 5754]]

and 2005. Figure 2 below shows combined certified organic pasture and 
cropland and farm operations for 2000 to 2011, using data from ERS.\16\ 
No data exists for 2009. Between 2005 and 2011, the amount of organic 
pasture and rangeland fluctuated, but certified organic cropland 
expanded by close to 80 percent. The organic livestock sector 
experienced even faster growth during the same time period. In 2011, 
there were roughly 5.4 million acres of certified organic farmland--
with 3.1 million acres of cropland and 2.3 million acres of rangeland/
pasture.\17\ Despite the growth in certified organic farmland over the 
last decade, certified organic farmland remains below one percent of 
the total farmland acreage in the U.S.
---------------------------------------------------------------------------

    \16\ Catherine Greene, Organic Production, Economic Research 
Service, U.S. Department of Agriculture, see Table 4. Certified 
organic producers, pasture, and cropland.
    \17\ Catherine Greene, Organic Production, Economic Research 
Service, U.S. Department of Agriculture (last modified September 27, 
2013), see Documentation, available at http://ers.usda.gov/data-products/organic-production/documentation.aspx.
[GRAPHIC] [TIFF OMITTED] TP18JA17.040

    Organic acreage data from ERS stops at 2011. NASS released its 
first report on organic production with certified operations segregated 
from exempt operations in 2011. Data from ERS and NASS overlap in 2011 
only. According to NASS, 2011 certified organic acreage totaled about 
3.65 million acres, which included 2.03 million acres of cropland and 
1.62 million acres of pasture and rangeland.\18\ In 2014, total 
certified organic acres operated was 3.64 million acres, a slight 
decrease from three years prior.\19\ As referenced earlier, data 
recently released by NASS in September 2015 shows a trend toward 
increased organic acreage (e.g., from 3.64 million acres in 2014 to 
4.36 million acres in 2015).
---------------------------------------------------------------------------

    \18\ National Agricultural Statistics Service, 2011 Certified 
Organic Production Survey, U.S. Department of Agriculture (October 
2012), p. 7, available at http://usda.mannlib.cornell.edu/usda/current/OrganicProduction/OrganicProduction-10-04-2012.pdf.
    \19\ National Agricultural Statistics Service, 2014 Organic 
Survey, U.S. Department of Agriculture (September 2015), p. 1, 
available at http://usda.mannlib.cornell.edu/usda/current/OrganicProduction/OrganicProduction-09172015.pdf; of note, NASS data 
only accounts for acres harvested, not acres under organic 
certification, which may cause organic acreage as reported in the 
survey to be underrepresented.
---------------------------------------------------------------------------

    The number of U.S. farms with acres in operation for certified 
organic production, however, increased 38 percent from 9,140 farms in 
2011 to 12,595 farms in 2014. The amount of land transitioning to 
organic in 2014 was 122,175 acres on 1,365 farms, down from 2008 at 
194,384 acres on 1,938 farms.20 21 Land transitioning to 
organic was not reported by NASS in 2011.
---------------------------------------------------------------------------

    \20\ National Agricultural Statistics Service, 2008 Organic 
Survey, U.S. Department of Agriculture, p. 1, available at https://www.agcensus.usda.gov/Publications/2007/Online_Highlights/Organics/organics_1_01.pdf.
    \21\ There is a three year transition period to convert 
conventional farmland into organic farmland. During the transition 
period, the farm must adhere to all organic practices, but it is not 
allowed to use the organic seal on products grown on that land 
during transition.
---------------------------------------------------------------------------

    Organic production has grown not only when measured in terms of 
acreage, but also when measured by the number of certified organic 
operations. When USDA first started certifying organic operations under 
the USDA organic regulations, which provided the authority for the 
National Organic Program (NOP), there were just over 7,000 certified 
organic operations. NASS reported 2011 total sales of organic products 
at more than $3.5 billion.\22\ In 2014, total certified organic sales 
were nearly $5.5 billion, up 54 percent from three years 
previously.\23\ It should be noted that sales as reported by NASS 
represent sales by producers or farmers only. The figures 
aforementioned do not encompass sales by handlers, manufacturers, or 
retailers.
---------------------------------------------------------------------------

    \22\ National Agricultural Statistics Service, 2011 Certified 
Organic Production Survey, U.S. Department of Agriculture (October 
2012), p. 7, available at http://usda.mannlib.cornell.edu/usda/current/OrganicProduction/OrganicProduction-1004-2012.pdf.
    \23\ National Agricultural Statistics Service, 2014 Organic 
Survey, U.S. Department of Agriculture (September 2015), p. 10, 
available at http://usda.mannlib.cornell.edu/usda/current/OrganicProduction/OrganicProduction-09-17-2015.pdf.
---------------------------------------------------------------------------

Geographic Distribution of U.S. Certified Operations
    One of the limitations of the NASS 2014 survey is that it does not 
include all certified organic handlers. Thus, a list of certified 
organic producers and handlers was obtained from the ``2014

[[Page 5755]]

Annual Count of USDA-NOP Certified Organic Operations'' report from the 
Organic Integrity Database managed by NOP.\24\ The 2014 data show a 
total U.S. certified organic operations (producers and handlers) at 
19,465 entities, up 5 percent from 2013. As Figure 3 shows, the 
majority of certified operations are in California with more than 4,000 
entities, or 21 percent of the U.S. total. Wisconsin had more than 
1,500 certified operations or 8 percent of the total. New York and 
Washington each had 6 percent of total U.S. certified operations with 
more than 1,000 entities apiece.
---------------------------------------------------------------------------

    \24\ NOP Organic Integrity database. Available at: https://apps.ams.usda.gov/Integrity/Reports/Reports.aspx.
[GRAPHIC] [TIFF OMITTED] TP18JA17.041

++International Markets
    Products produced in foreign countries can also be USDA certified 
organic under the USDA organic regulations and imported into the U.S. 
In addition, products produced in foreign countries can be certified to 
a foreign standard and imported into the U.S. under an organic 
equivalency arrangement. Given that importers would be assessed under a 
proposed organic R&P program, a baseline understanding of the 
international market for organic products is valuable.
    The Foreign Agricultural Service (FAS) reports on imports and 
exports of agricultural commodities flowing into and out of the U.S. 
Specific trade data is available by FAS through its Global Agricultural 
Trade System (GATS).\25\ Trade data for over 30 selected organic 
commodities show that U.S. organic exports measured more than $553 
million in value, while imports were about $1.2 billion in value in 
2014. The majority of U.S. organic exports go to Canada and Mexico at 
48 percent and 30 percent, respectively, but the U.S. also exports 
organic products to over 80 countries. Exports of organic products to 
Canada amounted to more than $265 million in 2014, while organic 
exports to Mexico totaled nearly $166 million in value. The top exports 
of organic agricultural products in 2014 were fresh apples, lettuce, 
and grapes at 21 percent, 13 percent, and 12 percent, respectively.
---------------------------------------------------------------------------

    \25\ Report to the Organic Trade Association--Preliminary 
Analysis of USDA's Organic Trade Data: 2011 to 2014. Edward C. 
Jaenicke, Iryna Demko, April 2015 http://ota.com/sites/default/files/indexed_files/OTAJaenickeMay2015_TradeDataReport.pdf.

---------------------------------------------------------------------------

[[Page 5756]]

    A key point of distinction between importers and organic producers 
and handlers is that under the regulations at 7 CFR part 205, a person 
that only sells, transports, stores, receives, or acquires products 
that are received in and remain in a container without being processed 
is ``excluded'' from certification (i.e., does not need to be 
certified). This means that, in many cases, an importer who is only 
acquiring products to then sell in the U.S. in an existing container 
(e.g., functioning as a broker) are not themselves certified. Such 
entities would not appear in NOP's database of certified operations and 
can only be captured through other data sources (e.g., through the U.S. 
Customs and Border Protection (CBP) database). According to data from 
CBP, there were more than 2,135 importers of organic products with 
codes in the Harmonized Tariff Schedule (HTS) in 2014. As reported by 
the U.S. Department of Commerce, Census Bureau, Foreign Trade 
Statistics data, organic products in the GATS database represent over 
$1.2 billion in imports for 2014. More generally, USDA reports that all 
agricultural imports were valued at $111.7 billion in 2014. Organic 
coffee, soybeans, bananas, and olive oil were the top organic 
imports.\26\ It is important to note that due to the limited number of 
established HTS codes for organic products, the organic export and 
import figures do not capture all international trade for organic 
products.
---------------------------------------------------------------------------

    \26\ Foreign Agricultural Service. Global Agricultural Trade 
System (GATS) database. U.S. Department of Agriculture. Available at 
http://www.fas.usda.gov/gats.
---------------------------------------------------------------------------

    AMS acknowledges that the limited organic trade data indicates that 
the number of importers of organic products is underreported. For this 
reason, AMS is requesting comments on how to obtain information on 
these importers for the purposes of this program.

D. Need for a Program

    In the following paragraphs, AMS summarizes three lines of 
reasoning OTA provided as evidence of the need for the establishment of 
a national organic research and promotion program. OTA's justification 
includes (1) domestic supply shortages of organic products, 
particularly feed and ingredients; (2) the need for viable pest 
management in organic production; and (3) market confusion.
Domestic Supply Shortages
    Today, 93 percent of organic sales take place in conventional and 
natural food supermarkets and chains.\27\ Organic foods are currently 
available in three out of four traditional grocery stores and about 
20,000 natural food stores across the U.S.\28\ The remaining 7 percent 
of organic food sales occur in farmers' markets, foodservice, and 
marketing channels other than retail stores. The dramatic increase in 
conventional store participation in organic sales is not due to any 
decrease of direct-to-consumer markets. Farmers' markets, to the 
contrary, have grown steadily from 1,755 markets in 1994 to 8,144 in 
2013.\29\ According to a USDA survey, farmers' market managers believed 
that more organic farmers were needed to meet consumer demand.\30\ 
According to a 2004 ERS report, ``44 percent of organic handlers 
reported short supplies of needed ingredients or products'' and ``13 
percent were unable to meet market demand for at least one of their 
organic products that year.'' \31\ In addition, 52 percent of organic 
companies said that ``a lack of dependable supply of organic raw 
materials has restricted their company from generating more sales of 
organic products.'' In a nutshell, overcoming the challenge of meeting 
the demand for U.S. organic supply requires an increase in: (a) 
Certified organic farmers, (b) organic acreage, and (c) viable pest 
management options.
---------------------------------------------------------------------------

    \27\ Catherine Greene, Organic Agriculture, Economic Research 
Service, USDA (last modified April 07, 2014), see Organic Market 
Overview, available at http://www.ers.usda.gov/topics/natural-resources-environment/organic-agriculture/organic-market-overview.aspx.
    \28\ Ibid.
    \29\ Ibid.
    \30\ Ibid.
    \31\ Catherine Green, Carolyn Dimitri, Biing-Hwan Lin, William 
McBride, Lydia Oberholtzer, and Travis Smith, Emerging Issues in the 
U.S. Organic Industry, Economic Research Service, USDA (June 2009) 
available at https://www.ers.usda.gov/webdocs/publications/eib55/17257_eib55fm_1_.pdf.
---------------------------------------------------------------------------

    U.S. producers have been challenged to keep pace with growing 
consumer demand for organic products for over a decade, and new 
statistics from the U.S. Department of Commerce show that organic 
imports play a key role in meeting U.S. demand. Among all organic 
product imports, soybeans showed the biggest jump in value from 2011 to 
2012, more than doubling to $90.2 million, and imports of organic rice, 
wheat, and other U.S. staple crops also grew.\32\ There has also been 
increasing news coverage of the organic supply shortage. In 2014, 
demand for organic eggs was up, but there were not enough U.S. farmers 
growing organic soybeans and organic corn to feed the organic chickens. 
As a result, organic egg producers cut back on production or bought 
foreign organic feed as reported by NPR.\33\ Bloomberg recently wrote 
about the lack of organic farmers and low supplies of organic feed 
grain that is restraining organic dairy production across the U.S. and 
causing ``severe shortages in the organic dairy aisle.'' \34\ Despite 
potentially higher returns, a 2015 ERS study stated that: ``the 
adoption of organic field crop production has been slow and is 
challenging due to such factors as achieving effective weed control and 
the processes involved with organic certification.'' \35\
---------------------------------------------------------------------------

    \32\ Catherine Greene, Growth Patterns in the U.S. Organic 
Industry, Amber Waves, (October 24, 2013), available at http://www.ers.usda.gov/amber-waves/2013-october/growth-patterns-in-the-us-organic-industry.aspx#.V8WgVTVWJVo.
    \33\ Dan Charles, Chickens That Lay Organic Eggs Eat Imported 
Food, and It's Pricey, NPR (February 27, 2014), available at http://www.npr.org/blogs/thesalt/2014/02/26/283112526/chickens-laying-organic-eggs-eat-imported-food-and-its-pricey.
    \34\ Lydia Mulvany, Grocery Stores Are Running Out of Organic 
Milk, Bloomberg Business (February 9, 2015), available at http://www.bloomberg.com/news/articles/2015-02-10/not-only-hipsters-cry-when-u-s-grocers-run-out-of-organic-milk.
    \35\ http://www.ers.usda.gov/media/1875181/err188.pdf William 
McBride, Catherine Greene. The Profit Potential of Certified Organic 
Field Crop Production, Economic Research Service, USDA (June 2009) 
available at
---------------------------------------------------------------------------

    There is a three-year transition period to convert conventional 
farmland into organic farmland. During the transition period, the farm 
must adhere to all organic practices, but it is not allowed to market, 
sell, use the organic seal, or otherwise represent as organic products 
grown on that land during transition. While there are several USDA 
programs (e.g. Environmental Quality Incentives Program (EQIP), 
National Institute of Food and Agriculture (NIFA), and Natural 
Resources Conservation Service (NRCS)) that are designed to assist 
farms in the transition process, this three-year period can be 
difficult. During this time, the farm internalizes the increased 
production costs of an organic farm without receiving the price premium 
and, depending on the size and existing practices of the farm, may need 
to make dramatic changes to farming techniques. The proponent OTA 
stated its belief that a national industry-funded program could aim at 
increasing organic acreage by funding farmer education programs on 
organic certification, organic labeling, and organic farming techniques 
to help encourage farmers to transition to organic and help them during 
the transitional period.
Viable Pest Management
    Organic and conventional farmers face similar challenges in finding 
the right combination of tools to help protect their products from 
pests. Just as in conventional farming, organic farming faces very real 
and imminent

[[Page 5757]]

threats from invasive species and other types of pests. There was a 
supply shortage of organic apples across the U.S. in April 2014 due to 
insect problems and some acreage reduction.\36\ Organic farmers are 
restricted to the pest management substances that are approved in the 
National List of Allowed and Prohibited Substances (National List), 
which includes limited approved pest management strategies.
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    \36\ Dan Wheat, Organic Apples May Run Out Sooner Than Usual, 
Capital Press (April 8, 2014), available at http://www.capitalpress.com/Organic/20140408/organic-apples-may-run-out-sooner-than-usual.
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    The National Organic Standards Board (NOSB), a Federal Advisory 
Committee Act (FACA) Committee, makes recommendations for amendments to 
the National List (List). Under the Sunset Provision of the OFPA, a 
substance must be reviewed by the NOSB within five years of its 
addition to the National List or its last sunset review, and renewed by 
the Secretary, or the substance will sunset. The NOSB also reviews 
petitions from individuals and organizations to add, remove, or change 
a listed substance and makes recommendations based on those petitions 
to the USDA twice a year.\37\ The List has been amended several times 
since it went into effect in 2002. Several synthetic substances that 
were once allowed on the National List are now prohibited. With the 
removal of certain substances, organic farmers must reevaluate how to 
manage particular pests with what remains available to them.
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    \37\ National Organic Program, About the National List, 
Agricultural Marketing Service, USDA (last modified on February 24, 
2015), available at http://www.ams.usda.gov/AMSv1.0/NOPPetitionedSubstancesDatabase.
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    The transition of organic apples and pears from antibiotic to non-
antibiotic fire blight management tools is one example of changing pest 
management strategies that the proponent has said the proposed Order 
could help organic producers develop. Antibiotic fire blight management 
tools were phased out of organic production in late 2014. There are a 
number of completed and ongoing studies on non-antibiotic fire blight 
management tools with approved substances, but the time lag between 
when results are released and when they can be translated into actual 
farming practices can leave organic farmers unprotected against some 
very serious pests.\38\ Additional funding for research (via an R&P 
program) could help farmers during these gaps, and could anticipate 
changes to the List so that alternative farming techniques can already 
be in place when a substance is phased out.
---------------------------------------------------------------------------

    \38\ Harold Ostenson and David Granatstein, Critical Issue 
Report: Fire Blight Control Programs in Organic Fruit, The Organic 
Center (November 2013), see page 4.
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    The proposed program could also direct additional research dollars 
towards pest management. Such funds could provide for on-farm research 
devoted to helping organic farmers develop practices and techniques for 
current and future pest management issues, such as citrus greening 
disease. There is currently no strategy, either conventional or 
organic, that has proven to be 100 percent effective at treating or 
preventing the spread of citrus greening disease. Organic citrus 
producers need viable alternatives to the non-National List materials 
currently being used to treat citrus greening disease and other pest 
issues.
Market Confusion
    The proponent group states that market confusion is another concern 
that could be addressed through R&P activities (e.g., consumer 
information). OTA cited a Consumer Reports survey to show that, while 
84 percent of U.S. consumers buy organic foods sometimes, and 45 
percent buy them at least once a month, there is a disparity in the 
marketplace between what the seal means and what consumers think it 
means.\39\ OTA points to a Natural Marketing Institute report that 
states most consumers are: (a) Unaware of the characteristics or 
regulations of organic products, (b) are unclear about the benefits, or 
(c) easily confuse it with the term ``natural''.\40\ In its proposal, 
the proponent emphasizes that the number of labels and labeling claims 
in the market today contributes to consumer confusion. OTA identifies 
consumer confusion as the basis for the development of a federal 
organic law in 1990 and states that there is an ever increasing number 
of regulated and non-regulated labels that may be used on packaging 
(e.g. natural, local, non-GMO, etc.).
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    \39\ National Research Center, Organic Food Labels Survey, 
Consumer Reports (March 2014), p. 3, available at .http://www.greenerchoices.org/pdf/CR2014OrganicFoodLabelsSurvey.pdf.
    \40\ Natural Marketing Institute, 2015 Growing the Organic 
Industry, Strategies for Brand Success (February 2015), available at 
http://www.nmisolutions.com/index.php/research-reports/health-a-wellness-reports/2015-growing-the-organic-industry-strategies-for-brand-success.
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    As one example, OTA cites recent research on U.S. and Canadian 
consumers showing that 17 percent of the people surveyed incorrectly 
believed that foods labelled ``organic'' were also locally grown. 
Another 23 percent falsely believed that local produce is grown 
organically.\41\
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    \41\ For more information see: Hannah Goldberg, People Still 
Don't Know the Difference Between ``Organic'' and ``Local'', Time 
(July 11, 2014), available at: http://time.com/2970505/organic-misconception-local/.
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    According to OTA consumer surveys in recent years, new organic 
consumers (i.e. those who only began purchasing organic products in the 
past two years) account for between 30 and 40 percent of American 
families. In 2014, 34 percent of surveyed consumers fell into this 
category.\42\ This means that for sales of organic agricultural 
commodities to maintain and expand in the long term, the industry must 
continually invest in educating consumers on the meaning of the USDA 
organic label.
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    \42\ The Organic Trade Association, 2014 U.S. Families' Organic 
Attitudes and Beliefs Study (April 2014), available at https://ota.com/what-ota-does/market-analysis/consumer-attitudes-and-beliefs-study.
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    Through an R&P program, the proponent hopes to educate those who 
are unaware of the benefits of organic products, as well as clear up 
confusion among consumers regarding what it means for food to be 
``organic''--as compared to other regulated and unregulated claims in 
the marketplace. The assessment is anticipated to generate over $25 
million annually. According to OTA, this assessment is vital to the 
long-term success of organic so that the resources of the diverse 
organic community can be pooled together to benefit the entire 
industry.

E. Provisions of Proposed Program

i. Definitions
    Pursuant to section 513 of the Act, Sec. Sec.  1255.1 through 
1255.37 of the proposed Order define certain terms that would be used 
throughout the Order. Several of the terms are common to all R&P 
programs authorized under the Act while other terms are specific to the 
proposed Order. The following discussion explains the definitions and 
provisions of the proposed Order and describes AMS's substantive 
departures from OTA's proposal.
    Sections 1255.11, 1255.13, 1255.22, 1255.27, 1255.33, 1255.34, 
1255.35, 1255.36, and 1255.37 would define the terms ``conflict of 
interest,'' ``Department or USDA,'' ``Order,'' ``person,'' 
``Secretary,'' ``State,'' ``suspend,'' ``terminate,'' and ``United 
States,'' respectively. The definitions are the same as those specified 
in section 513 of the Act.
    Section 1255.1 would define the term ``Act'' to mean the Commodity 
Promotion, Research, and Information

[[Page 5758]]

Act of 1996 (7 U.S.C. 7411-7425), and any amendments thereto.
    AMS added the term ``Agricultural inputs'' at section 1255.2 for 
consistency with the USDA organic regulations at 7 CFR part 205. 
Examples of agricultural inputs from the NASS 2014 Organic Production 
Survey description of ``production expenses'' have also been included 
for clarity. Lastly, this term also gives context to the term ``Net 
organic sales'' at section 1255.21. Thus, ``Agricultural inputs'' would 
be defined as: ``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.)''.
    AMS added the term ``Agricultural product'' at proposed section 
1255.3 for consistency with the USDA organic regulations at 7 CFR part 
205. An ``agricultural product'' would be any agricultural commodity or 
product, whether raw or processed, including any commodity or product 
derived from livestock, which is marketed in the United States for 
human or livestock consumption. This term is also necessary to remain 
consistent with the regulated and recognized terms used by certified 
entities in the U.S., and to give context to the terms ``ingredient'' 
at section 1255.19 and ``organic'' at section 1255.23.
    Consistent with the definition of ``covered person'' at 7 U.S.C. 
7401 which describes who may be subject to an organic commodity 
promotion order as ``a producer, handler, marketer, or importer of an 
organic agricultural commodity'', the definition for ``assessed 
entity'' at section 1255.4 states that this order is applicable to 
certified organic producers, certified organic handlers, and importers. 
Under the permissive terms under section 516 of the Act, the term 
``assessed entity'' also provides exemptions for covered persons. More 
specifically, any certified organic producer or certified organic 
handler (as defined in Sec. Sec.  1255.10 and 1255.9) that has gross 
organic sales in excess of $250,000 for the previous marketing year 
must pay assessments to the proposed Board.
    OTA's proposal to assess entities based on the proposed definition 
of ``gross organic sales'' (see section 1255.16) makes it challenging 
to assess importers at the U.S. port of entry, because the importer may 
engage in a variety of roles (e.g., as a wholesaler that has purchased 
the product from abroad, but has yet not sold it in the U.S., or as a 
customs broker that is paid a fee to transact customs business on 
behalf of others).\43\ An importer can, however, report on the 
transaction value (the price actually paid from the buyer to the seller 
for the merchandise) for the imported merchandise (19 CFR 152.103). 
Therefore, AMS determined that domestic importers (Sec.  1255.17) with 
a transaction value (``Entered Value'' on CBP Form 7501) greater than 
$250,000 for organic products during the previous marketing year would 
be assessed under the proposed Order.\44\ AMS seeks comments on this 
approach.
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    \43\ Customs business. ``Customs business'' means those 
activities involving transactions with CBP concerning the entry and 
admissibility of merchandise, its classification and valuation, the 
payment of duties, taxes, or other charges assessed or collected by 
CBP on merchandise by reason of its importation, and the refund, 
rebate, or drawback of those duties, taxes, or other charges. 
``Customs business'' also includes the preparation, and activities 
relating to the preparation, of documents in any format and the 
electronic transmission of documents and parts of documents intended 
to be filed with CBP in furtherance of any other customs business 
activity, whether or not signed or filed by the preparer. However, 
``customs business'' does not include the mere electronic 
transmission of data received for transmission to CBP and does not 
include a corporate compliance activity. https://www.law.cornell.edu/cfr/text/19/111.1
    \44\ U.S. Customs and Border Protection relies upon CBP Form 
7501 ``Entry Summary'' to determine relevant information (e.g., 
transaction value, classification, origin, etc.) regarding the 
imported commodity. Available at: https://www.cbp.gov/trade/programs-administration/entry-summary/cbp-form-7501.
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    Additionally, any exempt covered person may elect to participate in 
the proposed Order by remitting an assessment pursuant to Sec.  1255.52 
(see ``voluntarily assessed entity'' at sections 1255.38 and 1255.52).
    Section 1255.5 would define the term ``Board'' or ``Organic 
Research and Promotion Board'' to mean the administrative body 
established pursuant to Sec.  1255.40, or such other name as 
recommended by the Board and approved by the Secretary.
    Pursuant to the permissive terms under section 516 of the Act, the 
proposed Order would provide for three exemptions which would need to 
be applied for annually. The document the Board would use to grant an 
exemption would be a ``certificate of exemption'' which is defined as a 
certificate issued by the Board, pursuant to Sec.  1255.53, to an 
eligible certified organic producer, certified organic handler or 
importer. The three exemptions are discussed in further detail in the 
description of section 1255.53.
    Organic certification verifies that a farm or handling facility 
located anywhere in the world complies with OFPA and the USDA organic 
regulations and allows an entity to sell, label, and represent products 
as organic. The regulations at 7 CFR part 205 describe the specific 
standards required for the use of the word ``organic'' or the USDA 
organic seal on food, feed, or fiber products. For this reason, AMS 
added two new terms to the proposed Order for ``certification'' and 
``certified operation'' for consistency with the regulations at 7 CFR 
part 205. Additional language regarding the recognition of organic 
products imported under established organic equivalency arrangements is 
included in the section 1255.7 definition of ``certification or 
certified'', which is defined as: ``a determination made by a USDA-
accredited certifying agent that a production or handling operation is 
in compliance with the Organic Foods Production Act of 1990 (7 U.S.C. 
6501-6522) and the regulations in 7 CFR part 205 or to an authorized 
international standard, and any amendments thereto, and which is 
documented by a certificate of organic operation''.\45\ Section 1255.8 
defines a ``certified operation'' as a crop or livestock production 
operation, wild-crop harvesting or handling operation, or portion of 
such operation that is certified by a USDA-accredited certifying agent 
as utilizing a system of organic production or handling as described by 
the Organic Foods Production Act of 1990 (7 U.S.C. 6501-6522) and the 
regulations in 7 CFR part 205. The products that such certified 
operations are certified to produce and/or handle are documented by a 
certificate of operation, and are commonly referred to as ``certified 
organic'' or ``certified'' products.
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    \45\ The United States has trade arrangements with several 
nations to facilitate the exchange of organic products. These 
arrangements provide additional market opportunities for USDA 
organic producers. The current terms of such arrangements are 
available at: https://www.ams.usda.gov/services/organic-certification/international-trade.
---------------------------------------------------------------------------

    The USDA organic regulations at 7 CFR part 205 provide separate 
definitions for the terms ``handle'', ``handler'', ``handling 
operation'' and ``producer'' that share similarities with the Act's 
definitions for the terms ``first handler'' and ``producer''. To make a 
clear distinction between the proposed Order's terms and the Act's 
commonly used terms ``first handler'' and ``producer'', and to 
reiterate that organic products must be produced by certified entities, 
AMS departed from OTA's proposal and has changed the term in section 
1255.9 from ``organic handler'' to ``certified organic handler''. A 
``certified organic handler'' would be defined as a person who handles 
certified organic products in accordance

[[Page 5759]]

with the definition specified in 7 CFR 205.100, the requirements 
specified in 7 CFR 205.270 through 7 CFR 205.272, and all other 
applicable requirements of 7 CFR part 205 and receives, sells, 
consigns, delivers, or transports certified organic products into the 
current of commerce in the United States, the District of Columbia, the 
Commonwealth of Puerto Rico, or any territory or possession of the 
United States. Further, section 1255.10 was changed from ``organic 
producer'' to ``certified organic producer'', which is defined as a 
person who produces certified organic products in accordance with the 
definition specified in 7 CFR 205.100, the requirements specified in 7 
CFR 205.202 through 7 CFR 205.207 or 7 CFR 205.236 through 7 CFR 
205.240, and all other applicable requirements of 7 CFR part 205.
    Consistent with the Act, section 1255.11 defines ``Conflict of 
interest'' as a situation in which a member or employee of the Board 
has a direct or indirect financial interest in a person who performs a 
service for, or enters into a contract with, the Board for anything of 
economic value.
    OTA's proposed term ``covered entity'' was omitted because it was 
duplicative of the term ``assessed entities''.
    Section 1255.12 defined ``Customs or CBP'' as the United States 
Customs and Border Protection, an agency of the United States 
Department of Homeland Security.
    Section 1255.13 defined ``Department'' as the U.S. Department of 
Agriculture, or any officer or employee of the Department to whom 
authority has heretofore been delegated, or to whom authority may 
hereafter be delegated, to act in the Secretary's stead.
    The 2014 Farm Bill amendments to 7 U.S.C. 7401 (Commodity promotion 
and evaluation), which provided the authority for USDA to issue an 
organic commodity promotion order, also specified that persons covered 
by both an organic commodity promotion order and another agricultural 
commodity promotion order would be allowed to elect which order to be 
assessed under. Such ``dual-covered commodities'' include the 
commodities covered under the 22 research and promotion programs and 
the 25 marketing orders listed previously in this rule. Consistent with 
7 U.S.C. 7401, section 1255.14 would define a ``dual-covered 
commodity'' as an agricultural commodity that (a) is produced on a 
certified organic farm; and (b) is covered under both--(1) this Part; 
and (2) any other agricultural commodity promotion order issued under a 
commodity promotion law.
    More simply put, under an organic commodity promotion order, an 
organic blueberry producer (emphasis added) would be producing a 
``dual-covered commodity'', because there is already a Blueberry 
Promotion, Research and Information Order (7 CFR part 1218), and that 
order assesses blueberry producers (emphasis added). Under the proposed 
Order, an organic blueberry producer would have the option to pay into 
either the blueberry program or the organic program.
    However, only covered persons under an applicable commodity 
promotion order (which can include producers, handlers, first handlers, 
processors, importers, exporters, feeders, and seed stock producers, 
depending upon the order) are entitled to such an election. For 
example, an organic blueberry handler would not have the ability to 
elect to pay into the blueberry program instead of the organic program, 
as blueberry handlers are not ``covered'' by the blueberry program and 
are not assessed. AMS provides several scenarios for how the ``dual-
covered commodities'' provision would work in the ``Expenses and 
Assessments'' section of this proposed rule and requests public 
comments on this issue. The scenarios include how assessments would 
work for a person producing both organic and conventional products 
(i.e., ``split operations'') and a person producing multiple 
commodities.
    Many crop producers use the terms ``marketing year'' and ``crop 
year'' interchangeably.\46\ For example, the 2008 wheat crop year, was 
June 1, 2008, through May 30, 2009. Not only does the crop year vary 
for each commodity, but it also often does not coincide with the 
calendar year. For example, for peanuts, which would be a dual-covered 
commodity under the Order, producers currently pay assessments based on 
the crop year (August 1 to July 31). For the purposes of this Order, 
section 1255.15 would define ``fiscal year and marketing year'' as the 
12-month period ending on December 31 or such other period as 
recommended by the Board and approved by the Secretary. AMS invites 
public comments on additional procedures that would address assessments 
to be paid by or refunded to producers, handlers, and importers of 
dual-covered commodities covered under commodity promotion programs 
operating under different fiscal year calendars.
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    \46\ USDA ERS Farm Policy Glossary definition for ``crop year'' 
is ``the 12-month period starting with the month when the harvest of 
a specific crop typically begins''. http://www.ers.usda.gov/topics/farm-economy/farm-commodity-policy/farm-policy-glossary.aspx.
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    The definitions for the terms ``gross organic sales'' and ``net 
organic sales'' at sections 1255.16 and 1255.21, respectively, are 
highly important to those entities that could potentially be affected 
should this proposed rule become final. AMS is inviting comments 
specific to the definitions for these two terms because their wording 
establishes the structure for: (a) determining which entities are 
eligible for exemptions, and (b) calculating the assessments certified 
producers and certified handlers shall pay to the Board.
    ERS and NASS employ a variety of terms and measures to describe 
different aspects of sales and income of U.S. farms. For example, one 
descriptor of U.S. farms comes from the ERS 2012 Census of Agriculture 
Farm Typology Report, which uses farm size classifications based on a 
measure called ``gross cash farm income'' (GCFI). GCFI includes the 
farm operator's sales of crops and livestock, fees for delivering 
commodities under production contracts, government payments, and farm-
related income. Another measure, which is used in the NASS and RMA's 
(Risk Management Agency) 2014 Organic Survey, is ``value of sales'', 
which is defined as: ``the gross value of sales before taxes and 
production expenses of all organic agricultural products sold or 
removed from the place in 2014 regardless of who received the payment. 
The gross value of sales is at the commodity level and does not include 
value-added organic products''.\47\
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    \47\ USDA NASS, 2012 Census of Agriculture, Special Study: 2014 
Organic Survey. Special Tabulation on Certified Organic Farms Sales. 
Public Survey can be accessed at https://www.agcensus.usda.gov/Publications/2012/Online_Resources/Organics/ORGANICS.pdf.
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    ERS's 2014 edition of the Structure and Finances of U.S. Farms: 
Family Farm Report states that gross value of sales ``can be much 
larger than GCFI for farms with livestock production contracts, because 
the value of the livestock removed is included in gross [value of] farm 
sales. Contract producers receive a production contract fee for their 
services, but the fee is a fraction of the value of livestock 
removed.\48\ In other words, a dairy farmer operating under a 
production contract to raise heifers, or a poultry operation under a 
production contract to raise broilers,

[[Page 5760]]

could both have high gross sales, but low net profit. AMS is requesting 
public comment on this issue owing to its being highlighted as an issue 
of concern in a partial proposal submitted to AMS from an organic dairy 
producers association.\49\
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    \48\ Hoppe, Robert A. Structure and Finances of U.S. Farms: 
Family Farm Report, 2014 Edition, EIB-132, U.S. Department of 
Agriculture, Economic Research Service, December 2014. Accessed at 
www.ers.usda.gov/publications/eib-economic-information-bulletin/eib132.
    \49\ Northeast Organic Dairy Producers Alliance, Partial 
proposal on an organic commodity promotion order. https://www.ams.usda.gov/sites/default/files/media/OrganicCheckoffPartialProposal20NODPA207.18.15.pdf.
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    In an effort to reduce the burden of reporting time associated with 
this proposed program, AMS researched what measures of sales and 
incomes that private businesses already calculate on an annual basis 
for the purpose of filing U.S. income tax returns. Consequently, for 
the purposes of clarity and bringing the definition closer into 
alignment with the IRS definition of ``gross receipts'', AMS has chosen 
not to adopt OTA's proposed definition for ``gross organic revenue'', 
which was defined as: ``total gross sales in organic products''. AMS 
instead proposes the term: ``Gross organic sales'', which would be 
defined at section 1255.16 as: ``the total amount the person received 
for all organic products during the fiscal year without subtracting any 
costs or expenses.''
    As previously noted, importers currently do not need to be 
certified. Given this point, section 1255.17 would define an 
``importer'' as: any person who imports certified organic products from 
outside the United States for sale in the United States as a principal 
or as an agent, broker, or consignee of any person who produces organic 
products outside the United States for sale in the United States, and 
who is listed in the import records as the importer of record for such 
organic products. Importers of organic products can be identified 
through organic certificates, import certificates, HTS codes, or any 
other demonstration that they meet the definition above.
    Section 1255.18 would define ``information'' as information and 
programs for consumers, the organic industry, and producers. This 
includes educational activities and information and programs designed 
to enhance and broaden the understanding of the use and attributes of 
organic products, increase organic production, support the transition 
of acres and farms to organic production in the United States, provide 
technical assistance, maintain and expand existing markets, engage in 
crisis management, and develop new markets and marketing strategies. 
These include:
    (a) Consumer education, advertising and information, which means 
any effort taken to provide information to, and broaden the 
understanding of, the general public regarding organic products; and
    (b) Industry information, which means information and programs that 
would enhance the image of the organic industry, maintain and expand 
existing markets, engage in crisis management, and develop new markets 
and marketing strategies; and
    (c) Producer information, which means information related to 
agronomic and animal husbandry practices and certification 
requirements, and information supporting the sustainable transition of 
acreage, farms and ranches to organic production in the United States, 
long-term system management, increasing organic production, direct and 
local marketing opportunities, export opportunities, and organic 
research.

AMS notes that the proposed definition incorporates feedback on the 
definition from a number of partial proposals.
    AMS added the term ``ingredient'' at proposed section 1255.19 for 
consistency with the USDA organic regulations at 7 CFR part 205 and to 
give context to the terms ``net organic sales'' at section 1255.21. An 
``ingredient'' would be defined to mean: any substance used in the 
preparation of an agricultural product that is still present in the 
final commercial product as consumed.
    Section 1255.20 would define the term ``National Organic Program'' 
to mean: the program authorized by the Organic Foods Production Act of 
1990 (OFPA) (7 U.S.C. 6501-6522) for the purpose of implementing its 
provisions.
    Distinct from the commonly held definition of ``net sales'', which 
can be described as: The amount of sales generated after the deduction 
of returns, allowances for damaged or missing goods and any discounts 
allowed, section 1255.21 would define ``Net organic sales'' to mean: 
Gross sales in organic products minus (a) the cost of certified organic 
ingredients, feed, and agricultural inputs used in the production of 
organic products and (b) the cost of any non-organic agricultural 
ingredients used in the production of organic products.\50\
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    \50\ The regulations at 7 CFR part 205 specify strict conditions 
for the use of non-organic agricultural ingredients in organic 
products.
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    Section 1255.22 would define ``Order'' to mean: An order issued by 
the Secretary under section 514 of the Act that provides for a program 
of generic promotion, research, education and information regarding 
organic products authorized under the Act.
    OTA's proposed term ``organic certificate holder'' was omitted 
because it was duplicative of the terms ``certified organic handler'' 
and ``certified organic producer''.
    For statutory and regulatory consistency, AMS added the term 
``organic'' at section 1255.23 to mean: A labeling term that refers to 
an agricultural product produced in accordance with the Organic Foods 
Production Act of 1990 (OFPA) 1990 (7 U.S.C. 6501-6522) and the 
regulations in 7 CFR part 205. The primary purpose of the term 
``organic'' in the proposed Order is as a modifier in reference to 
products produced by certified organic producers and/or certified 
organic handlers. For clarification, the phrase ``organic products'' 
used throughout the Order are synonymous with the terms: ``certified 
products'' or ``certified organic products''.\51\
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    \51\ The term ``organic'' is also used in the terms ``certified 
organic handler'' at section 1255.9 and ``certified organic 
producer'' at section 1255.10, to more clearly identify the types of 
products such entities are certified to sell.
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    Section 1255.24 would define ``organic products'' to mean: Products 
produced and certified under the authority of the Organic Foods 
Production Act of 1990 (7 U.S.C. 6501-6522) and the regulations in 7 
CFR part 205 or to an authorized international standard, and any 
amendments thereto.
    Section 1255.25 would define Organic Trade Association (OTA) as a 
membership business association who, in collaboration with the GRO 
Organic Core Committee, petitioned USDA for the Organic Research, 
Promotion, and Information Order. OTA is a membership-based trade 
organization representing growers, processors, certifiers, farmers 
associations, distributors, importers, exporters, consultants, 
retailers, and others involved in the organic sector. The GRO Organic 
Core Committee is a subset of OTA's larger Organic Research and 
Promotion Program Steering Committee. This was added to clarify the 
organization who would assist the Department with nominations for the 
initial Board under section 1255.41.
    Section 1255.26 would define ``part'' to mean: The Organic 
Research, Promotion, and Information Order and all rules, regulations, 
and supplemental orders issued pursuant to the Act and the Order. The 
Order shall be a subpart of such part.
    Throughout the order, the terms ``person/persons'' and ``entity/
entities'' are often used interchangeably. Section 1255.27 would define 
``person'' to mean: Any individual, group of individuals, partnership, 
corporation,

[[Page 5761]]

association, cooperative, or any other legal entity.\52\ Comparable to 
the same definition at 7 CFR part 205, section 1255.28 would define a 
``product processor'' as: a certified organic handler who cooks, bakes, 
heats, dries, mixes, grinds, churns, separates, extracts, cuts, 
ferments, eviscerates, preserves, dehydrates, freezes, or otherwise 
manufactures organic products, and includes the packaging, canning, 
jarring, or otherwise enclosing organic food in a container.
---------------------------------------------------------------------------

    \52\ Under existing research and promotion programs, the 
identification method for a ``person'' or ``entity'' is a taxpayer 
identification number (TIN) used by the Internal Revenue Service 
(IRS).
---------------------------------------------------------------------------

    Section 1255.29 would define ``programs, plans and projects'' to 
mean: Those research, promotion, and information programs, plans or 
projects established pursuant to the Order.
    Section 1255.30 would define ``promotion'' to mean: Any action, 
including paid advertising and the dissemination of information, 
utilizing public relations or other means, to enhance and broaden the 
understanding of the use and attributes of organic products for the 
purpose of maintaining and expanding markets for the organic industry.
    Section 1255.31 would define the term ``Qualified State Commodity 
Board'' to mean: For purposes of section 1255.54 governing assessment 
offsets, an existing or future producer or handler governed entity--
    (a) That is authorized by State law or a State government agency;
    (b) That is organized and operating within a State;
    (c) That is not federally administered; and
    (d) That receives mandatory contributions and conducts promotion, 
research, and/or information programs.
    In response to stakeholder feedback obtained from the partial 
proposals previously mentioned, OTA's May 2016 revised proposal 
broadened the proposed definition of ``research'' to include 
agricultural research as a priority. Therefore, section 1255.32 would 
define ``research'' to include definitions for both agricultural and 
other research:
    (a) Agricultural research includes any type of investigation, 
study, evaluation or analysis (including related education, extension, 
and outreach activities) designed to improve organic farm production 
systems and practices, increase farm profitability and productivity, 
expand organic farming opportunities, and enhance sustainability for 
farms, farm families and their communities; enhance plant and animal 
breeding and varietal development for organic systems and improve the 
availability of other production inputs; optimize natural resource 
conservation, biodiversity, ecosystem services, and other environmental 
outcomes of organic agriculture, and advance organic farm and food 
safety objectives.
    (b) Other research includes any type of investigation, study, 
evaluation or analysis (including related education, extension, and 
outreach activities) designed to enhance or increase the consumption, 
image, desirability, use, marketability, or production of organic 
products; or to do studies on nutrition, market data, processing, 
environmental and human health benefits, quality of organic products, 
including research directed to organic product characteristics and 
product development, including new uses of existing organic products, 
new organic products or improved technology in the production, 
processing and packaging of organic products.
    Section 1255.33 would define ``Secretary'' to mean: The Secretary 
of Agriculture of the United States, or any other officer or employee 
of the Department to whom authority has been delegated, or to whom 
authority may hereafter be delegated, to act in the Secretary's stead.
    Section 1255.34 would define ``state'' as: Any of the 50 States of 
the United States, the District of Columbia, the Commonwealth of Puerto 
Rico, or any territory or possession of the United States.
    Section 1255.35 would define ``suspend'' to mean: To issue a rule 
under 5 U.S.C. 553 to temporarily prevent the operation of an order or 
part thereof during a particular period of time specified in the rule.
    Section 1255.36 would define ``terminate'' to mean: To issue a rule 
under 5 U.S.C. 553 to cancel permanently the operation of an order or 
part thereof beginning on a date certain specified in the rule.
    Section 1255.37 would define ``United States'' to mean: 
Collectively the 50 States, the District of Columbia, the Commonwealth 
of Puerto Rico and the territories and possessions of the United 
States.
    Section 1255.38 would define a ``voluntarily assessed entity'' to 
mean: Any covered person with gross organic sales or transaction value 
of $250,000 or less for the previous marketing year that elects to 
participate in the Order by remitting an assessment pursuant to Sec.  
1255.52.
ii. Establishment of the Board
    Pursuant to section 515 of the Act, Sec. Sec.  1255.40 through 
1255.47 of the proposed Order would detail the establishment and 
membership of the proposed Organic Research and Promotion Board, 
nominations and appointments, the term of office, removal and 
vacancies, procedure, reimbursement and attendance, powers and duties, 
and prohibited activities.
    Section 1255.40 would specify the Board establishment and 
membership. The Board would be composed of mandatorily and voluntarily 
assessed entities (i.e. domestic certified organic producers, handlers, 
and importers for the U.S. market who produce, handle, and import 
organic products in the United States during a fiscal period). The 
Board would be comprised of 17 seats as follows: 8 certified organic 
producer seats (including a voluntarily assessed producer), 7 certified 
organic handler seats, one importer seat, and one at-large public 
member, who shall be a non-voting member. Thus, each voting member of 
the board represents 6.25 percent of the votes.
    While OTA's proposal took the approach of distributing the producer 
seats based on the number of certified operations per state (see Table 
5), AMS took a different approach to ensure consistency with section 
7414 of the Act. Section 7414 of the Act states that ``the composition 
of each board shall reflect the geographical distribution of the 
production of the agricultural commodity involved in the United States 
and the quantity or value of the agricultural commodity imported into 
the United States''. For this reason, AMS combined the commodity-level 
production data available from the 2014 NASS Organic Production Survey 
to estimate certified organic production as a whole for each state. As 
previously mentioned, AMS used ERS conversion factors to convert 
commodity production volumes (e.g. bushels of blueberries, gallons of 
milk, tons of grapes, etc.) to the same measurement of pounds. This 
made it possible to generate an estimate of the percent certified 
organic production by state, and combine them into ``production 
regions'' representing the number of producer seats that OTA proposed.
    Table 5, below, shows the geographical distribution of producer 
board seats by region as proposed by OTA in May 2016. The portion of 
total U.S. certified organic production and certified organic farm 
operations has been calculated to illustrate how the proposed 
distribution comports with the Act. As previously stated, NASS data on

[[Page 5762]]

certified organic production at the state level represents around 80 
percent of total production at the national level. This is due to 
proprietary concerns that prevent NASS from publishing data on a more 
micro level.

                             Table 5--Geographic Regions As Proposed by OTA, May 216
----------------------------------------------------------------------------------------------------------------
                                                                    Portion of      Portion of
                                                                       U.S.            U.S.
                                                                     certified       certified      Board seats
                                                States                organic      organic  farm   for producers
                                                                    production      operations
                                                                     (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Region 1...........................  AK, AZ, CO, HI, ID, MT, NM,              20              16               1
                                      NV, OR, UT, WA, WY.
Region 2...........................  CA.........................              21              21               1
Region 3...........................  IL, IN, MI, WI.............              10              15               1
Region 4...........................  AR, IA, KA, LA, MN, MO, NE,              11              15               1
                                      ND, OK, SD, TX.
Region 5...........................  AL, DE, DC, FL, GA, KY, MD,               8              16               1
                                      MS, NC, NJ, OH, PA, SC,
                                      TN, VA, WV.
Region 6...........................  CT, ME, MA, NH, NY, RI, VT.              10              17               1
Voluntarily assessed entity........  ...........................  ..............  ..............               1
                                                                 -----------------------------------------------
    Total..........................  ...........................              80             100               7
----------------------------------------------------------------------------------------------------------------
Source: NASS 2014 Organic Survey data; calculations by AMS.

    It should be noted that the proponent group revised its proposed 
regions in July 2016 after discussions with AMS. The revision changed 
the number of regions to 7, divided as follows:
    (1) AK, AZ, HI, NM, NV, OR, WA, 6 Southern CA counties;
    (2) The remaining counties of CA;
    (3) IL, MI, WI;
    (4) AR, IA, IN, MO, OH;
    (5) MA, ME, NH, NY, VT;
    (6) AL, CT, DE, FL, GA, KY, LA, MD, MS, NC, NJ, PA, RI, SC, TN, VA, 
WV;
    (7) CO, ID, KA, MN, MT, ND, NE., OK, SD, TX, UT, WY.
    In its July 2016 revision, the proponent group also changed 
``voluntarily assessed entity'' to ``voluntarily assessed producer'', 
thereby adding another producer seat to the board and bringing total 
producer seats to 8 out of 17 total board members. The absence of NASS 
production data at the county level makes it difficult to estimate the 
production volume that would result from dividing California into two 
separate regions.
    Table 6 shows an example of the regions similar to OTA's proposal 
divided by AMS using certified organic production volume rather than 
number of certified organic entities.

                            Table 6--Geographic Regions Divided by Production Volume
----------------------------------------------------------------------------------------------------------------
                                                                    Portion of      Portion of
                                                                  U.S. certified  U.S. certified
                                                States                organic      organic farm     Board seats
                                                                    production      operations     for producers
                                                                     (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Region 1...........................  AK, CA, HI.................              21              22               2
Region 2...........................  OR, WA.....................              13               9               1
Region 3...........................  AZ, CO, ID, KA, MT, NE, NV,              12              11               1
                                      NM, ND, OK, SD, TX, UT, WY.
Region 4...........................  IA, MN, WI.................              11              17               1
Region 5...........................  AL, AR, DE, FL, GA, IL, IN,              12              24               1
                                      KY, LA, MD, MI, MS, MO,
                                      NJ, NC, OH, PA, SC, TN,
                                      VA, WV.
Region 6...........................  CT, ME, MA, NH, NY, RI, VT.              10              17               1
Voluntarily assessed producer......  ...........................  ..............  ..............               1
                                                                 -----------------------------------------------
    Total..........................  ...........................              80             100               8
----------------------------------------------------------------------------------------------------------------
Source: NASS 2014 Organic Survey data; calculations by AMS.

    As proposed, of the 8 producer seats, one would be an at-large, 
voluntarily assessed certified organic producer. The remaining 7 seats 
were spread among 6 production regions as shown by Table 6. Of the 6 
regions, 5 regions represent between 10 and 13 percent of certified 
organic production in the U.S. Region 1, which represents Alaska, 
California, and Hawaii, represents 21 percent of certified organic 
production. Due to the lack of county-level data that would make it 
possible to divide California into two regions, Region 1 would hold 2 
certified organic producer seats. Remaining Regions 2 through 6 would 
each hold one certified organic producer seat. Specific areas within 
each production region would be specified in Sec.  1255.40(b)(1) of the 
proposed Order. The proposed production regions are shown below in 
Figure 4.

[[Page 5763]]

[GRAPHIC] [TIFF OMITTED] TP18JA17.042

    Based on the Act, the composition of each board should reflect 
``the quantity or value of the agricultural commodity imported into the 
United States''. It would be difficult to determine the number of 
importer seats based on quantity; therefore, the proposal relies upon 
value of imports to determine importer representation on the Board. As 
previously mentioned, a single member's vote out of the 16 voting 
members would represent a little over 6 percent of the total votes. 
Thus, the single importer seat on the Board would constitute 6 percent 
of the vote. As a share of the total estimated assessment revenue from 
the proposed Order, about 5 percent would come from total assessments 
on importer sales value of organic products (see Table 7). Comparing 
these two proportions indicates that the share of the single importer 
seat on the Board (6 percent) is similar to the share of the total 
estimated assessment revenue that importers would pay into the program 
(5 percent).
    Seven members would be certified organic handlers at large, but of 
those seven members, two shall be product processors as defined in 
section 1255.28. OTA chose to have product processor member 
representation on the Board for the purpose of providing representation 
for the diversity of the organic value chain. One member shall be an 
importer of organic products. For clarity, with the exception of the 
at-large public member, both voluntarily and mandatorily assessed 
entities are eligible to be nominated for the Board seats for which 
they meet the definitions. AMS invites comments on the proposed 
distribution of Board seats for producers, handlers, and importers.
    OTA also opted to have no alternate Board members. The proponent 
stated that it wanted to ensure that industry members who seek 
representation and serve on the Board are committed to their service 
and participate in all Board meetings.
    At least once in every five-year period, but not more frequently 
than once in every 3-year period, the Board must review, based on a 3-
year average, the geographical distribution of production of organic 
agricultural commodities and the value of organic agricultural 
commodities imported into the United States. The review would be 
conducted using the surveys and databases generated and maintained by 
USDA (e.g. NASS surveys, the NOP Organic Integrity Database (OID), the 
GATS database, ITDS/ACE, etc.) and, if available, other reliable 
reports from the industry. If warranted, the Board would recommend to 
the Secretary that the Board membership be reapportioned appropriately 
to reflect such changes. The distribution of production between regions 
also shall be considered. Any changes in Board composition would be 
implemented by the Secretary through rulemaking.
    Further, OTA wanted to periodically consider reapportionment based 
on the participation rate of voluntarily assessed entities. Hence, at 
least once in every five-year period, but not more frequently than once 
in every 3-year period, the Board would review the annual assessment 
receipts for voluntarily assessed entities in order to determine if the 
size of the Board should be changed to reflect changes in the number of 
participating voluntarily assessed entities. If warranted, the Board 
would recommend to the Secretary that the Board membership be 
reapportioned appropriately to reflect such changes. Any changes in 
Board composition would be implemented by the Secretary through 
rulemaking.
    Section 1255.41 of the proposed Order would specify Board 
nominations and appointments. While the proponent proposed for Board 
candidates to submit

[[Page 5764]]

nominations for the initial and subsequent Boards directly to the 
Secretary, this would be inconsistent with the Department's role in the 
nomination process with respect to the research and promotion programs 
that were established under the Act. Therefore, the initial nominations 
would be conducted by OTA with the support of USDA. Before considering 
any nominations, OTA and USDA would publicize the nomination process, 
using trade press or other means it deems appropriate, and conduct 
outreach to all U.S. certified organic producers, certified organic 
handlers, and importers of organic products. OTA would use meetings, 
mail or other methods to solicit potential nominees and would work with 
USDA to help ensure that all interested persons are apprised of the 
nomination process. Entities that are a combination of a certified 
organic producer, certified organic handler, or importer could seek 
nomination to the Board in any role for which they meet the definitions 
provided at sections 1255.9, 1255.10, and 1255.17. Further, voluntarily 
assessed certified organic producers may seek nomination to the Board 
for the voluntarily assessed certified organic producer seat or for the 
certified organic producer seat for which they are geographically 
qualified. Once OTA has received all of the nominations, the 
information will be submitted to the Secretary for appointment. 
Nominations for the initial Board will be handled by USDA.
    Regarding subsequent nominations, the Board would solicit 
nominations using trade press or other means it deems appropriate, and 
shall conduct outreach to: (1) All U.S. certified organic producers and 
certified organic handlers with gross organic sales in excess of 
$250,000 for the previous marketing year, (2) importers of organic 
products that declared a transaction value greater than $250,000 for 
the previous marketing year, and (3) all voluntarily assessed entities 
who have remitted assessments subject to section 1255.52(d) (e.g., 
``opted into the program''). Entities that are a combination of a 
certified organic producer, certified organic handler, or importer 
could seek nomination to the Board in any role (certified organic 
producer, certified organic handler, and importer) for which they meet 
the definitions provided at sections 1255.9, 1255.10, and 1255.17. 
Further, voluntarily assessed certified organic producers may seek 
nomination to the Board for the voluntarily assessed certified organic 
producer seat or for the certified organic producer seat for which they 
are geographically qualified. All Board nominees would have the 
opportunity to provide to the Board a short background statement 
outlining their qualifications and desire to serve on the Board. 
Entities that are a combination of a certified organic producer, 
certified organic handler, or importer could also vote in the 
nomination process described below for the certified organic producer, 
certified organic handler, and importer nominees, provided they are 
geographically qualified and meet the definitions provided at 1255.9, 
1255.10, and 1255.17. The producer nomination process is described 
below:
    Certified organic producers who produce organic agricultural 
commodities in more than one region could seek nomination in only the 
region in which they are domiciled. The names of certified organic 
producer nominees (producer nominees) would be placed on a ballot by 
region. For the seven Board seats allocated by geographic region, 
certified organic producers must be domiciled in the region for which 
they seek nomination. The names of producer nominees would be placed on 
a ballot by region. The ballots along with any background statements 
would be mailed to the certified organic producers with gross organic 
sales in excess of $250,000, and any voluntarily assessed certified 
organic producer in that region that has remitted an assessment 
pursuant to section 1255.52(d) for the previous marketing year for a 
vote. Domestic certified organic producers may vote in each region in 
which they produce organic products. The votes would be tabulated for 
each region with the nominee receiving the highest number of votes at 
the top of the list in descending order by vote. The top two candidates 
for each position would be submitted to the Secretary.
    The names of the nominees for the ``at-large'' voluntarily assessed 
domestic certified organic producer seat would also be placed on a 
ballot. The ballots along with any background statements would be 
mailed to all voluntarily assessed certified organic producers for a 
vote. The votes would be tabulated with the nominee receiving the 
highest number of votes at the top of the list in descending order by 
vote. The top two candidates for the position would be submitted to the 
Secretary.
    The names of the nominees for the five ``at-large'' domestic 
certified organic handler seats and the two ``at-large'' product 
processor seats would also be placed on a ballot. The ballots along 
with any background statements would be mailed to all certified organic 
handlers with gross organic sales revenue in excess of $250,000, and 
any voluntarily assessed certified organic handlers who have remitted 
an assessment pursuant to section 1255.52(d) for the previous marketing 
year for a vote. The votes would be tabulated with the nominee 
receiving the highest number of votes at the top of the list in 
descending order by vote. The top ten candidates for the handler 
positions and the top four candidates for the product-processor seats 
would be submitted to the Secretary.
    The names of the nominees for the importer seat would also be 
placed on a ballot. The ballots along with any background statements 
would be mailed to importers who imported a transaction value for 
organic products in excess of $250,000, and any voluntarily assessed 
importers who have remitted an assessment pursuant to 1255.52(d) for 
the previous marketing year for a vote. The votes would be tabulated 
with the nominee receiving the highest number of votes at the top of 
the list in descending order by vote. The top two candidates would be 
submitted to the Secretary. The names of the nominees for the ``at-
large'' non-voting public member seat would also be placed on a ballot.
    The ballots along with any background statements would be mailed 
to: (1) All U.S. certified organic producers and certified organic 
handlers with gross organic sales in excess of $250,000 in the previous 
marketing year, (2) importers of organic products that declared a 
transaction value greater than $250,000 for the previous marketing 
year, and (3) all voluntarily assessed entities who have remitted 
assessments subject to section 1255.52(d) (e.g. ``opted into the 
program''). The votes would be tabulated with the nominee receiving the 
highest number of votes at the top of the list in descending order by 
vote. The top two candidates would be submitted to the Secretary.
    The Board would submit nominations to the Secretary at least 6 
months before the new Board term begins. The Secretary would select the 
members of the Board from the nominations submitted by the Board. OTA 
also recommended that no two board members be employed by a single 
corporation, company, partnership or any other legal entity. Further, 
OTA recommended that Board membership should strive to reflect a wealth 
of marketing and research experience as well as the wide variety of 
business attributes reflected throughout the organic supply chain (i.e. 
quantity and

[[Page 5765]]

type of products produced, entity size, etc.). This is to help ensure 
that representation on the Board is balanced.
    In order to provide the Board flexibility, the Board could 
recommend to the Secretary modifications to its nomination procedures. 
Any such modifications would be implemented through rulemaking by the 
Secretary.
    Section 1255.42 of the proposed Order would specify the term of 
office. With the exception of the initial Board, each Board member 
would serve a three-year term or until the Secretary appointed his or 
her successor. Each term of office would begin on January 1 and end on 
December 31. No member could serve more than two consecutive terms, 
excluding any term of office less than three year terms, and no single 
corporation, company, partnership or any other legal entity can be 
represented on the Board by an employee or owner for more than two 
consecutive terms. For the purpose of ensuring that no more than 
approximately one-third of the Board members' terms expire in any given 
year, the terms of the initial Board members would be staggered for 
two, three and four years and would be recommended to the Secretary by 
the proponent group.
    Section 1255.43 of the proposed Order would specify criteria for 
the removal of members and for filling vacancies. If a Board member 
ceased to work for or be affiliated with a certified organic producer, 
certified organic handler, or importer or ceased to do business in the 
region he or she represented, such position would become vacant. 
Additionally, the Board could recommend to the Secretary that a member 
be removed from office if the member consistently failed or refused to 
perform his or her duties or engaged in dishonest acts or willful 
misconduct. The Secretary could remove the member if he or she finds 
that the Board's recommendation shows adequate cause. If a position 
became vacant, nominations to fill the vacancy would be conducted using 
the nominations process as proposed in Sec.  1255.41 of the Order. A 
vacancy would not be required to be filled if the unexpired term is 
less than six months.
    Section 1255.44 of the proposed Order would specify procedures of 
the Board. A majority (9) of the voting Board members would constitute 
a quorum. If participation by telephone or other means were permitted, 
members participating by such means would count towards the quorum 
requirements or other voting requirements as authorized under the 
Order. Proxy voting would not be permitted. A motion would carry if 
supported by 9 voting Board members, except for recommendations to 
change the assessment rate or to adopt a budget, both of which would 
require affirmation by at least two-thirds (11) of the voting Board 
members. If the Board has vacant positions, recommendations to change 
the assessment rate or to adopt a budget would have to pass by an 
affirmative vote of two-thirds of the voting Board members, exclusive 
of the vacant seats.
    For example, if a 16 voting member Board had a vacancy, there would 
be 15 voting Board members. If the Board held a meeting, and 6 members 
were present and 3 participated by telephone, there would be a quorum 
(9) for the meeting. If the Board were voting on the upcoming year's 
budget, 10 members (.66 x 15 members) would have to vote in favor of 
the budget for it to pass.
    The proposed Order would also provide for the Board to take action 
by mail, telephone, electronic mail, facsimile, or any other electronic 
means when the chairperson believes it is necessary. Actions taken 
under these procedures would be valid only if all members and the 
Secretary were notified of the meeting and all members were provided 
the opportunity to participate and a majority of Board members voted in 
favor of the action (unless two-thirds vote were required under the 
Order). Additionally, all votes would have to be confirmed in writing 
and recorded in Board minutes.
    The proposed Order would specify that Board members would serve 
without compensation. However, Board members would be reimbursed for 
reasonable travel expenses, as approved by the Board, incurred when 
performing Board business.
    Section 1255.46 of the proposed Order would specify powers and 
duties of the Board. These are similar in promotion programs authorized 
under the Act. They include, among other things, to administer the 
Order and collect assessments; to develop bylaws and recommend 
regulations necessary to administer the Order; to select a chairperson 
and other Board officers; to create an executive committee and form 
other committees and subcommittees as necessary; to hire staff or 
contractors; to provide appropriate notice of meetings to the industry 
and USDA and keep minutes of such meetings; to develop programs and 
enter into contracts to implement programs; to submit a budget to USDA 
for approval 60 calendar days prior to the start of the fiscal year; to 
borrow funds necessary to cover startup costs of the Order; to invest 
Board funds appropriately; to recommend changes in the assessment rate 
as appropriate and within the limits of the Order; to have its books 
audited by an outside certified public accountant at the end of each 
fiscal period and at other times as requested by the Secretary; to make 
public an accounting of funds received and expended; to receive, 
investigate and report to the Secretary complaints of violations of the 
Order; and to recommend amendments to the Order as appropriate. 
Additionally, when researching priorities for each marketing year, the 
Board will provide public notice using local, state, or regional 
entities, mail and/or other methods to solicit public input from all 
covered entities, and will have at least one meeting or conference call 
to determine the priorities for each marketing year.
    Section 1255.47 of the proposed Order would specify prohibited 
activities that are common to all promotion programs authorized under 
the Act. In summary, the Board nor its employees and agents could 
engage in actions that would be a conflict of interest; use Board funds 
to lobby (influencing legislation or governmental action or policy, by 
local, state, national (i.e., the National Organic Standards Board (see 
7 U.S.C. 6518)), and foreign governments or subdivision thereof, other 
than recommending to the Secretary amendments to the Order); and engage 
in any advertising or activities that may be false, misleading or 
disparaging to another agricultural commodity. Such prohibitions are 
outlined in the Guidelines for AMS Oversight of Commodity Research and 
Promotion Programs, which provides the parameters for commodity 
promotion program activities and restrictions. For example, Section IX 
titled ``Policy on Review and Approval of Promotional and Educational 
Materials'' states that AMS will disapprove advertising that is deemed 
disparaging to another commodity. It defines ``disparaging'' as 
depicting other commodities in a negative or unpleasant light via 
either overt or subjective video, photography, or statements (excluding 
those that are strictly comparative).
iii. Expenses and Assessments
    Pursuant to sections 516 and 517 of the Act, sections 1255.50 
through 1255.54 of the proposed Order detail requirements regarding the 
Board's budget and expenses, financial statements, assessments, and 
exemption from assessments. Proposed section 1255.50 states that at 
least 60 calendar days before the start of the fiscal period, and as 
necessary during the year, the Board would submit a budget to USDA 
covering its projected expenses. The budget must include a summary of 
anticipated revenue and expenses for

[[Page 5766]]

each program along with a breakdown of staff and administrative 
expenses. Except for the initial budget, the Board's budgets should 
include comparative data for at least one preceding fiscal period.
    The proponents have proposed that no less than 25 percent of the 
funds shall be allocated to research; 25 percent of the funds shall be 
allocated to information; 25 percent of funds shall be allocated to 
promotion; and 25 percent of the funds shall remain discretionary. 
Further, in response to stakeholder feedback obtained from partial 
proposals, OTA revised its description of the funds allocated to 
research to include the requirement that a majority of such funds be 
allocated to agricultural research; of the funds allocated to 
information, a majority shall be allocated to producer information; and 
the regional organic producer Board members would establish priorities, 
including regional considerations, for investments in agricultural 
research. Any funds allocated in a specific area that was not spent 
during the current fiscal year would carry over to the next fiscal year 
in the same category.
    Each budget, except for the initial budget, would include staff and 
administrative expense breakdowns, with comparative data for at least 
one preceding fiscal year. Each budget would provide adequate funds to 
cover the Board's anticipated expenses as well as to provide for a 
reserve as stated in the Order. Any amendment or addition to an 
approved budget would be approved by USDA, including shifting of funds 
from one program, plan or project to another. Shifts of funds that do 
not result in an increase to the Board's approved budget would not have 
to have prior approval from USDA. For example, if the Board's approved 
budget provided for $1 million in research projects and $500,000 in 
consumer advertising, a shift of $50,000 from research to consumer 
advertising would require USDA approval. However, a shift within the $1 
million research line item would not require prior USDA approval. USDA 
did modify the regulatory text at section 1255.50 to clarify that only 
shifts in funds within a program, as stated in the example above, did 
not need USDA approval. Any other amendment or shift in funds to 
different programs must be approved prior to use of the funds.
    The Board would be authorized to incur reasonable expenses for its 
maintenance and functioning. During its first year of operation, the 
Board could borrow funds for startup costs and capital outlay. Any 
borrowed funds would be subject to the same fiscal, budget and audit 
controls as other funds of the Board.
    The Board could also accept voluntary contributions. Any 
contributions received by the Board would be free from encumbrances by 
the donor and the Board would retain control over use of the funds. The 
Board may also receive other funds provided through USDA or other 
sources. For example, the Board could receive Federal grant funds, 
subject to approval by the Secretary, for a specific research project. 
The Board would also be required to reimburse USDA for costs incurred 
by USDA in overseeing the Order's operations, including all costs 
associated with referenda.
    The Board would be limited to spending no more than 15 percent of 
its available funds for administration, maintenance, and the 
functioning of the Board, in accordance with the Act. This limitation 
would begin three fiscal years after the Board's first meeting. 
Reimbursements to USDA would not be considered administrative costs. As 
an example, if the Board received $30 million in assessments during 
fiscal year 5, and had available $1 million in reserve funds, the 
Board's available funds would be $31 million. In this scenario, the 
Board would be limited to spending no more than $4.65 million (0.15 x 
$31 million) on administrative costs. Additionally, no program, plan or 
project shall expend on administrative costs more than 15 percent of 
the total funds allocated for that specific program, plan or project.
    The Board could also maintain a monetary reserve and carry over 
excess funds from one fiscal period to the next. However, such reserve 
funds could not exceed one fiscal year's budgeted expenses. For 
example, if the Board's budgeted expenses for a fiscal year were $30 
million, it could carry over no more than $30 million in reserve. With 
approval of the Secretary, reserve funds could be used to pay expenses.
    The Board could invest its revenue collected under the Order in the 
following: (1) Obligations of the United States or any agency of the 
United States; (2) General obligations of any State or any political 
subdivision of a State; (3) Interest bearing accounts or certificates 
of deposit of financial institutions that are members of the Federal 
Reserve; (4) Obligations fully guaranteed as to principal interest by 
the United States; and (5) Other investments as authorized by the 
Secretary.
    Section 1255.51 states that the Board would be required to submit 
to USDA financial statements on a quarterly basis, or at any other time 
as requested by the Secretary. Financial statements must include, at a 
minimum, a balance sheet, income statement, and expense budget that 
shows expenditures during the specified period, year-to-date and 
unexpended budget. Financial statements would be submitted to USDA 
within 30 calendar days after the time period to which it applies. The 
Board would also submit an annual financial statement within 90 
calendar days after the fiscal year to which it applies.
Assessments
    Under section 1255.52, the Board's programs and expenses would be 
funded through assessments on certified organic producers, certified 
organic handlers, and importers of organic products in the U.S. market. 
The proposed Order would provide for an initial assessment rate of one-
tenth of one percent of net organic sales for domestic producers and 
handlers with gross annual organic sales greater than $250,000 in the 
previous marketing year. Per the proposed definition at section 1255. 
21, net organic sales would be equal to total gross sales in certified 
organic products minus (a) the cost of certified organic ingredients, 
feed, and 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. The proposed Order would provide for 
an initial assessment rate of one-tenth of one percent of transaction 
value for importers with transaction value greater than $250,000 in the 
previous marketing year.
    To facilitate audience understanding of the method of assessment 
being proposed, OTA provided a sample self-assessment worksheet which 
outlines the process for calculating cost deductions, net organic 
sales, and subsequent assessments to be paid to the Board. The 
worksheet is accessible as a ``Related Document'' on 
www.regulations.gov as well as on the AMS Web site. AMS is seeking 
public comments on the proposed assessment approach, particularly on 
the calculations described below and any tools that would be helpful to 
minimize the burden on producers, handlers and importers.
Assessments--Organic Producers
    Organic producers would first calculate their net organic sales by 
taking their total gross organic sales and subtracting the cost of any 
certified organic ingredients, feed, and agricultural input costs. 
Examples of organic input costs that may be deducted from gross sales 
include

[[Page 5767]]

fertilizer, lime, and soil conditioners; agricultural chemicals and 
other organic materials for pest control; seeds, plants, vines and 
trees; livestock purchased or leased; and organic feed purchased for 
livestock and poultry. Once the producer has calculated their net 
organic sales, he/she would multiply this by one-tenth of one percent 
(i.e., 0.001) to determine the assessment that would be paid to the 
organic R&P program. For example, an organic dairy producer would take 
their bulk organic milk sales and subtract the cost of organic feed, 
hay and any other agricultural input costs to obtain their net organic 
milk sales. The producer did not use any non-organic agricultural 
ingredients that need to be subtracted. Finally, the producer would 
multiply their net organic milk sales by one-tenth of one percent to 
determine the assessment owed.
Assessments--Organic Handlers
    Organic handlers would also first need to calculate their net 
organic sales for all certified organic products. For processed 
products, handlers would take the total gross sales in certified 
products and subtract the cost of certified organic ingredients and the 
cost of any non-organic agricultural ingredients used in its products. 
For example, if Company A was processing and selling a certified 
``organic'' blended orange juice per 7 CFR 205.301, they would take 
their total gross organic sales and first subtract the cost of 
certified organic ingredients (e.g., cost of organic oranges and 
organic mangoes). Assuming the product does not include any non-organic 
agricultural ingredients per 7 CFR 205.606 of the National List, the 
handler would not have any non-organic agricultural ingredients to 
subtract from gross organic sales. In this case, the calculation for 
net organic sales is simply the total gross organic juice sales minus 
the cost of organic oranges and organic mangoes. By deducting the cost 
of organic ingredients purchased from producers, assessments will only 
be paid on the value added to the organic commodity as it moves through 
the supply chain.
    If Company B was processing and selling the same certified 
``organic'' juice, but in this case used a non-organic agricultural 
ingredient to improve color (e.g., carrot juice color as provided for 
by 7 CFR 205.606), then the handler would take the total gross organic 
sales of the ``organic'' juice and subtract the cost of organic oranges 
and mangoes and the cost of the carrot juice color to determine their 
net organic sales. The non-organic carrot juice color is subtracted to 
ensure only the value added for organic content of a product is 
assessed for the organic R&P program. In both examples, the handler 
would then multiply their net organic juice sales by one-tenth of one 
percent to determine the assessment owed.
    Handlers of ``made with organic'' products would use a similar 
approach with an additional step to determine their assessment. ``Made 
with organic'' products are certified and must contain at least 70 
certified organic ingredient content, but can use non-organic 
agricultural ingredients as part of product composition per the 
requirements at 7 CFR 205.301(c). Understanding that section 
7412(1)(E)(ii) of the Act specified that the scope of an ``agricultural 
commodity'' as limited to products that are ``certified to be sold or 
labeled as ``organic'' or ``100 percent organic'', this proposal would 
assess only the value added of the certified organic ingredient content 
of ``made with organic'' products rather than the entire certified 
product.
    For example, Company C has a line of ``made with organic'' granola 
bars. The granola bar is composed of 70 certified ``organic'' oats and 
grains, but uses non-organic sugar and non-organic raisins. Under this 
proposal, Company C would first take its gross organic sales of the 
granola bar and subtract the cost of organic ingredients (oats and 
grains) and the cost of the non-organic agricultural ingredients (sugar 
and raisins) to obtain net organic sales. Because the granola bar is a 
``made with organic'' product, the handler would have the additional 
step of multiplying the net organic sales by the percent organic 
ingredient content (i.e., 70 or the share of organic ingredients 
subject to assessment under the Act). After applying the percent 
organic ingredient content to net organic sales, the handler would 
multiply their adjusted net organic sales by one-tenth of one percent 
to determine the assessment owed.
Assessments--Importers
    The proponent group proposed a similar approach for importers 
calculating assessments. In its proposal, OTA states that importers 
would pay one-tenth of one percent of net organic sales minus the cost 
of organic ingredients. Their proposal also stated that the assessment 
would occur when the importer took custody of the certified organic 
goods. Importer assessments would be collected through Customs. If 
Customs does not collect the assessment from an importer, then the 
importer would be responsible for paying the assessment directly to the 
Board within 90 calendar days after the end of the marketing year.
    As previously discussed, OTA's proposal to assess importers using 
this approach would be challenging to implement. Since importers engage 
in a variety of roles (e.g. as a wholesaler that has purchased the 
product from abroad, but has yet not sold it in the U.S., or as a 
customs broker that is paid a fee to transact customs business on 
behalf of others but does not take ownership of the product), it is 
difficult to always know the gross organic sales and thus, net organic 
sales. An importer can, however, report on the transaction value (the 
price actually paid from the buyer to the seller for the merchandise) 
for the imported merchandise (19 CFR 152.103). Therefore, AMS is 
proposing that domestic importers (Sec.  1255.17) use transaction value 
(``Entered Value'' on CBP Form 7501) to determine assessments owed 
under the proposed Order.
    For example, Importer A is importing two organic products: 
Certified organic bananas and coffee. The transaction value shown on 
the CBP Form 7501 for these products is $200,000 and $400,000 
respectively. Importer A would add the transaction value for all 
organic commodities ($200,000 plus $400,000) to obtain a total 
transaction value ($600,000) for all organic products. Importer A would 
then multiply the total transaction value by one-tenth of one percent 
to determine the assessment owed.
    As another example, Importer B is importing processed products: 
Organic chocolate bars and ``made with organic'' granola bars (i.e., 70 
organic ingredient content). The transaction value shown on the CBP 
Form 7501 for these products is $600,000 and $400,000 respectively. In 
this case, Importer B would need to reduce the transaction value for 
the granola bars to assess only the organic ingredient content. This is 
obtained by multiplying the transaction value ($400,000) by 0.70 to 
determine the adjusted transaction value for granola bars ($280,000). 
Importer B would then add the granola bar transaction value ($280,000) 
to the chocolate transaction value ($600,000) to obtain a total 
transaction value ($880,000) for the purposes of calculating its 
organic assessment. Importer B would multiply the total transaction 
value by one-tenth of one percent to determine the assessment owed.
Assessment Review and Collection
    Two years after the Order becomes effective and periodically 
thereafter, the Board would review the assessment rate

[[Page 5768]]

and, if appropriate, recommend a change in the rate. At least two-
thirds of the Board members would have to favor a change in the 
assessment rate. Any change in the assessment rate would be subject to 
rulemaking by the Secretary.
    Assessments would be collected by the Board on a quarterly or 
yearly basis. Importers and domestic producers and handlers would be 
required to pay their assessments owed to the Board no later than 90 
days following the marketing year in which the organic product was 
imported, produced or handled. If a certified organic producer, 
certified organic handler or importer fails to pay the assessment 
within 90 calendar days of the date it is due, the Board may impose a 
late payment charge and interest. The late payment charge and rate of 
interest would be prescribed in the Order's regulations issued by the 
Secretary.
    Certified organic producers and handlers with gross organic sales 
of $250,000 or less in the prior marketing year may choose to 
participate in the Order as voluntarily assessed entities by remitting 
one-tenth of one percent of net organic sales. Similarly, importers of 
organic products whose transaction value is $250,000 or less may elect 
to participate in the Order by paying assessment on one-tenth of one 
percent of the transaction value of organic products. All payments must 
be received no later than 90 days after the end of the year in which 
the product was produced, handled or imported.
    In summary, AMS is seeking public comments on the proposed 
assessment approach, particularly on the calculations and any 
additional examples or tools that could be provided to assist 
producers, handlers and importers should this program be implemented.
Exemptions
De Minimis
    The Order would provide for three exemptions from assessment. The 
first exemption is for entities at a de minimis level. Certified 
organic producers, certified organic handlers and importers of organic 
products whose gross organic sales and transaction value was $250,000 
or less during the prior fiscal year would be exempt from paying 
assessment. Domestic producers, handlers and importers would apply to 
the Board for an exemption prior to the start of the new fiscal year. 
This would be an annual exemption; entities would have to reapply each 
year. They would have to certify that they had gross sales or 
transaction value from sales of organic products that were $250,000 or 
less in the previous fiscal year. They would submit to the Board past 
shipment or import data to support the exemption request. The Board 
would then issue, if deemed appropriate, a certificate of exemption to 
the eligible producer, handler or importer.
    Once approved, domestic producers, handlers and importers would not 
have to pay assessments to the Board for the applicable fiscal year. 
Any assessments of approved importers collected by Customs would be 
refunded by the Board within 60 calendar days after receipt of such 
assessments by the Board. No interest would be paid on the assessments 
collected by Customs.
    Producers, handlers and importers who did not apply to the Board 
for an exemption and had gross revenue or transaction value of $250,000 
or less in organic product sales during the prior fiscal year would 
receive a refund from the Board for the applicable assessments within 
90 calendar days after the end of the current fiscal year. Board staff 
would determine the assessments paid and issue refunds accordingly. No 
interest would be paid on the assessments collected by the Board.
    The Board could recommend additional procedures to administer the 
exemption as appropriate. Any procedures would be implemented through 
rulemaking by the Secretary.
    USDA considers several factors when evaluating the merits of a 
proposed de minimis quantity. These factors include an estimate of the 
total quantity (or value) of the respective agricultural commodity 
covered under the proposed commodity promotion program order (value 
assessed and value exempt); free rider implications; the impact of 
program requirements on small businesses; and available funding to 
support a viable program under the order. USDA reviews these factors in 
light of all available data and information to determine whether a 
proposed exemption threshold is de minimis in quantity when viewed in 
the context of an effective and functioning commodity promotion 
program.
    The Organic Industry Survey, which was carried out by the Nutrition 
Business Journal (NBJ) on behalf of OTA, reported 2014 retail sales of 
all organic commodities at $39.1 billion. The survey included responses 
from manufacturers, producers, ranchers, and retailers of organic 
products. Results were supplemented with data from the Natural Foods 
Merchandiser's annual industry survey, the analytic consulting firms 
SPINS and the IRI Group, and with information from public financial 
statements and media reports. The proponent group estimated the revenue 
that would be earned by the program through assessments of certified 
organic producers, certified organic handlers, and importers. They 
assumed a retail price markup of 40 percent over the price at the 
handler level.\53\ Applying the assumed 40 percent markup to the total 
organic retail sales figure, as reported in the Organic Industry 
Survey, results in an estimate of combined organic sales of producers, 
handlers and importers equal to $27.9 billion.
---------------------------------------------------------------------------

    \53\ OTA cited a 2012 study by the United States Agency for 
International Development (USAID) titled U.S. Specialty Foods End-
Market Analysis for the 40 percent retail markup assumption.
---------------------------------------------------------------------------

    In its proposal for a research and promotion program, the proponent 
group initially stated that it expected the program to generate $30 
million through assessments. In discussions with AMS, the proponent 
group adjusted the estimated revenue of the program to be $28.1 
million. AMS used a similar method to that of the proponent group to 
calculate the potential assessment income of the program; however, the 
estimates by AMS are lower than those of the proponent group. One 
reason for this is that while OTA used 2014 data to estimate producer 
assessment income and 2015 data to estimate assessment income of 
importers and handlers, AMS used 2014 data only for consistency in 
estimating potential assessment income at producer, handler and 
importer levels. Secondly, AMS has access to more detailed reports by 
the U.S. Customs and Border Protection than what is publicly accessible 
through the GATS database. These detailed reports allowed AMS to deduct 
importers whose organic shipment sales values were no more than 
$250,000, and who would be exempt from assessment.
    As previously mentioned, this proposal proposes a de minimis level 
of $250,000 in annual gross sales of organic products for domestic 
producers and handlers and in annual transaction value for importers of 
organic products. AMS conducted analysis on this and other levels for 
de minimis including $500,000 and $750,000. Table 7 shows potential 
assessment revenue from producers, importers and handlers at different 
exemption levels. Again, this analysis uses data for 2014, which is the 
year for which most recent and complete data is available from multiple 
sources.

[[Page 5769]]



                            Table 7--Potential Assessment Revenue at Exemption Levels
----------------------------------------------------------------------------------------------------------------
                                               250,000                  500,000                  750,000
----------------------------------------------------------------------------------------------------------------
Producers \1\........................            3,502,602,536            3,153,346,208            2,923,278,884
Handlers \2\.........................           20,656,445,878           19,943,407,378           19,375,473,888
Importers \3\........................            1,184,783,076            1,139,594,905            1,100,966,481
----------------------------------------------------------------------------------------------------------------
    Total............................           25,343,831,491           24,236,348,490           23,399,719,252
Assessment revenue...................               25,343,831               24,236,348               23,399,719
----------------------------------------------------------------------------------------------------------------
\1\ 2014 Organic Survey, NASS.
\2\ 2016 Industry Survey, OTA; 2012 County Business Patterns and 2012 Economic Census, Census Bureau.
\3\ U.S. Customs and Border Protection; Global Agricultural Trade Statistic, FAS.

    Assessment revenue that would be collected at each of the de 
minimis exemption levels would be approximately $23.4 million at 
$750,000, $24.2 million at $500,000, and $25.3 million at $250,000. At 
the proposed exemption level of $250,000, about 14 percent of the 
assessment revenue would come from producers, 81 percent would come 
from handlers, and 5 percent would be from importers. Producer 
assessable sales was calculated by subtracting estimated input costs 
from total sales in organic products at revenue levels of $250,000, 
$500,000, and $750,000. No expense data exists for handlers, so input 
costs have not been deducted from total sales at the handler level. 
This means that handler assessable sales is likely lower than what is 
reported in the table above; however, all assumptions made in 
estimating potential assessment revenue have been made to generate the 
most conservative figure. Specifically, the assumption at the beginning 
of this analysis that assumes a retail markup in price of 40 percent 
ultimately results in lower total sales revenue for handlers than if 
the analysis assumed a lower retail price markup.\54\ Secondly, retail 
sales of organic commodities increased nearly 11 percent between 2014 
and 2015, according to findings in OTA 2016 Industry Survey. Data 
released in the NASS 2015 Certified Organic survey in September 2016 
show that producer value of certified organic agricultural products 
sold in 2015 increased 13 percent from 2014 to almost $6.2 billion. 
From the growth in sales from 2014, which is the year for which data 
was analyzed to estimate assessment revenue, and the restrained 
assumption of a 40 percent retail markup over handler prices, AMS 
believes that the proposed program has the potential to collect at 
least $25.3 million in assessment revenue at an exemption level of 
$250,000 in annual sales.
---------------------------------------------------------------------------

    \54\ USAID, U.S. Specialty Foods End-Market Analysis, 2012.
---------------------------------------------------------------------------

    While Table 7 shows the potential revenues generated from 
producers, importers and handlers that would be subject to assessment, 
Table 8 shows the portions of sales value and entities at the producer, 
importer and handler levels that would be exempt from assessment at 
each exemption level.

                                    Table 8--Portion of Value and Entities Exempt From Assessment at Exemption Levels
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        Producers \1\             Handlers \2\              Importers \3\                 Total
                                                 -------------------------------------------------------------------------------------------------------
                                                    Value  %   Entities  %    Value  %   Entities  %    Value  %   Entities  %    Value  %   Entities  %
--------------------------------------------------------------------------------------------------------------------------------------------------------
250,000.........................................           12           76            3           40            4           85            5           63
500,000.........................................           21           87            6           64            8           90            9           78
750,000.........................................           26           91            9           70           11           92           12           83
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ 2014 Organic Survey, NASS; Organic Integrity database, NOP.
\2\ 2016 Industry Survey, OTA; 2012 County Business Patterns and 2012 Economic Census, Census Bureau.
\3\ U.S. Customs and Border Protection; Global Agricultural Trade Statistics, FAS.

    At the proposed exemption level of $250,000 in gross annual 
revenue, 12 percent of certified organic sales value from producers 
would be exempt, and 76 percent of producers would be exempt. For 
handlers, 3 percent of certified organic sales value and 40 percent of 
entities would be exempt. Of total importers of organic products, 4 
percent of organic sales value would be exempt, and 85 percent of 
entities would be exempt. For comparison, the portion of entities and 
sales value that would be exempt under de minimis levels of $500,000 
and $750,000 were also evaluated. At exemption levels of gross annual 
sales revenue in excess of $250,000, $500,000, and $750,000, the total 
values of exempt sales would be 5 percent, 9 percent and 12 percent, 
respectively. Most research and promotion programs with de minimis 
thresholds in place exempt between 3 and 11 percent of total assessable 
quantity. The portion of total sales value that would be exempt at any 
of the three exemption levels evaluated in Table 8 all within or just 
barely outside this range. The proposed de minimis amount relative to 
total sales value is comparable to those of the majority of research 
and promotion programs overseen by AMS.
    In the field of economics, a free rider is an entity who benefits 
from a service without having to pay for it. The free rider problem 
occurs in many different scenarios, including in research and promotion 
programs. In this case, the ``free riders'' would be those entities 
that do not pay assessments into the program, but benefit from the 
program's existence. Ideally, the de minimis level excludes entities 
for whom the compliance cost of collecting the assessment would 
outweigh the amount of the assessment itself that would be due to the 
Board from these entities.
    Based on the same data used to generate the figures in Tables 7 and 
8,

[[Page 5770]]

AMS estimates that the average assessment that would be collected from 
a producer, handler, or importer whose gross organic sales or 
transaction value was less than or equal to $250,000 would amount to 
$94 per entity annually. This means that at the de minimis level of 
$250,000, as proposed by the proponent, the average amount in 
assessments that the Board would not collect from exempt entities would 
be $94 apiece. AMS was unable to determine the cost of compliance on a 
single case basis to compare with the potential assessment revenue per 
entity with less than or equal to $250,000 in gross annual sales or 
transaction value. AMS did, however, find that the annual compliance 
costs of other Boards with generic promotion programs ranges between 
about 0.5 and 3 percent of the Boards' total revenue. Applying these 
proportions to the estimated total revenue ($25.3 million) of the 
proposed Order would result in annual compliance costs ranging between 
$126,719 and $760,315. Compliance costs vary depending on the 
complexity of each case, and a single case could require staff, 
auditor, AMS, and USDA Office of General Counsel time and expenses, as 
well as associated court fees. Based on these estimates, AMS seeks 
comments on whether the costs of enforcing compliance among smaller 
entities (those with less than or equal to $250,000 in gross annual 
sales or transaction value) would outweigh the value in assessments the 
Board would collect from those entities.
    Another potential instance of free riders is importers of organic 
products without HTS codes. Importers of organic products that are not 
among those currently in the HTS system would have the responsibility 
to report to the Board any assessments on transaction value in excess 
of $250,000 annually. There are currently 38 HTS codes representative 
of imported organic agricultural products. These codes and their 
product descriptions are listed in the table below.

------------------------------------------------------------------------
          HTS code                          HTS description
------------------------------------------------------------------------
0409000005..................  NATURAL HONEY, CERTIFIED FOR ORGANIC
0703200005..................  GARLIC, FRESH WHOLE BULBS, CERTIFIED
                               ORGANIC
0709604015..................  SWT BELL PEPPER, FRT OF CAPSICUM/PIMENTA,
                               GRNHSE, CERT ORGANIC
0709604065..................  SWT BELL PEPPER, OTH, FRUIT, CAPSICUM/
                               PIMENTA, CERT ORGANIC, OTHER
0802120005..................  SHELLED ALMONDS, CERTIFIED ORGANIC
0803900025..................  FRESH BANANAS, CERTIFIED ORGANIC
0804400020..................  AVOCADOS, HASS & HASS LIKE, CERTIFIED
                               ORGANIC
0804504045..................  FRESH MANGOES ENTERED SEPT 1 TO MAY 31,
                               CERTIFIED ORGANIC
0804506045..................  FRESH MANGOES ENTERED JUNE 1 TO AUG 31,
                               CERTIFIED ORGANIC
0808100045..................  APPLES, FRESH, VALUED >$0.22 PER KG,
                               CERTIFIED ORGANIC
0808302015..................  PEARS, ORGANIC, ENTERED 4/1-6/30, FRESH
0808304015..................  PEARS, ORGANIC, ENTERED 7/1-3/31, FRESH
0808402015..................  QUINCES; FRESH, APR 1 THRU JUNE 30,
                               CERTIFIED ORGANIC
0808404015..................  QUINCES, ORGANIC, ENTERED 7/1-3/31, FRESH
0810400026..................  BLUEBERRIES, FRESH, CULTIVATED, CERTIFIED
                               ORGANIC
0901110015..................  ARABICA COFFEE NOT ROAST/DECAFFEINATED,
                               CERTIFIED ORGANIC
0901110045..................  COFFEE, NOT ROASTED, NOT DECAFFEINATED,
                               OTHER, CERTIFIED ORGANIC
0901120015..................  COFFEE, DECAFFEINATED, NOT ROASTED,
                               CERTIFIED ORGANIC
0901210035..................  COFFEE, ROASTED, NOT DECAFFEINATED,
                               [lE]2KG RET CONT, CERT ORGANIC
0901210055..................  COFFEE, ROASTED, N/DECAFFEINATED, NOT 2KG
                               OR LESS, CERT ORGANIC
0901220035..................  COFFEE, ROASTED, DECAFFEINATED, [lE]2KG
                               RETAIL CONT, CERT ORGANIC
0902101015..................  FLAVORED GREEN TEA IMMED PACKING NOT
                               EXCEED 3KG, CERT ORGANIC
0902109015..................  GREEN TEA (NOT FERM) IMMED PACKINGS NTE
                               3KG, N/FLVR, CERT ORGANIC
0902209015..................  OTHER GREEN TEA (NOT FERMENTED), N/
                               FLAVORED, CERTIFIED ORGANIC
0902300015..................  BLACK TEA FERMENT/PRT FRMNTD, IN TEA BAGS,
                               [lE]3KG, CERT ORGANIC
0910110010..................  GINGER, NOT GROUND, CERTIFIED ORGANIC
1001190025..................  DURUM WHEAT, CERTIFIED ORGANIC, EXCEPT
                               SEED
1005902015..................  CORN (MAIZE)--YELLOW DENT CORN, CERTIFIED
                               ORGANIC
1006309015..................  RICE: OTHER SEMI OR WHOLLY MILLED POL/GLZ
                               OR NOT, CERT ORGANIC
1201900010..................  SOYBEANS, ORGANIC, WHETHER OR NOT BROKEN,
                               NESOI
1204000025..................  FLAXSEED (LINSEED), FOR USE AS OIL STOCK,
                               W/N BROKEN, ORGANIC
1509102030..................  CER OR LB EX VRGN OLVE OIL N/CHEM MOD CON
                               LT 18KG
1509102040..................  OLIV OIL, NOT CHEM. MOD. VIRGIN, WT <18KG,
                               ORG, OTH THAN XTRA VIR
1509104030..................  OLIVE OIL, NOT CHEM MOD, VIRGIN, OTH, CERT
                               ORG, LAB EXTRA VIRGIN
1509104040..................  OLIVE OIL, NOT CHEM MOD, VIRGIN, OTH, CERT
                               ORG, NTLAB EXTRA VIR
2204100065..................  SPARKLING WINE, OF FRESH GRAPES VALUED
                               >$1.59 PER LITER, ORG
2204215035..................  RED WINE, >$1.05 PER L, ALCHL STRGTH BY
                               VOLM [lE]14, CONT [lE]2L, ORG
2204215050..................  WHITEWINE >$1.05/L, ALCHOL STRNGTH BY
                               VOLUM [lE]14, CONT [lE]2L, ORG
------------------------------------------------------------------------

    In general, AMS seeks comments on the proposed de minimis level and 
its effect on the proposed program.
Exports
    The second exemption under the proposed Order would be for exports, 
or sales of certified organic commodities by domestic producers and 
handlers to locations outside of the United States. The Board would 
develop procedures for approval by USDA for refunding assessments that 
may be inadvertently paid on such sales and establish any necessary 
safeguards as appropriate. Safeguard procedures would be implemented by 
the Secretary through rulemaking. If the Board determined that exports 
should be assessed, it would make that recommendation to the Secretary. 
Any such action would be implemented by USDA through notice and comment 
rulemaking.
Dual-Covered Commodities
    The third exemption from assessment under the proposed Order would 
be for dual-covered commodities. Should this proposed rule become 
final, the regulatory language currently exempting organic commodities 
from assessment by generic commodity promotion

[[Page 5771]]

programs created under the various commodity promotion laws would no 
longer be in effect. AMS would conduct rulemaking to implement such a 
change. Such commodities would then become ``dual-covered 
commodities'', and persons producing, handling and importing them would 
need to elect to pay assessments to the commodity-specific program 
(e.g., highbush blueberries, beef, dairy, almonds, etc.), or the 
organic commodity promotion program. Certified organic producers, 
handlers and importers of dual-covered commodities would apply to the 
Secretary, on a form provided by the Board, for an assessment exemption 
prior to the start of the marketing year. This would be an annual 
exemption and certified organic producers, certified organic handlers 
and importers would need to reapply each year to perpetuate their 
exemption. Such entities would be required to certify that they have 
remitted an assessment for the dual-covered commodity pursuant to a 
commodity promotion law. Upon receipt of an application for exemption, 
the Secretary would determine whether an exemption may be granted. The 
Secretary may request documentation providing proof of the remittance 
of the assessment for the dual-covered commodity. The Secretary would 
issue, if deemed appropriate, a certificate of exemption to the 
eligible certified organic producer, handler or importer. It is the 
responsibility of any entity granted an exemption to retain a copy of 
the certificate of exemption.
Assessment Scenarios
    Based on the proposed definitions, assessment provisions and 
exemptions described thus far, AMS developed the following scenarios to 
aid public understanding of how a proposed Order would be implemented. 
AMS invites public comments on this aspect of the proposed Order and 
the following scenarios.
Scenario 1--Jane Smith's Organic Strawberry Farm
    Jane Smith is a certified organic producer, producing only organic 
strawberries on her farm and has gross organic sales of $500,000 for 
the previous marketing year. To determine whether she is required to 
pay assessments and to who, Jane needs to answer the following 
questions: (1) Whether she is an ``assessed entity'' under the proposed 
Order; (2) whether she produces a commodity subject to assessment under 
another agricultural commodity promotion order; and (3) if she does, 
whether she is subject to assessment under that agricultural commodity 
promotion order. For question 1, she is considered an ``assessed 
entity'' because she is a certified organic producer with gross organic 
sales in excess of $250,000 for the previous marketing year. Further, 
because she is above the $250,000 de minimis exemption threshold, she 
cannot claim a de minimis exemption and, thus, would be subject to the 
proposed Order. For question 2, she does not produce a commodity 
subject to another agricultural commodity promotion program as 
strawberries do not have such a program in place. As a result, she does 
not need to address question 3. As a producer with gross organic sales 
above $250,000 for the previous marketing year, she would be required 
to remit assessments under the proposed Order.
Scenario 2--Jane Smith's Organic Blackberry Farm
    Jane Smith is a certified organic producer, producing only organic 
blackberries on her farm and has gross organic sales of $100,000 for 
the previous marketing year. To determine whether she is required to 
pay assessments and to who, Jane first needs to answer question 1 about 
whether she is an ``assessed entity'' under the proposed Order. While 
she is a certified organic producer, she does not have gross organic 
sales in excess of $250,000 for the previous marketing year. Therefore, 
she could either (a) apply for exemption from paying assessments under 
the proposed de minimis provision at proposed section 1255.53 or (b) 
opt into the proposed Order as a ``voluntarily assessed entity'' per 
proposed section 1255.38 and pay assessments on her $100,000 gross 
organic sales for the previous marketing year. In this scenario, 
questions 2 and 3 do not apply because there is currently no blackberry 
promotion program in place.
Scenario 3--Jane Smith's Organic Blueberry Farm (A ``Dual-Covered 
Commodity'')
    Jane Smith is a certified organic producer, producing only organic 
blueberries on her farm and has gross organic sales of $500,000 for the 
previous marketing year. These sales equate to approximately 147,000 
pounds of organic blueberries (assuming an organic price of $3.40 per 
pound).\55\ To determine whether she is required to pay assessments and 
to who, Jane needs to answer the same questions: (1) Whether she an 
``assessed entity''; (2) whether she produces a commodity subject to 
assessment under another agricultural commodity promotion order; and 
(3) if she does, whether she is subject to assessment under the other 
promotion order.
---------------------------------------------------------------------------

    \55\ Price derived from data published in the NASS 2014 Organic 
Production Survey (09/17/2015).
---------------------------------------------------------------------------

    For question 1, she is considered an ``assessed entity'' because 
she is a certified organic producer with gross organic sales in excess 
of $250,000 for the previous marketing year and she cannot claim the de 
minimis exemption. For question 2, unlike the strawberry example in 
Scenario 1, she does produce a commodity subject to assessment under 
another commodity promotion order, the Blueberry Promotion, Research 
and Information Order (7 CFR part 1218) (Blueberry Order). For question 
3, she is a ``producer'' per section 1218.16 of the Blueberry Order and 
would be subject to assessment per section 1218.52 which states that 
the funds for the order are paid from assessments on producers and 
importers. Further, because she produces about 147,000 pounds of 
blueberries for the previous marketing year, she is above the 2,000 
pound per year de minimis exemption for the Blueberry Order (section 
1218.53) and, therefore would be subject to assessment. Given that Jane 
meets the criteria to be assessed under both the proposed Order and the 
existing Blueberry Order, she can decide which program she would like 
to pay into, remit assessments to that program and file for an 
exemption with USDA for the other one.
Scenario 4--Jane Smith's Mixed Berry Farm (A ``Split Operation'')
    Jane Smith is a berry producer, producing both organic and 
conventional blueberries and organic strawberries. This can be 
considered a ``split operation'' because she produces both organic and 
conventional products. Jane has a total of $500,000 in blueberry sales 
for the previous marketing year, of which $300,000 is from organic 
blueberries (about 80,000 pounds at $3.40 per pound) and $200,000 is 
from conventional blueberries (about 103,000 pounds at $1.95 per 
pound). Organic strawberry sales are $300,000 for the previous 
marketing year.
    To determine whether she is required to pay assessments and to who, 
Jane needs to answer the same questions: (1) Whether she is an 
``assessed entity'' under the proposed Order; (2) whether she produces 
a commodity subject to assessment under another commodity promotion 
order; and (3) if she does, whether she is subject to pay assessments 
to it. Jane's total gross organic sales are $600,000 (the $300,000

[[Page 5772]]

in organic blueberries plus the $300,000 in organic strawberries). For 
question 1, she is considered an ``assessed entity'' because she is a 
certified organic producer with gross organic sales in excess of 
$250,000 for the previous marketing year. Further, because she is above 
the $250,000 de minimis exemption threshold, she cannot claim a de 
minimis exemption and, thus, would be subject to the proposed Order.
    For question 2, Jane does produce a commodity subject to assessment 
under another commodity promotion order, the Blueberry Order. For 
question 3, she is a ``producer'' per section 1218.16 of the Blueberry 
Order and would be subject to assessment per section 1218.52. She 
produces in excess of the 2,000 pound per year de minimis exemption for 
the Blueberry Order (section 1218.53) and, therefore, could not claim 
an exemption from the Blueberry Order.
    Under this scenario, Jane is clearly required to pay the assessment 
on the 103,000 pounds of conventional blueberries; this assessment is 
owed under the Blueberry Order regardless of the proposed Order. For 
the organic portion of her split operation, she has a total of $600,000 
in gross organic sales. Jane can either: (a) Pay assessments on the 
$300,000 in organic blueberries (i.e., about 80,000 pounds) under the 
Blueberry Order and pay assessments on the $300,000 in organic 
strawberry sales under the proposed Order or (b) pay assessments on the 
$600,000 in gross organic sales under the proposed Order. In either 
case, Jane must file for exemptions from the respective program that 
she is not paying into but would otherwise be subject to assessment 
under.
    If the scenario were slightly different and, instead of $300,000 in 
organic strawberry sales, Jane's organic strawberry sales are $100,000, 
the decision point would remain the same. Jane can either: (a) Pay 
assessments on the $300,000 in organic blueberries (i.e., about 80,000 
pounds) under the Blueberry Order and pay assessments on the $100,000 
in organic strawberry sales under the proposed Order or (b) pay 
assessments on the $400,000 in gross organic sales under the proposed 
Order. While $100,000 in organic strawberry sales is less than the 
$250,000 de minimis threshold for the proposed Order, entities cannot 
opt into a program for the purpose of becoming exempt under the other 
program's de minimis exemption. In general, unless an entity for a 
``dual-covered commodity'' would be considered de minimis under both 
the proposed Order and the commodity promotion program, that entity 
must pay assessments under one or both programs.
Scenario 5--Joe Smith's Beef Operation (Another ``Dual-Covered 
Commodity'')
    Joe Smith is a certified organic producer, producing only organic 
beef on his operation and has gross organic sales of $100,000 for the 
previous marketing year. To determine whether he is required to pay 
assessments and to who, Joe first needs to answer question 1 about 
whether he is an ``assessed entity'' under the proposed Order. While he 
is a certified organic producer, he does not have gross organic sales 
in excess of $250,000 for the previous marketing year. For question 2, 
he does produce a commodity subject to assessment under another 
commodity promotion order, the Beef Promotion and Research Order (7 CFR 
part 1260) (Beef Order). For question 3, he is a ``producer'' per 
section 1260.116 of Beef Order and would be subject to assessment per 
section 1260.172 which states that the funds for the order are paid 
from assessments on producers at a rate of one dollar per head of 
cattle. There is no de minimis exemption under the Beef Order. While 
$100,000 in organic beef sales is less than the $250,000 de minimis 
threshold for the proposed Order, Joe cannot claim he is exempt from 
the Beef Order because he is planning to pay into the proposed Order 
only to then claim he is also exempt from the proposed Order. Under 
this scenario, Joe could either (a) pay his assessments into the Beef 
Order or (b) pay assessments on the $100,000 in organic beef sales to 
the proposed Order.
    While these scenarios focus on agricultural producers, the examples 
above could be utilized with organic handlers and importers. In the 
case of importers, the entity would need to look at transaction value 
rather than gross organic sales. However, as previously noted in the 
case of ``dual-covered commodities'', one must determine in any 
scenario whether the entity is ``covered'' under an applicable 
commodity promotion order (which can include producers, handlers, first 
handlers, processors, importers, exporters, feeders, and seed stock 
producers, depending upon the order). Only ``covered'' entities are 
entitled to make a choice between paying into a proposed organic Order 
and the commodity specific promotion order. For example, an organic 
blueberry handler would not have the ability to elect to pay into the 
blueberry program instead of the organic program, as blueberry handlers 
are not ``covered'' by the blueberry program and are, therefore, not 
assessed. In this instance, the organic blueberry handler would need to 
pay into the organic program if it had gross organic sales in excess of 
$250,000 for the previous marketing year or, if less than $250,000 in 
gross organic sales, chose to participate as a ``voluntarily assessed 
entity''.
Assessment Offset
    AMS is inviting public comment on the proposed provision to provide 
for an assessment offset for those entities subject to the Order that 
also pay a state promotion assessment. Section 1255.54 states that the 
Board, with approval of the Secretary, can credit an organic producer 
or handler up to 25 percent of the amount to be remitted to the Board 
pursuant to section 1255.52 to offset collection and compliance costs 
relating to such assessments and for fees paid to Qualified State 
Commodity Boards required by State law. The proponent group proposed 
the level of the offset at 25 percent. The offset would only be for 
monies that go to research and promotion programs and not for dues or 
quality specifications. AMS is specifically interested in comments 
regarding the proposed offset for collection and compliance costs and 
how this would be implemented.
    Under this proposal, organic producers and handlers who have an 
obligation to pay into a state commodity promotion program would be 
able to offset part of their assessment obligation. A Qualified State 
Commodity Board is defined as a State program, authorized by State law 
or State government agency that receives mandatory contributions and 
conducts promotion, research and/or information. These state programs 
do not need to be specifically for organic research and promotion. For 
example, if there is an Idaho state potato research and promotion 
program, an Idaho organic potato producer could hypothetically be 
required to pay a $30 assessment annually to the state program. Under 
this proposed Order, that same producer also may be obligated under 
section 1255.52 to pay $100 to the federal organic research and 
promotion program. In this scenario, the producer would be allowed to 
offset 25 percent or $25 of the $100 owed under the federal program, 
and thus pay $75 to the federal program and $30 to the state program. 
It should be noted that the producer would not be able to offset the 
total amount of the state obligation; rather, only up to 25 percent of 
what he or she owed under the federal program.
    It is important that stakeholders be aware that USDA does not 
control state or regional commodity promotion

[[Page 5773]]

programs. Furthermore, USDA does not address such programs in Federal 
regulations to maintain a clear separation of jurisdictions, 
authorities, and powers. However, USDA acknowledges that some state and 
regional commodity promotion programs work in concert with Federal 
programs. As such, USDA will encourage the boards/committees/councils 
that oversee the Federal commodity promotion programs to remind 
entities that request a Federal organic assessment exemption that there 
may be state and regional commodity promotion program assessments that 
are not exempted as part of a Federal program exemption.
iv. Promotion, Research and Information
    Pursuant to section 516 of the Act, sections 1255.60 through 
1255.62 of the proposed Order would detail requirements regarding 
promotion, research and information programs, plans and projects 
authorized under the Order. The Board would develop and submit to the 
Secretary for approval programs, plans and projects regarding 
promotion, research, information and other activities including 
consumer and industry information and advertising (designed to, among 
other things, build markets and develop new products, including new 
uses of existing organic products, new organic products or improved 
technology in the production, processing and packaging of organic 
products). No program, plan or project would be implemented prior to 
USDA approval. The Board would be required to evaluate each plan and 
program to ensure that it contributes to an effective and coordinated 
research, promotion and information program. Such activities that are 
found not to contribute to an effective program would be terminated.
    As stated in section 1255.61, at least once every five years, the 
Board would fund an independent evaluation of the effectiveness of the 
Order and programs conducted by the Board. The Board would submit to 
USDA, and make public, the results of this periodic evaluation. 
Finally, section 1255.62 states that any patents, copyrights, 
trademarks, inventions, product formulations and publications developed 
through the use of funds received by the Board would be the property of 
the U.S. Government, as represented by the Board. These along with any 
rents, royalties and the like from their use would be considered income 
subject to the same fiscal, budget, and audit controls as other funds 
of the Board, and could be licensed with approval of the Secretary. 
This provision of the proponent's proposal was modified to ensure its 
compliance with AMS policy for all research and promotion programs.
v. Reports, Books, and Records
    Pursuant to section 515 of the Act, sections 1255.70 through 
1255.72 specify the reporting and recordkeeping requirements under the 
proposed Order as well as requirements regarding confidentiality of 
information.
    Section 1255.70 states that organic producers, handlers and 
importers would be required to submit periodically to the Board certain 
information as the Board may request. Specifically, 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 net organic sales of its organic products. Organic producers 
and handlers would submit this report at the same time they remit their 
assessments to the Board (no later than 90 days following the end of 
the year in which the organic product was produced or handled).
    Likewise, importers would be required to submit a report to the 
Board that would include, but not be limited to, the importer's name, 
address, and telephone number; the transaction value of imported 
organic products; and the country/countries of export. Importers would 
submit this report at the same time they remit their assessments. 
Importers who paid their assessments through Customs would not have to 
submit such reports to the Board because Customs would collect this 
information upon entry.
    Under section 1255.71, certified organic producers, certified 
organic handlers, and importers of organic products, including those 
who were exempt, would be required to maintain books and records needed 
to carry out the provisions of the proposed program, including for 
verification of any required reports. Such books and records must be 
made available during normal business hours for inspection by the 
Board's or USDA's employees or agents. Certified organic producers, 
certified organic handlers, and importers of organic products would be 
required to maintain such books and records for two years beyond the 
applicable fiscal year to which they apply.
    Under section 1255.72, all information obtained from persons 
subject to the Order as a result of proposed recordkeeping and 
reporting requirements would be kept confidential by all persons, 
including all current and former employees of the Board, all current 
and former officers and employees of contracting and subcontracting 
agencies or agreeing parties having access to such information. This 
information would not be available to Board members or certified 
organic producers, certified organic handlers, and importers. Only 
those persons with a specific need for the information would have 
access to it and for the sole purpose of administering the proposed 
program. Such information could only be disclosed if the Secretary 
considered it relevant, and the information was revealed in a judicial 
proceeding or administrative hearing brought at the direction or at the 
request of the Secretary or to which the Secretary or any officer of 
the United States is a party. Other exceptions for disclosure of 
confidential information would include the issuance of general 
statements based on reports or on information relating to a number of 
persons subject to the proposed Order, if the statements did not 
identify the information furnished by any person, or the publication, 
by direction of the Secretary, of the name of any person violating the 
proposed Order and a statement of the particular provisions of the 
Order violated.
vi. Miscellaneous Provisions
Referenda
    Pursuant to section 518 of the Act, Sec.  1255.81(a) of the 
proposed Order specifies that the program would not go into effect 
unless it is approved by a majority of assessed entities voting in the 
referendum. For example, if 10,000 organic producers, handlers, and 
importers voted in a referendum, 5,001 would have to vote in favor of 
the Order for it to pass in the referendum. It is proposed that a 
single assessed entity may cast one vote in the referendum. A single 
entity is recognized by its individual tax identification number. This 
is a modification from the proponent's proposal, which recommended that 
a single assessed entity could cast one vote for each organic 
certificate held.
    USDA made this modification to ensure consistency with other 
research and promotion programs under USDA oversight. Because organic 
certifying agents who certify producers and handlers vary as to the 
number of organic certificates issued to an entity upon certification, 
it would be difficult to ensure equity in the number of votes across 
entities. For example, a certified organic producer of blueberries and 
beef may receive one certificate from Certifying Agent A covering both 
the crops and livestock component of their

[[Page 5774]]

operation. However, if the producer was certified by Certifying Agent 
B, they may receive two certificates--one for crops and one for 
livestock. The USDA organic regulations do not specify the number of 
certificates to be provided, only that the entity has met the 
requirements to be certified organic. Therefore, this modification to 
the proposed Order is intended to ensure that each entity is 
represented appropriately in any referendum.
    The proposed Order states that each ballot request by an importer 
would have to include an affidavit attesting to that importer's 
participation in the organic industry, and a voluntarily assessed 
entity in an initial referendum would have to include in a ballot 
request a commitment to be assessed for the majority of years until the 
next continuance referendum. This is a modification from the 
proponent's proposal, which stated that voluntarily assessed entities 
voting in an initial referendum would have to commit to be assessed for 
all of the next seven years (until the next continuance referendum). 
Upon review, AMS determined that requiring voluntarily assessed 
entities who vote in the initial referendum to pay into the program 
every year thereafter until the next referendum would not align with 
how the same type of entities would be treated that began paying 
assessments after the initial referendum. Accordingly, AMS is proposing 
that, at initial referendum, voluntarily assessed entities would need 
to commit to pay in for a majority of years until the next referendum, 
consistent with how voluntarily assessed entities would be treated in 
subsequent referenda. The proposed Order also states that bloc voting 
would be prohibited.
    Section 1255.81(b) of the proposed Order specifies criteria for 
subsequent referenda. Under the Order, a referendum would be held to 
ascertain whether the program should continue, be amended, or be 
terminated. This section specifies that a referendum would be held 
every seven years, which is in accordance with the Act. The Order would 
continue if favored by a majority of the assessed entities voting.
    Additionally, a referendum shall be conducted by the Secretary if 
requested by 10 percent or more of all assessed entities. As in the 
initial referendum, each importer ballot request would include an 
affidavit attesting to that importer's participation in the organic 
industry, and a voluntarily assessed entity would have to include in a 
ballot request a commitment to be assessed for the majority of the next 
seven years (until the next continuance referendum). It also states 
that bloc voting would be prohibited.
    All assessed entities in good standing would be eligible to vote in 
a subsequent referendum. It states that to be in good standing:
    (1) A dual-covered entity would have to demonstrate that it has 
paid into the proposed program for a majority of the years since the 
most recent referendum; or
    (2) A voluntarily assessed entity would have to demonstrate that it 
has paid into the proposed program for a majority of the years since 
the most recent referendum; or
    (3) An entity would have to demonstrate that it attained its 
organic certification since the most recent referendum; or
    (4) An assessed entity that did not meet any of the above 
descriptions would have to demonstrate that it has paid into the 
proposed program every year since the most recent referendum.
    For example, given these provisions and assuming that an organic 
R&P program passed its initial referendum and was implemented in 2017, 
a subsequent referendum would need to be held by 2024. Both dual-
covered entities and voluntarily assessed entities who voted in the 
initial referendum would need to pay assessments into the organic 
program for at least four of the seven years leading up to 2024 in 
order to vote in the 2024 referendum. If a dual-covered entity decided 
to start paying into the organic program (rather than the commodity 
specific program) in 2020 (i.e., between 2017 and 2024), then that 
entity would have to show that it paid assessments for all four of the 
remaining years leading up to 2024. This would equally apply for 
voluntarily assessed entities who join in between the initial and any 
subsequent referendum. In other cases, a dual-covered commodity or 
voluntarily assessed entity could pay assessments for 2018, 2019, 2020, 
and 2022 (i.e., staggered/not continuous) and would be eligible to vote 
in a 2024 referendum since they paid for a majority of years since the 
initial referendum. While not addressed in the proponent's proposal, 
AMS expects that nominees for Board positions would be active program 
participants (i.e. paying assessments) during the years for which they 
may be selected to serve on the Board. AMS seeks comments on this issue 
and on the proposal for entities to pay in for a majority of years to 
vote in referenda.
    Section 1255.80 and sections 1255.82 through 1255.88 describe the 
rights of the Secretary; authorize the Secretary to suspend or 
terminate the Order when deemed appropriate; prescribe proceedings 
after termination; address personal liability, separability, and 
amendments; and provide OMB control numbers. These provisions are 
common to all research and promotion programs authorized under the Act. 
It is noted that section 1255.87, regarding amendments, states that any 
changes to the assessment rate proposed by the Board would be subject 
to referendum but that any other amendments to this subpart may be 
proposed by the Board. Additionally, a list of all amendments made 
since the last referendum would be sent to all assessed entities in 
advance of each referendum.

IV. Executive Order 12866 and Executive Order 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This rule is not a significant regulatory action under 
section 3(f) of Executive Order 12866, Regulatory Planning and Review, 
as supplemented by Executive Order 13563. The Office of Management and 
Budget designated this action ``not significant'' and therefore, has 
not reviewed this proposed rule.

V. Initial Regulatory Flexibility Act Analysis

    In accordance with the Regulatory Flexibility Act (RFA) (5 U.S.C. 
601-612), AMS is required to examine the impact of the proposed rule on 
small entities. Accordingly, AMS has considered the economic impact of 
this action on small entities.
    The purpose of the RFA is to fit regulatory actions to the scale of 
businesses subject to such actions so that small businesses will not be 
disproportionately burdened. The Small Business Administration defines, 
in 13 CFR part 121, small agricultural producers as those having annual 
receipts of no more than $750,000 and small agricultural support 
services firms (handlers and importers) as those having annual receipts 
of no more than $7.5 million.
    In 2014, there were a total of 19,466 certified organic operations 
in the U.S.

[[Page 5775]]

and its territories.\56\ This total includes both certified organic 
producers and certified organic handlers. The number of operations that 
were certified solely as organic handlers, according to NOP, totaled 
8,327 entities. The remaining 11,139 certified organic entities include 
operations that are certified only as producers and operations that are 
certified as both producers and handlers. Producers of certified 
organic commodities are required to be certified as organic handlers if 
they sell, process, or package agricultural products, except such term 
shall not include the sale, transportation, or delivery of crops or 
livestock by the producer thereof to a handler.
---------------------------------------------------------------------------

    \56\ NOP Organic Integrity database. Available at: https://apps.ams.usda.gov/integrity/.
---------------------------------------------------------------------------

    Data from the NASS 2014 Organic Survey show that about 91 percent 
of certified organic producers had 2014 organic sales value of $750,000 
or less.\57\ Applying this proportion to the 11,139 certified organic 
producers referenced earlier results in 10,126 producing entities being 
considered small.
---------------------------------------------------------------------------

    \57\ National Agricultural Statistics Service, 2014 Organic 
Survey, U.S. Department of Agriculture (September 2015), p. 1, 
available at http://usda.mannlib.cornell.edu/usda/current/OrganicProduction/OrganicProduction-09-17-2015.pdf.
---------------------------------------------------------------------------

    There is no one catch-all definition by the SBA of what constitutes 
a small handler of agricultural products. Therefore, to maintain 
consistency with other federal programs and marketing orders, AMS 
defines a small handler as one which has no more than $7.5 million in 
annual receipts as defined by the SBA under subsector 115 of the North 
American Industry Classification System (NAICS), ``Support Activities 
for Agriculture and Forestry''.\58\ According to the 2012 County 
Business Patterns and 2012 Economic Census released June 22, 2015, 
about 95 percent of firms classified under subsector 115 of NAICS had 
less than $7.5 million in annual receipts and would be considered 
small. Applying this proportion to the number of certified organic 
handlers results in an estimated 7,895 handler operations out of 8,327 
being considered small under the SBA definition.
---------------------------------------------------------------------------

    \58\ U.S. Small Business Administration, ``Table of Small 
Business Size Standards Matched to North American Industry 
Classification System Codes'', February 26, 2016.
---------------------------------------------------------------------------

    According to data from Customs, there were 2,135 importers of 
organic products with HTS codes in 2014. Of these, about 98 percent had 
annual sales revenue of less than $7.5 million in 2014. Adding the 
2,135 number of organic importers to the 19,466 combined number of 
certified organic producers and handlers results in a total of 21,601 
operations with sales of certified organic products in the U.S. Of this 
total, 20,121 entities, or 93 percent, would be considered to be small 
under the SBA definitions.
    This rule proposes an industry-funded research, promotion, and 
information program for organic products. Organic products include food 
items, such as fruits, vegetables, dairy, meat, poultry, breads, 
grains, snack foods, condiments, beverages, and packaged and prepared 
foods, and non-food items, such as fiber for linen and clothing, 
supplements, personal care products, pet food, household products, and 
flowers. The purpose of this program would be to: (1) Develop and 
finance an effective and coordinated program of research, promotion, 
industry information, and consumer education regarding organic 
commodities; and (2) maintain and expand existing markets for organic 
commodities. The program would be financed by an assessment on 
certified organic domestic producers and handlers and importers. The 
proposed program would be implemented under Act and would be 
administered by a board of mandatorily and voluntarily assessed 
industry members selected by the Secretary. Under the proposed Order, 
certified producers and handlers with gross sales in excess of $250,000 
for the previous marketing year of organic agricultural commodities 
would pay one-tenth of one percent of net organic sales (total gross 
sales in organic products minus (a) the cost of certified organic 
ingredients 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 organic products). Entities importing greater 
than $250,000 in transaction value of organic products for the previous 
marketing year would pay one-tenth of one percent of the transaction 
value of organic products reported to U.S. Customs. An initial 
referendum will be held among mandatorily and voluntarily assessed 
entities (i.e. domestic producers, handlers, and importers) to 
determine whether they favor implementation of the program prior to it 
going into effect.
    The proposed program is expected to grow markets for organic 
products by increasing the number of certified organic farmers, 
increasing the amount of organic acreage, conducting research into 
viable pest management tools, and educating consumers on the meaning of 
the USDA organic label. The revenue generated by the assessment is 
expected to finance these activities to help increase the supply of 
organic commodities. According to the proponent group, the organic 
industry cannot keep pace with consumer demand for organic products. To 
solve this issue, the proposed program would use its assessment revenue 
to expand the supply of certified organic commodities through the 
aforementioned activities. While the benefits of the proposed program 
are difficult to quantify, the benefits are expected to outweigh the 
costs.
    In its overview of the organic industry, OTA stated that it had 
partnered with the GRO Organic Core Committee to facilitate preliminary 
discussions among stakeholders to determine whether there is a need for 
an organic promotion and research order. As part of its outreach, OTA 
and the GRO Organic Core Committee held six webinars, three panel 
debates, and 20 town hall meetings in 2012 and 2013. In the spring and 
summer of 2014, OTA and the GRO Organic Core Committee engaged in 
direct outreach to all organic certificate holders across the U.S. The 
proponents mailed brochures and postcards with information on the 
emerging framework for an organic research and promotion order to 
17,500 organic producers and handlers. OTA and the GRO Organic Core 
Committee conducted two rounds of surveys by mail and telephone to 
gauge support of the program. Of the survey respondents, twice as many 
certified operators supported the establishment of an organic research 
and promotion order than were opposed, according to the proponent. The 
survey respondents represented 11 percent of crop certificate holders, 
13 percent of livestock certificate holders, and 8 percent of handling 
certificate holders. OTA also received feedback indicating that there 
was disagreement among industry producer members as to whether covered 
certified producers should be assessed, or only those whose gross 
organic sales exceeds $250,000. In an effort to gather metrics on this 
particular issue of concern to the industry, OTA reached out to 2,000 
certified organic producers who indicated that they fell below $250,000 
in gross organic sales with a combination of phone and mail surveys. 
OTA received responses from roughly 1,200 of those surveyed, 13 percent 
of which favored the removal of the $250,000 threshold. Consequently, 
the proponents rejected the proposal to assess all certified producers.
    In lieu of a research and promotion program, the proponents 
considered a voluntary trade association promotion program to be 
overseen by OTA, a federal marketing order, and

[[Page 5776]]

encouraging each organic crop to create its own research and promotion 
program. The proponents concluded that a research and promotion program 
that would encompass all organic products would best meet the needs of 
the organic industry in an administratively efficient manner with all 
benefiting parties paying their fair share.
    Establishment of this program would impose an additional reporting 
and recordkeeping burden on importers and domestic producers and 
handlers of organic products. Importers and domestic certified organic 
producers and handlers interested in serving on the Board would be 
asked to submit a nomination form to the Board indicating their desire 
to serve or to nominate another industry member to serve on the Board. 
Interested persons could also submit a background statement outlining 
qualifications to serve on the Board. Except for the initial Board 
nominations, importers and domestic certified organic producers and 
handlers would have the opportunity to cast a ballot and vote for 
candidates to serve on the Board. Nominees would also have to submit a 
background information form to the Secretary to ensure they are 
qualified to serve on the Board.
    Additionally, importers whose annual transaction value does not 
exceed $250,000, and domestic producers and handlers whose gross 
organic sales do not exceed $250,000 could submit a request to the 
Board for an exemption from paying assessments on this value. An entity 
whose commodity is currently represented under a different commodity 
promotion program or marketing order could submit to the Board its 
election of the program into which it will pay assessments. Mandatorily 
and voluntarily assessed entities would be asked to submit either an 
``Organic Import Report'' or an ``Organic Production and Handling 
Report'' that would accompany their assessments paid to the Board and 
report the net organic sales and/or transaction value for organic 
products during the applicable period. Entities granted an exemption 
from assessments from the Board would not be required to submit these 
reports.
    Finally, domestic producers, handlers, and importers who wanted to 
participate in a referendum to vote on whether the Order should become 
effective would have to complete a registration form for submission to 
the Secretary. These forms are being submitted to OMB for approval 
under OMB Control No. 0581-NEW. Specific burdens for the forms are 
detailed later in this document in the section titled PAPERWORK 
REDUCTION ACT. As with all Federal promotion programs, reports and 
forms are periodically reviewed to reduce information requirements and 
duplication by industry and public sector agencies. USDA has not 
identified any relevant Federal rules that duplicate, overlap, or 
conflict with this rule.
    AMS is committed to complying with the E-Government Act, to promote 
the use of the Internet and other information technologies to provide 
increased opportunities for citizen access to Government information 
and services, and for other purposes.
    While AMS has performed this initial RFA analysis regarding the 
impact of the proposed rule on small entities, in order to have as much 
data as possible for a more comprehensive analysis, we invite comments 
concerning potential effects. AMS is also requesting comments regarding 
the number and size of entities covered under the proposed Order.

VI. Executive Order 13175

    This rule has been reviewed in accordance with the requirements of 
Executive Order 13175, Consultation and Coordination with Indian Tribal 
Governments. The review reveals that this regulation would not have 
substantial and direct effects on Tribal governments and would not have 
significant Tribal implications.

VII. Civil Rights Impact Analysis

    Consideration has been given to the potential civil rights 
implications of this proposed rule on affected parties to ensure that 
no person or group shall be discriminated against on the basis of race, 
color, national origin, gender, religion, age, disability, sexual 
orientation, marital or family status, political beliefs, parental 
status or protected genetic information. Although detailed demographic 
information is not available on the importers and domestic certified 
organic producers and handlers who would be subject to the program, 
broad consideration was given to the employees of such entities and 
those individuals who wish to use information collected under this 
mandatory program. This proposed rule does not require affected 
entities to relocate or alter their operations in ways that could 
adversely affect such persons or groups. Moreover, the program would 
not exclude from participation any persons or groups, deny any persons 
or groups the benefits of the program, or subject any persons or groups 
to discrimination.

VIII. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chapter 35), AMS announces its intention to request an approval of a 
new information collection and recordkeeping requirements for the 
proposed organic program.
    Title: Organic Research, Promotion, and Information Order.
    OMB Number: 0581-NEW.
    Expiration Date of Approval: 3 years from approval date.
    Type of Request: New information collection for research and 
promotion program.
    Abstract: The information collection requirements in the request 
are essential to carry out the intent of the Act. The information 
collection concerns a proposal received by USDA for a national research 
and promotion program for the organic industry. The program would be 
financed by assessments levied upon domestic certified organic 
producers, certified organic handlers, and importers of organic 
products, and would be administered by a board of industry members 
selected by the Secretary. The program would provide for an assessment 
exemption for: (a) Certified organic producers and certified organic 
handlers with gross organic sales of $250,000 or less for the previous 
marketing year, (b) importers of organic products declaring a 
transaction value equal to $250,000 or less for the previous marketing 
year, (c) shipments of certified organic commodities by domestic 
certified organic producers and certified organic handlers to locations 
outside of the United States, and (d) producers, handlers, and 
importers of dual-covered commodities (e.g., highbush blueberries, 
beef, dairy, almonds, etc.) who elect to pay assessments under other 
applicable commodity promotion programs. A referendum would be held 
among assessed domestic certified organic producer, certified organic 
handler entities, and importers to determine whether they favor 
implementation of the program prior to it going into effect. The 
purpose of the program would be to promote organic goods, educate the 
public, and support market and agricultural research.
    In summary, the information collection requirements under the 
program concern Board nominations, the collection of assessments, and 
referenda. Regarding assessments, domestic certified organic producers, 
certified organic handlers, and importers would submit an ``entity 
registration statement and application

[[Page 5777]]

for exemption from assessment'' form for the purpose of registering 
with the Board and, if desired, to apply for an exemption from paying 
assessments. The application for exemption portion of the form would 
need to be submitted to the board annually. Persons producing, handling 
and importing dual-covered commodities that opt to remit assessments to 
existing commodity promotion programs would annually submit a ``Dual-
Covered Commodity Application for Exemption From Assessments'' form to 
the Secretary. Mandatorily and voluntarily assessed entities would also 
be asked to submit either an ``Organic Import Report'' or an ``Organic 
Production and Handling Report'' that would accompany their assessments 
paid to the Board and report the net organic sales and/or transaction 
value for organic products during the applicable period. Entities 
granted an exemption from assessments from the Board would not be 
required to submit these reports.
    For Board nominations, importers and domestic certified organic 
producers and handlers interested in serving on the Board would be 
asked to submit a ``Nomination Form'' to the Board indicating their 
desire to serve or to nominate another industry member to serve on the 
Board. Interested persons could also submit a background statement 
outlining qualifications to serve on the Board. Except for the initial 
Board nominations, importers and domestic certified organic producers 
and handlers would have the opportunity to submit a ``Nomination 
Ballot'' to the Board where they would vote for candidates to serve on 
the Board. Nominees would also have to submit a background information 
form, ``AD-755,'' to the Secretary to ensure they are qualified to 
serve on the Board.
    There would also be an additional burden on importers and domestic 
certified organic producers and handlers voting in referenda. The 
referendum ballot, which represents the information collection 
requirement relating to referenda, is addressed in a proposed rule on 
referendum procedures which is published separately in this issue of 
the Federal Register. The following estimates are based on an 
assumption that there is no participation by voluntarily assessed 
entities. Per the Initial Regulatory Flexibility Analysis, of the 
11,139 producers, 8,327 handlers, and 2,135 importers, it is estimated 
that about 2,691 producers, 5,015 handlers, and 326 importers would pay 
assessments under the Order and thus be eligible to vote in the 
referendum.
    Information collection requirements that are included in this 
proposal include:

(1) Organic Production & Handling Report

    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 3 hours per certified organic 
producer or certified organic handler.
    Respondents: Domestic certified organic producers and certified 
organic handlers.
    Estimated Number of Respondents: 7,706.
    Estimated Number of Responses per Respondent: 4.
    Estimated Total Annual Burden on Respondents: 92,472 hours.

(2) Organic Importer Report

    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 3 hour per importer.
    Respondents: Importers.
    Estimated Number of Respondents: 326.
    Estimated Number of Responses per Respondent: 4.
    Estimated Total Annual Burden on Respondents: 3,912 hours.

(3) Entity Registration Statement and Application for Exemption From 
Assessment

    Estimate of Burden: Public recordkeeping burden for this collection 
of information is estimated to average 0.8782 hours per application.
    Respondents: Domestic producers, handlers, and importers.
    Estimated Number of Respondents: 21,601.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Burden on Respondents: 18,970 hours.

(4) Dual-Covered Commodity Application for Exemption From Assessments

    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 1 hour per importer or domestic 
producer or handler reporting on organic products produced or imported. 
Upon approval of an application, such entities would receive exemption 
certification.
    Respondents: Domestic producers, handlers, and importers.
    Estimated Number of Respondents: 1,021.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Burden on Respondents: 1,021 hours.

(5) Nomination Form

    Estimate of Burden: Public recordkeeping burden for this collection 
of information is estimated to average 0.25 hours per application.
    Respondents: Domestic producers, handlers, and importers.
    Estimated Number of Respondents: 275.
    Estimated Number of Responses per Respondent: 0.33.
    Estimated Total Annual Burden on Respondents: 22.69 hours.

(6) Nomination Ballot

    Estimate of Burden: Public recordkeeping burden for this collection 
of information is estimated to average 0.25 hours per application.
    Respondents: Domestic producers, handlers, and importers.
    Estimated Number of Respondents: 8,032.
    Estimated Number of Responses per Respondent: 0.33.
    Estimated Total Annual Burden on Respondents: 662.64 hours.

(7) Background Information Form AD-755 (OMB Form No. 0505-0001)

    Estimate of Burden: Public reporting for this collection of 
information is estimated to average 0.5 hours per response for each 
Board nominee.
    Respondents: Domestic producers, handlers, and importers.
    Estimated Number of Respondents: 32 (32 for initial nominations to 
the Board, 0 for the second year, 5 for the third year, and up to 6 
annually thereafter).
    Estimated Number of Responses per Respondent: 1 every 3 years.
    Estimated Total Annual Burden on Respondents: 16 hours for the 
initial nominations to the Board, 0 hours for the second year of 
operation, and up to 6 hours annually thereafter.

(8) Background Statement

    Estimate of Burden: Public recordkeeping burden for this collection 
of information is estimated to average 0.25 hours per application.
    Respondents: Domestic producers, handlers, and importers.
    Estimated Number of Respondents: 275.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Burden on Respondents: 68.75 hours.

(9) A Requirement To Maintain Records Sufficient To Verify Reports 
Submitted Under the Order

    Estimate of Burden: Public recordkeeping burden for keeping this 
information is estimated to average 1 hour per recordkeeper maintaining 
such records.

[[Page 5778]]

    Recordkeepers: Domestic producers and handlers (19,466), importers 
(2,135).
    Estimated Number of Recordkeepers: 21,601.
    Estimated Total Recordkeeping Hours: 21,601 hours.
    As noted above, under the proposed program, domestic certified 
organic producers, certified organic handlers, and importers would be 
required to pay assessments to and file reports with the Board. While 
the proposed Order would impose certain recordkeeping requirements on 
certified organic producers, certified organic handlers, and importers, 
information required under the proposed Order could be compiled from 
records currently maintained. Such records shall be retained for at 
least 5 years beyond the fiscal year of their applicability.
    An estimated 21,601 respondents would provide information to the 
Board (19,466 domestic certified organic producers and handlers, and 
2,135 importers). Data for the list of certified organic producers and 
handlers was obtained from the 2014 NASS Organic Survey and the ``2014 
Annual Count of USDA-NOP Certified Organic Operations'' report from the 
Organic Integrity Database.\59\ Data to establish the list of importers 
of organic products in 2014 was obtained from the USDA AMS 
International Trade Data System/Automated Commercial Environment (ITDS/
ACE).\60\ The estimated cost of providing the information to the Board 
by respondents would be $4,989,011.35. This total has been estimated by 
adding the cost of the hours required for producer and handling 
reporting (135,638.17 hours multiplied by $34.89, the mean hourly 
earnings of certified producers and handlers) and importer reporting 
(8,490.92 hours multiplied by $30.22, the average mean hourly earnings 
of importers). Data for computation of the hourly rate for producers 
and handlers (Occupation Code 11-9013: Farmers, Ranchers, and other 
Agricultural Managers) and importers (Occupation Code 13-1020: Buyers 
and Purchasing Agents) was obtained from the U.S. Department of Labor's 
Bureau of Labor Statistics.
---------------------------------------------------------------------------

    \59\ NOP Organic Integrity database. Available at: https://apps.ams.usda.gov/Integrity/Reports/Reports.aspx.
    \60\ U.S. Customs and Border Protection ACE and Automated 
Systems. Available at: https://www.cbp.gov/trade/automated.
---------------------------------------------------------------------------

    The proposed Order's provisions have been carefully reviewed, and 
every effort has been made to minimize any unnecessary recordkeeping 
costs or requirements, including efforts to utilize information already 
submitted under other programs administered by USDA and other state 
programs.
    The proposed forms would require the minimum information necessary 
to effectively carry out the requirements of the program, and their use 
is necessary to fulfill the intent of the Act. Such information can be 
supplied without data processing equipment or outside technical 
expertise. In addition, there are no additional training requirements 
for individuals filling out reports and remitting assessments to the 
Board. The forms would be simple, easy to understand, and place as 
small a burden as possible on the person required to file the 
information.
    Collecting information monthly would likely coincide with normal 
industry business practices. The timing and frequency of collecting 
information are intended to meet the needs of the industry while 
minimizing the amount of work necessary to fill out the required 
reports. The requirement to keep records for five years is consistent 
with OFPA section 6511(d)(1) requirements for the production and 
handling or agricultural products sold or labeled as organically 
produced. In addition, the information to be included on these forms is 
not available from other sources because such information relates 
specifically to individual domestic certified organic producers, 
certified organic handlers and importers who are subject to the 
provisions of the Act. Therefore, there is no practical method for 
collecting the required information without the use of these forms.

Request for Public Comment Under the Paperwork Reduction Act

    Comments are invited on: (a) Whether the proposed collection of 
information is necessary for the proper performance of functions of the 
proposed Order and USDA's oversight of the proposed Order, including 
whether the information would have practical utility; (b) the accuracy 
of USDA's estimate of the burden of the proposed collection of 
information, including the validity of the methodology and assumptions 
used; (c) the accuracy of USDA's estimate of the principal production 
areas in the United States for organic commodities; (d) the accuracy of 
USDA's estimate of the number of domestic certified organic producers, 
handlers, and importers of organic products that would be covered under 
the program; (e) ways to enhance the quality, utility, and clarity of 
the information to be collected; and (f) ways to minimize the burden of 
the collection of information on those who are to respond, including 
the use of appropriate automated, electronic, mechanical, or other 
technological collection techniques or other forms of information 
technology.
    Comments concerning the information collection requirements 
contained in this action should reference OMB No. 0581-NEW. In 
addition, the docket number, date, and page number of this issue of the 
Federal Register also should be referenced. Comments should be sent to 
the same addresses referenced in the ADDRESSES section of this rule.
    OMB is required to make a decision concerning the collection of 
information contained in this rule between 30 and 60 days after 
publication. Therefore, a comment to OMB is best assured of having its 
full effect if OMB receives it within 30 days of publication.
    USDA made modifications to the proponent's proposal to conform to 
other similar national research and promotion programs implemented 
under the Act.
    While the proposal set forth below has not received the approval of 
USDA, it is determined that this proposed Order is consistent with and 
would effectuate the purposes of the Act.
    As previously mentioned, for the proposed Order to become 
effective, it must be approved by a majority of domestic certified 
organic producers, handlers, and importers voting in the referendum.
    Referendum procedures will be published separately in this issue of 
the Federal Register.
    A 60-day comment period is provided to allow interested persons to 
respond to this proposal. All written comments received in response to 
this rule by the date specified will be considered prior to finalizing 
this action.

List of Subjects in 7 CFR Part 1255

    Administrative practice and procedure, Advertising, Consumer 
information, Marketing agreements, Organic, Promotion, Reporting and 
recordkeeping requirements.

0
For the reasons set forth in the preamble, it is proposed that Title 7, 
Chapter XI of the Code of Federal Regulations be amended by adding part 
1255 to read as follows:

PART 1255--ORGANIC RESEARCH, PROMOTION AND INFORMATION ORDER

Subpart A--Organic Research, Promotion, and Information Order

Definitions

Sec.
1255.1 Act.
1255.2 Agricultural inputs.
1255.3 Agricultural product.

[[Page 5779]]

1255.4 Assessed entity.
1255.5 Board.
1255.6 Certificate of exemption.
1255.7 Certification or certified.
1255.8 Certified operation.
1255.9 Certified organic handler.
1255.10 Certified organic producer.
1255.11 Conflict of interest.
1255.12 Customs or CBP.
1255.13 Department.
1255.14 Dual-covered commodity.
1255.15 Fiscal year and marketing year.
1255.16 Gross organic sales.
1255.17 Importer.
1255.18 Information.
1255.19 Ingredient.
1255.20 National Organic Program.
1255.21 Net organic Sales.
1255.22 Order.
1255.23 Organic.
1255.24 Organic products.
1255.25 Organic Trade Association.
1255.26 Part and subpart.
1255.27 Person.
1255.28 Product processor.
1255.29 Programs, plans and projects.
1255.30 Promotion.
1255.31 Qualified State Commodity Board.
1255.32 Research.
1255.33 Secretary.
1255.34 State.
1255.35 Suspend.
1255.36 Terminate.
1255.37 United States.
1255.38 Voluntarily assessed entity.

Organic Research and Promotion Board

1255.40 Establishment and membership.
1255.41 Nominations and appointments.
1255.42 Term of office.
1255.43 Removal and vacancies.
1255.44 Procedure.
1255.45 Reimbursement and attendance.
1255.46 Powers and duties.
1255.47 Prohibited activities.

Expenses and Assessments

1255.50 Budget and expenses.
1255.51 Financial statements.
1255.52 Assessments.
1255.53 Exemption from assessment.
1255.54 Assessment offset.

Promotion, Research and Information

1255.60 Programs, plans and projects.
1255.61 Independent evaluation.
1255.62 Patents, copyrights, trademarks, inventions, product 
formulations, and publications.

Reports, Books and Records

1255.70 Reports.
1255.71 Books and records.
1255.72 Confidential treatment.

Miscellaneous

1255.80 Right of the Secretary.
1255.81 Referenda.
1255.82 Suspension or termination.
1255.83 Proceedings after termination.
1255.84 Effect of termination or amendment.
1255.85 Personal liability.
1255.86 Separability.
1255.87 Amendments.
1255.88 OMB control numbers.
Subpart B--[Reserved]

    Authority: 7 U.S.C. 7411-7425; 7 U.S.C. 7401.

Subpart A--Organic Research, Promotion and Information Order

Definitions


Sec.  1255.1  Act.

    Act means the Commodity Promotion, Research and Information Act of 
1996 (7 U.S.C. 7411-7425), and any amendments thereto.


Sec.  1255.2  Agricultural inputs.

    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.).


Sec.  1255.3  Agricultural product.

    Agricultural product. Any agricultural commodity or product, 
whether raw or processed, including any commodity or product derived 
from livestock, that is marketed in the United States for human or 
livestock consumption.


Sec.  1255.4  Assessed entity.

    Assessed entity means any certified organic producer or certified 
organic handler that has gross organic sales in excess of $250,000 for 
the previous marketing year, any importer with a transaction value 
greater than $250,000 in organic products for the previous marketing 
year, and any voluntarily assessed entity.


Sec.  1255.5  Board.

    Board means the Organic Research and Promotion Board established 
pursuant to Sec.  1255.40, or such other name as recommended by the 
Board and approved by the Secretary.


Sec.  1255.6  Certificate of exemption.

    Certificate of exemption means a certificate issued by the Board, 
pursuant to Sec.  1255.53, to a certified organic producer, certified 
organic handler or importer that:
    (a) Has gross organic sales less than or equal to $250,000 for the 
previous marketing year,
    (b) Has imported a transaction value less than or equal to $250,000 
in organic products during the previous marketing year, or
    (c) Entity that produces, handles or imports dual-covered 
commodities. Certificates of exemptions issued to entities that opt to 
pay into dual-covered commodity research and promotion programs or 
marketing orders are issued by the Secretary.


Sec.  1255.7  Certification or certified.

    Certification or certified. A determination made by a USDA-
accredited certifying agent that a production or handling operation is 
in compliance with the Organic Foods Production Act of 1990 (7 U.S.C. 
6501-6522) and the regulations in 7 CFR part 205 or to an authorized 
international standard, and any amendments thereto, and which is 
documented by a certificate of organic operation.


Sec.  1255.8  Certified operation.

    Certified operation. A crop or livestock production operation, 
wild-crop harvesting or handling operation, or portion of such 
operation that is certified by a USDA-accredited certifying agent as 
utilizing a system of organic production or handling as described by 
the Organic Foods Production Act of 1990 (7 U.S.C. 6501-6522) and the 
regulations in 7 CFR part 205.


Sec.  1255.9  Certified organic handler.

    Certified organic handler means a person who handles certified 
organic products in accordance with the definition specified in 7 CFR 
205.100, the requirements specified in 7 CFR 205.270 through 7 CFR 
205.272, and all other applicable requirements of part 205 and 
receives, sells, consigns, delivers, or transports certified organic 
products into the current of commerce in the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, or any territory 
or possession of the United States.


Sec.  1255.10  Certified organic producer.

    Certified organic producer means a person who produces certified 
organic products in accordance with the definition specified in 7 CFR 
205.100, the requirements specified in 7 CFR 205.202 through 7 CFR 
205.207 or 7 CFR 205.236 through 7 CFR 205.240, and all other 
applicable requirements of part 205.


Sec.  1255.11  Conflict of interest.

    Conflict of interest means a situation in which a member or 
employee of the Board has a direct or indirect financial interest in a 
person who performs a service for, or enters into a contract with, the 
Board for anything of economic value.


Sec.  1255.12  Customs or CBP.

    Customs or CBP means the U.S. Customs and Border Protection, an 
agency of the U.S. Department of Homeland Security.

[[Page 5780]]

Sec.  1255.13  Department.

    Department means the U.S. Department of Agriculture, or any officer 
or employee of the Department to whom authority has heretofore been 
delegated, or to whom authority may hereafter be delegated, to act in 
the Secretary's stead.


Sec.  1255.14  Dual-covered commodity.

    Dual-covered commodity means an agricultural commodity that is 
produced on a certified organic farm and is covered under this part and 
any other agricultural commodity promotion order issued under a 
commodity promotion law.


Sec.  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.


Sec.  1255.16  Gross organic sales.

    Gross organic sales means the total amount the person received for 
all organic products during the fiscal year without subtracting any 
costs or expenses.


Sec.  1255.17  Importer.

    Importer means any person who imports certified organic products 
from outside the United States for sale in the United States as a 
principal or as an agent, broker, or consignee of any person who 
produces organic products outside the United States for sale in the 
United States, and who is listed in the import records as the importer 
of record for such organic products. Organic importers can be 
identified through organic certificates, import certificates, HTS 
codes, or any other demonstration that they meet the definition above.


Sec.  1255.18  Information.

    Information means information and programs for consumers, the 
organic industry, and producers. This includes educational activities; 
and information and programs designed to enhance and broaden the 
understanding of the use and attributes of organic products, increase 
organic production, support the transition of acres and farms to 
organic production in the United States, provide technical assistance, 
maintain and expand existing markets, engage in crisis management, and 
develop new markets and marketing strategies. These include:
    (a) Consumer education, advertising and information, which means 
any effort taken to provide information to, and broaden the 
understanding of, the general public regarding organic products; and
    (b) Industry information, which means information and programs that 
would enhance the image of the organic industry, maintain and expand 
existing markets, engage in crisis management, and develop new markets 
and marketing strategies; and
    (c) Producer information, which means information related to 
agronomic and animal husbandry practices and certification 
requirements, and information supporting the sustainable transition of 
acres, farms and ranches to organic production in the United States, 
long-term system management, increasing organic production, direct and 
local marketing opportunities, export opportunities, and organic 
research.


Sec.  1255.19  Ingredient.

    Ingredient means any substance used in the preparation of an 
agricultural product that is still present in the final commercial 
product as consumed.


Sec.  1255.20  National Organic Program.

    ``National Organic Program'' means the program authorized by the 
Organic Foods Production Act of 1990 (OFPA) (7 U.S.C. 6501-6522) for 
the purpose of implementing its provisions.


Sec.  1255.21  Net organic sales.

    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.


Sec.  1255.22  Order.

    Order means an order issued by the Secretary under section 514 of 
the Act that provides for a program of generic promotion, research, 
education and information regarding organic products authorized under 
the Act.


Sec.  1255.23  Organic.

    Organic means a labeling term that refers to an agricultural 
product produced in accordance with the Organic Foods Production Act of 
1990 (OFPA) (7 U.S.C. 6501-6522) and the regulations in 7 CFR part 205.


Sec.  1255.24  Organic products.

    Organic products means products produced and certified under the 
authority of the Organic Foods Production Act of 1990 (7 U.S.C. 6501-
6522) and the regulations in 7 CFR part 205 or to an authorized 
international standard, and any amendments thereto.


Sec.  1255.25  Organic Trade Association.

    Organic Trade Association (OTA) means a membership business 
association who, in collaboration with the GRO Organic Core Committee, 
petitioned USDA for the Organic Research, Promotion, and Information 
Order. OTA is a membership-based trade organization representing 
growers, processors, certifiers, farmers associations, distributors, 
importers, exporters, consultants, retailers, and others involved in 
the organic sector. The GRO Organic Core Committee is a subset of OTA's 
larger Organic Research and Promotion Program Steering Committee.


Sec.  1255.26  Part and subpart.

    Part means the Organic Research, Promotion, and Information Order 
and all rules, regulations, and supplemental orders issued pursuant to 
the Act and the Order. The Order shall be a subpart of such part.


Sec.  1255.27  Person.

    Person means any individual, group of individuals, partnership, 
corporation, association, cooperative, or any other legal entity.


Sec.  1255.28  Product processor.

    Product processor means a certified organic handler who cooks, 
bakes, heats, dries, mixes, grinds, churns, separates, extracts, cuts, 
ferments, eviscerates, preserves, dehydrates, freezes, or otherwise 
manufactures organic products, and includes the packaging, canning, 
jarring, or otherwise enclosing organic food in a container.


Sec.  1255.29  Programs, plans and projects.

    Programs, plans and projects means those research, promotion, and 
information programs, plans or projects established pursuant to the 
Order.


Sec.  1255.30  Promotion.

    Promotion means any action, including paid advertising and the 
dissemination of information, utilizing public relations or other 
means, to enhance and broaden the understanding of the use and 
attributes of organic products for the purpose of maintaining and 
expanding markets for the organic industry.


Sec.  1255.31  Qualified State Commodity Board.

    Qualified State Commodity Board means, for purposes of Sec.  
1255.54 governing assessment offsets, an existing or future producer or 
handler governed entity--
    (a) That is authorized by State law or a State government agency;

[[Page 5781]]

    (b) That is organized and operating within a State;
    (c) That is not federally administered; and
    (d) That receives mandatory contributions and conducts promotion, 
research, and/or information programs.


Sec.  1255.32  Research.

    Research includes both agricultural and other research.
    (a) Agricultural research includes any type of investigation, 
study, evaluation or analysis (including related education, extension, 
and outreach activities) designed to improve organic farm production 
systems and practices, productivity, expand organic farming 
opportunities, and enhance sustainability for farms, farm families and 
their communities; enhance plant and animal breeding and varietal 
development for organic systems and improve the availability of other 
production inputs; optimize natural resource conservation, 
biodiversity, ecosystem services, and other environmental outcomes of 
organic agriculture, and advance organic farm and food safety 
objectives.
    (b) Other research includes any type of investigation, study, 
evaluation or analysis (including related education, extension, and 
outreach activities) designed to enhance or increase the consumption, 
image, desirability, use, marketability, or production of organic 
products; or to do studies on nutrition, market data, processing, 
environmental and human health benefits, quality of organic products, 
including research directed to organic product characteristics and 
product development, including new uses of existing organic products, 
new organic products or improved technology in the production, 
processing and packaging of organic products.


Sec.  1255.33  Secretary.

    Secretary means the Secretary of Agriculture of the United States, 
or any other officer or employee of the Department to whom authority 
has been delegated, or to whom authority may hereafter be delegated, to 
act in the Secretary's stead.


Sec.  1255.34  State.

    State means any of the 50 States of the United States, the District 
of Columbia, the Commonwealth of Puerto Rico, or any territory or 
possession of the United States.


Sec.  1255.35  Suspend.

    Suspend means to issue a rule under 5 U.S.C. 553 to temporarily 
prevent the operation of an order or part thereof during a particular 
period of time specified in the rule.


Sec.  1255.36  Terminate.

    Terminate means to issue a rule under 5 U.S.C. 553 to cancel 
permanently the operation of an order or part thereof beginning on a 
date certain specified in the rule.


Sec.  1255.37  United States.

    United States means collectively the 50 States, the District of 
Columbia, the Commonwealth of Puerto Rico and the territories and 
possessions of the United States.


Sec.  1255.38  Voluntarily assessed entity.

    Voluntarily assessed entity means any covered person with gross 
organic sales or transaction value of $250,000 or less for the previous 
marketing year and thus not subject to assessment under this part, but 
elects to participate in the Order by remitting an assessment pursuant 
to Sec.  1255.52.

Organic Research and Promotion Board


Sec.  1255.40  Establishment and membership.

    (a) Establishment of the Board. There is hereby established an 
Organic Research and Promotion Board to administer the terms and 
provisions of this Order. Seats on the Board shall be apportioned as 
set forth in paragraph (b) of this section. There shall be no alternate 
Board members.
    (b) The Board shall be composed of 17 members and shall be 
established as follows:
    (1) Two members shall be certified organic producers (assessed 
mandatorily or voluntarily) from Region 1, which consists of the states 
of Alaska, California, and Hawaii;
    (2) One member shall be a certified organic producer (assessed 
mandatorily or voluntarily) from Region 2, which consists of the states 
of Oregon and Washington;
    (3) One member shall be a certified organic producer (assessed 
mandatorily or voluntarily) from Region 3, which consists of the states 
of Arizona, Colorado, Idaho, Kansas, Montana, Nebraska, Nevada, New 
Mexico, North Dakota, Oklahoma, South Dakota, Texas, Utah, and Wyoming;
    (4) One member shall be a certified organic producer (assessed 
mandatorily or voluntarily) from Region 4, which consists of the states 
of Iowa, Minnesota, and Wisconsin;
    (5) One member shall be a certified organic producer (assessed 
mandatorily or voluntarily) from Region 5, which consists of the states 
of Alabama, Arkansas, Delaware, Florida, Georgia, Illinois, Indiana, 
Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, New 
Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, 
Virginia, and West Virginia;
    (6) One member shall be a certified organic producer (assessed 
mandatorily or voluntarily) from Region 6, which consists of the states 
of Connecticut, Maine, Massachusetts, New Hampshire, New York, Rhode 
Island, Vermont, Washington DC, Puerto Rico, and U.S. Virgin Islands, 
and all other parts of the United States not listed in paragraphs 
(b)(1), (b)(2), (b)(3), (b)(4), (b)(5) and (b)(6) of this section;
    (7) One member shall be a voluntarily assessed certified organic 
producer at large, who shall have gross organic sales of $250,000 or 
less;
    (8) Five members shall be certified organic handlers at large 
(assessed mandatorily or voluntarily);
    (9) Two members shall be product processors (assessed mandatorily 
or voluntarily);
    (10) One member shall be an importer (assessed mandatorily or 
voluntarily); and
    (11) One member shall be an at-large public member, who shall be a 
non-voting member.
    (c) At least once in every five-year period, but not more 
frequently than once in every three-year period, the Board will review 
the participation rate of voluntarily assessed entities. The review 
will be conducted using the Board's annual assessment receipts. If 
warranted, the Board will recommend to the Secretary that the 
membership or size of the Board be adjusted to reflect changes in the 
number of participating voluntarily assessed entities. Any changes in 
Board composition shall be implemented by the Secretary through 
rulemaking.
    (d) At least once in every five-year period, but not more 
frequently than once in every 3-year period, the Board must review, 
based on a 3-year average, the geographical distribution of production 
of organic agricultural commodities in the United States with respect 
to the certified organic producer Board member seats; and the value of 
organic agricultural commodities imported into the United States with 
respect to the importer seat(s). The review will be conducted using the 
NOP's list of certified organic operations and, if available, other 
reliable reports from the industry. If warranted, the Board will 
recommend to the Secretary that the membership or size of the Board be 
adjusted to reflect changes in geographical distribution of production 
of organic agricultural commodities in the United States, and the value 
of organic agricultural commodities

[[Page 5782]]

imported into the United States. Any changes in Board composition shall 
be implemented by the Secretary through rulemaking.


Sec.  1255.41  Nominations and appointments.

    (a) Nominees must be certified organic producers, certified organic 
handlers, or importers who are mandatorily or voluntarily assessed, 
except for the voluntarily assessed entity (who must be a voluntarily 
assessed certified organic producer) and the non-voting at-large public 
member.
    (1) All Board nominees (mandatorily and voluntarily assessed) may 
provide a short background statement outlining their qualifications to 
serve on the Board.
    (2) Reserved.
    (b) Nominations for the initial Board will be handled by the 
Department and OTA. The nomination process shall be publicized, using 
trade press or other means deemed appropriate, and shall conduct 
outreach to all known certified organic producers, certified organic 
handlers, and importers of organic products, as well as the non-voting 
at-large public member. Voluntarily assessed producers may seek 
nomination to the Board for the voluntarily assessed certified organic 
producer seat or for the seat for which they are geographically 
qualified. Entities that are a combination of a certified organic 
producer, certified organic handler, or importer could seek nomination 
to the Board in any role (certified organic producer, certified organic 
handler, and importer) for which they meet the definitions provided at 
Sec. Sec.  1255.9, 1255.10, and 1255.17. OTA may use local, state, or 
regional entities, mail or other methods to solicit potential nominees. 
The Secretary shall select the initial members of the Board from the 
nominations submitted.
    (c) For subsequent nominations, the Board would solicit nominations 
using trade press or other means it deems appropriate, and shall 
conduct outreach to:
    (1) All known U.S. certified organic producers and certified 
organic handlers with gross organic sales in excess of $250,000 in the 
previous marketing year,
    (2) Importers of organic products declaring a transaction value 
greater than $250,000 for the previous marketing year, and
    (3) All voluntarily assessed entities who have remitted assessments 
subject to Sec.  1255.52(d). Provided they are geographically 
qualified, entities that are a combination of a certified organic 
producer, certified organic handler, or importer could seek nomination 
to the Board in any role (certified organic producer, certified organic 
handler, and importer) for which they meet the definitions provided at 
Sec. Sec.  1255.9, 1255.10, and 1255.17. Entities that are a 
combination of a certified organic producer, certified organic handler, 
or importer could also vote in the nomination process described below 
for the certified organic producer, certified organic handler, and 
importer nominees, provided they are geographically qualified and meet 
the definitions provided at Sec. Sec.  1255.9, 1255.10, and 1255.17.
    (d) Subsequent certified organic producer nominations (for all 
geographic regions and the seat designated for a voluntarily assessed 
certified organic producer) shall be conducted as follows:
    (1) For the Board seats allocated by geographic region, certified 
organic producers must be domiciled in the region for which they seek 
nomination. Nominees must specify for which region they are seeking 
nomination. The names of nominees shall be placed on a ballot by 
region. The ballots along with any background statements shall be 
mailed to all certified organic producers who are domiciled in that 
particular region with gross organic sales in excess of $250,000 during 
the previous marketing year, and any certified organic producer in that 
region that has remitted a voluntary assessment pursuant to Sec.  
1255.52(d) during the previous marketing year and is currently paying 
into the program. Certified organic producers may vote in each region 
in which they produce organic products. The votes shall be tabulated 
for each region and the nominees shall be listed in descending order by 
number of votes received. The top two candidates for each position 
shall be submitted to the Secretary at least six months before the new 
Board term begins; and
    (2) Voluntarily assessed certified organic producers may seek 
nomination to the Board for the voluntarily assessed certified organic 
producer seat or for the certified organic producer seat for which they 
are geographically qualified. For the Board seat allocated to a 
voluntarily assessed certified organic producer, the names of nominees 
shall be placed on a ballot. The ballot along with any background 
statements shall be mailed to all voluntarily assessed certified 
organic producers. The votes shall be tabulated and the nominees shall 
be listed in descending order by number of votes received. The top two 
candidates for this position shall be submitted to the Secretary at 
least six months before the new Board term begins.
    (e) Subsequent certified organic handler and product processor at 
large nominations shall be conducted as follows:
    (1) The names of the nominees for the five ``at-large'' domestic 
certified organic handler seats and the two ``at-large'' product 
processor seats shall be placed on a ballot. The ballots along with any 
background statements would be mailed to all certified organic handlers 
with gross organic sales in excess of $250,000, and any voluntarily 
assessed certified organic handlers who have remitted an assessment 
pursuant to Sec.  1255.52(d) for the previous marketing year for a 
vote.
    (2) The votes would be tabulated with the nominee receiving the 
highest number of votes at the top of the list in descending order by 
vote. The top ten candidates for the certified organic handler 
positions and the top four candidates for the product processor 
positions would be submitted to the Secretary.
    (f) Subsequent importer nominations shall be conducted as follows:
    (1) The names of the nominees for the importer seat shall be placed 
on a ballot. The ballots along with any background statements shall be 
mailed to importers who imported a transaction value for organic 
products in excess of $250,000, and any voluntarily assessed importers 
who have remitted an assessment pursuant to Sec.  1255.52(d) for the 
previous marketing year for a vote.
    (2) The votes would be tabulated with the nominee receiving the 
highest number of votes at the top of the list in descending order by 
vote. The top two candidates for each position would be submitted to 
the Secretary.
    (g) Subsequent non-voting at-large public member nominations shall 
be conducted as follows:
    (1) The names of the nominees for ``at-large'' non-voting public 
member seat would also be placed on a ballot. The ballots along with 
the background statements would be mailed to:
    (i) All U.S. certified organic producers and certified organic 
handlers with gross organic sales in excess of $250,000 in the previous 
marketing year,
    (ii) Importers of organic products that declared a transaction 
value greater than $250,000 for the previous marketing year, and
    (iii) All voluntarily assessed entities who have remitted 
assessments subject to section 1255.52(d) (e.g. ``opted into the 
program'').
    (2) The votes would be tabulated with the nominee receiving the 
highest number of votes at the top of the list in

[[Page 5783]]

descending order by vote. The top two candidates would be submitted to 
the Secretary.
    (h) Any person nominated to serve on the Board shall file with the 
Board at the time of the nomination a background questionnaire.
    (i) From the nominations made pursuant to this section, the 
Secretary shall appoint the members of the Board on the basis of 
representation provided in Sec.  1255.40.
    (j) No two members of the Board shall be employed by a single 
corporation, company, partnership or any other legal entity.
    (k) The Board shall recommend to the Secretary nominees for the at-
large public member, and the Secretary shall appoint from those 
recommendations.
    (l) The Board may recommend to the Secretary modifications to its 
nomination procedures as it deems appropriate. Any such modifications 
shall be implemented through rulemaking by the Secretary.
    (m) The Board shall strive for diversity in its membership.


Sec.  1255.42  Term of office.

    (a) With the exception of the initial Board, each Board member 
shall serve for a term of three years or until the Secretary selects 
his or her successor. Each term of office shall begin on January 1 and 
end on December 31. No member may serve more than two full consecutive 
three-year terms, except as provided in paragraph (b) of this section.
    (b) For the initial Board, the terms of the Board members shall be 
staggered for two, three and four years as follows, so that the terms 
of approximately one-third of the Board members expire in any given 
year:
    (1) 2-year term--Region #2 certified organic producer, Region #6 
certified organic producer, 1 voluntarily assessed certified organic 
producer, 1 certified organic handler, and 1 product-processor.
    (2) 3-year term--Region #1 certified organic producer, Region #4 
certified organic producer, 1 at-large public member, 2 certified 
organic handlers, and 1 product-processor.
    (3) 4-year term--Region #1 certified organic producer, Region #3 
certified organic producer, Region #5 certified organic producer, 1 
importer, and 2 certified organic handlers.
    All subsequent terms shall be three-year terms.
    (c) No single corporation, company, partnership or any other legal 
entity can be represented on the Board by an employee or owner for more 
than two consecutive terms.


Sec.  1255.43   Removal and vacancies.

    (a) The Board may recommend to the Secretary that a member be 
removed from office if the member consistently fails or refuses to 
perform his or her duties properly or engages in dishonest acts or 
willful misconduct. If the Secretary determines that any person 
appointed under this subpart consistently fails or refuses to perform 
his or her duties properly or engages in acts of dishonesty or willful 
misconduct, the Secretary may remove the person from office. If a 
person loses or surrenders his or her valid organic certificate, the 
Secretary may remove the person from office. A person appointed under 
this subpart may be removed by the Secretary if the Secretary 
determines that the person's continued service would be detrimental to 
the purposes of the Act.
    (b) If a member resigns, is removed from office, or dies, or if any 
member of the Board ceases to work for or be affiliated with a 
certified organic producer, certified organic handler or importer, or 
if a certified organic producer representing regional producers, or if 
a voluntarily assessed entity no longer chooses to be assessed, such 
position shall become vacant.
    (c) If a position becomes vacant, nominations to fill the vacancy 
will be conducted using the nominations process set forth in this Order 
or the Board may recommend to the Secretary that he or she appoint a 
successor from the most recent list of nominations for the position.
    (d) A vacancy will not be required to be filled if the unexpired 
term is less than six months.


Sec.  1255.44   Procedure.

    (a) A majority of the voting Board members (9) shall constitute a 
quorum.
    (b) Each voting member of the Board shall be entitled to one vote 
on any matter put to the Board and the motion will carry only if 
supported by a majority of Board members, except for recommendations to 
change the assessment rate or to adopt a budget, both of which require 
affirmation by two-thirds of the total number of voting Board members 
(11).
    (c) At an assembled meeting, all votes shall be cast in person, or 
as otherwise determined by the Board in bylaws.
    (d) In lieu of voting at an assembled meeting and when in the 
opinion of the chairperson of the Board such action is considered 
necessary, the Board may take action only if supported by a majority of 
members (unless two-thirds is required under the Order) by mail, 
telephone, electronic mail, facsimile, or any other means of 
communication. In that event, all members must be notified and provided 
the opportunity to vote. Any action so taken shall have the same force 
and effect as though such action had been taken at an assembled 
meeting. All votes shall be recorded in Board minutes.
    (e) There shall be no proxy voting.
    (f) The Board must give members and the Secretary timely notice of 
all Board, executive and committee meetings.


Sec.  1255.45  Reimbursement and attendance.

    Board members shall serve without compensation, but shall be 
reimbursed for reasonable travel expenses, as approved by the Board, 
which they incur when performing Board business.


Sec.  1255.46  Powers and duties.

    (a) The Board shall have the following powers and duties:
    (1) To administer this subpart in accordance with its terms and 
conditions and to collect assessments;
    (2) To develop and recommend to the Secretary for approval such 
bylaws as may be necessary for the functioning of the Board, and such 
rules and regulations as may be necessary to administer the Order, 
including activities authorized to be carried out under the Order;
    (3) To meet not less than annually, organize, and select from among 
the members of the Board a chairperson, vice chairperson, secretary/
treasurer, other officers, and committees and subcommittees, as the 
Board determines appropriate;
    (4) To employ or contract with persons, other than the Board 
members, as the Board considers necessary to assist the Board in 
carrying out its duties, and to determine the compensation and specify 
the duties of the persons;
    (5) To provide notice of all Board meetings through a press release 
or other means and to give the Secretary the same notice of Board 
meetings (including committee, subcommittee, and the like) as is given 
to members so that the Secretary's representative(s) may attend such 
meetings, and to keep and report minutes of each meeting of the Board 
to the Secretary;
    (6) To develop and submit programs, plans and projects to the 
Secretary for the Secretary's approval, and enter into contracts or 
agreements related to such programs, plans and projects, which must be 
approved by the Secretary before becoming effective, for the 
development and carrying out of programs, plans or projects of 
promotion, research, and information. The payment of costs for such 
activities shall be from funds collected pursuant

[[Page 5784]]

to this Order. Each contract or agreement shall provide that:
    (i) The contractor or agreeing party shall develop and submit to 
the Board a program, plan or project together with a budget or budgets 
that shall show the estimated cost to be incurred for such program, 
plan or project;
    (ii) The contractor or agreeing party shall keep accurate records 
of all its transactions and make periodic reports to the Board of 
activities conducted, submit accounting for funds received and 
expended, and make such other reports as the Secretary or the Board may 
require;
    (iii) The Secretary may audit the records of the contracting or 
agreeing party periodically; and
    (iv) Any subcontractor who enters into a contract with a Board 
contractor and who receives or otherwise uses funds allocated by the 
Board shall be subject to the same provisions as the contractor.
    (7) To prepare and submit for the approval of the Secretary fiscal 
year budgets in accordance with Sec.  1255.50;
    (8) To borrow funds necessary for startup expenses of the Order 
during the first year of operation by the Board;
    (9) To invest assessments collected and other funds received 
pursuant to the Order and use earnings from invested assessments to pay 
for activities carried out pursuant to the Order;
    (10) To recommend changes to the assessment rates as provided in 
this part;
    (11) To cause its books to be audited by an independent auditor at 
the end of each fiscal year and at such other times as the Secretary 
may request, and to submit a report of the audit directly to the 
Secretary;
    (12) To periodically prepare and make public reports of program 
activities and, at least once each fiscal year, to make public an 
accounting of funds received and expended;
    (13) To maintain such minutes, books and records and prepare and 
submit such reports and records from time to time to the Secretary as 
the Secretary may prescribe; to make appropriate accounting with 
respect to the receipt and disbursement of all funds entrusted to it; 
and to keep records that accurately reflect the actions and 
transactions of the Board;
    (14) To act as an intermediary between the Secretary and any 
organic industry participant;
    (15) To receive, investigate, and report to the Secretary 
complaints of violations of the Order; and
    (16) To recommend to the Secretary such amendments to the Order as 
the Board considers appropriate.
    (b) When researching priorities for each marketing year the Board 
will provide public notice using local, state, or regional entities, 
mail and/or other methods to solicit public input from all covered 
entities and will have at least one meeting or conference call to 
determine the priorities for each marketing year.


Sec.  1255.47   Prohibited activities.

    The Board may not engage in, and shall prohibit the employees and 
agents of the Board from engaging in:
    (a) Any action that would be a conflict of interest;
    (b) Using funds collected by the Board under the Order to undertake 
any action for the purpose of influencing legislation or governmental 
action or policy, by local, state, national, and foreign governments or 
subdivision thereof (including the National Organic Standards Board), 
other than recommending to the Secretary amendments to the Order; and
    (c) Any promotion that is false, misleading or disparaging to 
another agricultural commodity.

Expenses and Assessments


Sec.  1255.50  Budget and expenses.

    (a) At least 60 calendar days prior to the beginning of each fiscal 
year, and as may be necessary thereafter, the Board shall prepare and 
submit to the Department a budget for the fiscal year covering its 
anticipated expenses and disbursements in administering this part. The 
budget for research, promotion or information may not be implemented 
prior to approval by the Secretary. Each such budget shall include:
    (1) A statement of objectives and strategy for each program, plan 
or project;
    (2) A summary of anticipated revenue, with comparative data for at 
least one preceding fiscal year, which shall not include the initial 
budget;
    (3) A summary of proposed expenditures for each program, plan or 
project. This shall include the following allocation of expenditures, 
clearly designated within the following buckets:
    (i) The funds shall be allocated as follows: no less than 25 
percent of the funds shall be allocated to research; 25 percent of the 
funds shall be allocated to information; 25 percent of the funds shall 
be allocated to promotion; and 25 percent of the funds shall remain 
discretionary; and
    (ii) Of the funds allocated to research, a majority shall be 
allocated to agricultural research; and
    (iii) Of the funds allocated to information, a majority shall be 
allocated to producer information; and
    (iv) Regional certified organic producer Board members shall 
establish priorities, including regional considerations, for 
investments in agricultural research; and
    (v) Any expenditures designated for the categories set forth in 
(i), (ii), and (iii) of this section that are not spent in a fiscal 
year shall carry over for the same category for the following fiscal 
year.
    (4) Staff and administrative expense breakdowns, with comparative 
data for at least one preceding fiscal year, except for the initial 
budget.
    (b) Each budget shall provide adequate funds to defray its proposed 
expenditures and to provide for a reserve as set forth in this Order.
    (c) Subject to this section, any amendment or addition to an 
approved budget must be approved by the Department, including shifting 
funds from one program, plan or project to another. Shifts of funds 
that do not result in an increase in the Board's approved budget and 
are consistent with governing bylaws need not have prior approval by 
the Department.
    (d) The Board is authorized to incur such expenses, including 
provision for a reserve, as the Secretary finds reasonable and likely 
to be incurred by the Board for its maintenance and functioning, and to 
enable it to exercise its powers and perform its duties in accordance 
with the provisions of this subpart. Such expenses shall be paid from 
funds received by the Board.
    (e) With approval of the Department, the Board may borrow money for 
the payment of startup expenses subject to the same fiscal, budget, and 
audit controls as other funds of the Board. Any funds borrowed shall be 
expended only for startup costs and capital outlays and are limited to 
the first year of operation by the Board.
    (f) The Board may accept voluntary contributions. Such 
contributions shall be free from any encumbrance by the donor and the 
Board shall retain complete control of their use. The Board may receive 
funds from outside sources with approval of the Secretary for specific 
authorized projects.
    (g) The Board may also receive other funds provided through the 
Department or from other sources, with the approval of the Secretary, 
for authorized activities.
    (h) The Board shall reimburse the Secretary for all expenses 
incurred by

[[Page 5785]]

the Secretary in the implementation, administration, enforcement and 
supervision of the Order, including all referendum costs in connection 
with the Order.
    (i) For fiscal years beginning three years after the date of the 
establishment of the Board, the Board may not expend for 
administration, maintenance, and the functioning of the Board an amount 
that is greater than 15 percent of the assessment and other income 
received by and available to the Board for the fiscal year. For 
purposes of this limitation, reimbursements to the Secretary shall not 
be considered administrative costs.
    (j) Any program, plan or project receiving funds under this section 
shall not expend for administration an amount that is greater than 15 
percent of the total funds allocated to the program, plan or project.
    (k) The Board may establish an operating monetary reserve and may 
carry over to subsequent fiscal years excess funds in any reserve so 
established: Provided, that, the funds in the reserve do not exceed one 
fiscal year's budget of expenses. Subject to approval by the Secretary, 
such reserve funds may be used to defray any expenses authorized under 
this subpart.
    (l) Pending disbursement of assessments and all other revenue under 
a budget approved by the Secretary, the Board may invest assessments 
and all other revenues collected under this part in:
    (1) Obligations of the United States or any agency of the United 
States;
    (2) General obligations of any State or any political subdivision 
of a State;
    (3) Interest bearing accounts or certificates of deposit of 
financial institutions that are members of the Federal Reserve System;
    (4) Obligations fully guaranteed as to principal interest by the 
United States; or
    (5) Other investments as authorized by the Secretary.


Sec.  1255.51  Financial statements.

    (a) The Board shall prepare and submit financial statements to the 
Department on a quarterly basis, or at any other time as requested by 
the Secretary. Each such financial statement shall include, but not be 
limited to, a balance sheet, income statement, and expense budget. The 
expense budget shall show expenditures during the time period covered 
by the report, year-to-date expenditures, and the unexpended budget.
    (b) Each financial statement shall be submitted to the Department 
within 30 calendar days after the end of the time period to which it 
applies.
    (c) The Board shall submit to the Department an annual financial 
statement within 90 calendar days after the end of the fiscal year to 
which it applies.


Sec.  1255.52  Assessments.

    (a) The Board's programs and expenses shall be paid by assessments 
on assessed entities, other income of the Board, and other funds 
available to the Board.
    (b) Subject to the offset specified in Sec.  1255.54 each certified 
organic producer or certified organic handler with gross organic sales 
of greater than $250,000 during the previous marketing year shall pay 
one-tenth of one percent of net organic sales to the Board. Each 
certified organic producer and certified organic handler shall remit to 
the Board the amount due no later than 90 days following the end of the 
marketing year in which the organic product was produced or handled and 
submit any necessary reports to the Board pursuant to Sec.  1255.70. 
Quarterly payments may be accepted.
    (c) Importers with greater than $250,000 in transaction value of 
organic products imported during the prior marketing year shall remit 
an assessment of one-tenth of one percent of the transaction value of 
organic products to Customs at the time of entry into the United States 
and shall be remitted by Customs to the Board. If Customs does not 
collect an assessment from an organic importer, the importer is 
responsible for paying the assessment directly to the Board within 90 
calendar days after the end of the year in which the organic products 
were imported and submit any necessary reports to the Board pursuant to 
Sec.  1255.70. Quarterly payments may be accepted. Such importers that 
have $250,000 or less in transaction value of organic products during 
the marketing year shall automatically receive a refund from the Board 
for the applicable assessments. The Board shall refund such importers 
their assessments as collected by Customs no later than 90 calendar 
days after the end of the marketing year. No interest shall be paid on 
the assessments collected by Customs or the Board.
    (d) Voluntary assessment. (1) Certified organic producers and 
certified organic handlers with gross organic sales of $250,000 or less 
in the prior marketing year may elect to participate in the Order as a 
voluntarily assessed entity by remitting an assessment of one-tenth of 
one percent of net organic sales. The certified organic producer and 
certified organic handler shall remit to the Board the amount due no 
later than 90 days following the end of the marketing year in which the 
organic product was produced or handled and submit any necessary 
reports to the Board pursuant to Sec.  1255.70. Quarterly payments may 
be accepted.
    (2) Importers declaring $250,000 or less in transaction value of 
organic products imported during the prior marketing year may elect to 
participate in the Order as a voluntarily assessed entity by remitting 
an assessment of one-tenth of one percent of the transaction value of 
organic products prior to the start of the marketing year. Quarterly 
payments may be accepted. If Customs does not collect an assessment 
from an importer, the importer is responsible for paying the assessment 
directly to the Board within 90 calendar days after the end of the year 
in which the organic products were imported. The importer would also 
submit any necessary reports to the Board pursuant to Sec.  1255.70.
    (e) If an entity is a combination of a certified organic producer, 
certified organic handler and/or an organic importer, such entity's 
combined gross organic sales and transaction value of organic products 
declared to Customs during the previous marketing year shall count 
towards the $250,000 threshold.
    (f) At least 24 months after the Order becomes effective and 
periodically thereafter, the Board shall review and may recommend to 
the Secretary, upon an affirmative vote of at least two-thirds of the 
voting members of the Board, a change in the assessment rate. A change 
in the assessment rate is subject to referendum.
    (g) When a certified organic producer, certified organic handler or 
importer fails to pay the assessment within 90 calendar days of the 
date it is due, the Board may impose a late payment charge and 
interest. The late payment charge and rate of interest shall be 
prescribed in regulations issued by the Secretary. All late assessments 
shall be subject to the specified late payment charge and interest. 
Persons failing to remit total assessments due in a timely manner may 
also be subject to actions under federal debt collection procedures.
    (h) The Board may accept advance payment of assessments from any 
certified organic producer, certified organic handler, or organic 
importer that will be credited toward any amount for which that person 
may become liable. The Board may not pay interest on any advance 
payment.
    (i) If the Board is not in place by the date the first assessments 
are to be collected, the Secretary shall receive

[[Page 5786]]

assessments and shall pay such assessments and any interest earned to 
the Board when it is formed.


Sec.  1255.53   Exemption from assessment.

    (a) Certified organic producers, certified organic handlers, and 
importers. (1) Certified organic producers and certified organic 
handlers with gross organic sales of $250,000 or less in the prior 
marketing year may apply to the Board, on a form provided by the Board, 
for a certificate of exemption prior to the start of the marketing 
year. This is an annual exemption and certified organic producers and 
certified organic handlers must reapply each year. Upon receipt of an 
application for exemption, the Board shall determine whether an 
exemption may be granted. The Board will issue, if deemed appropriate, 
a certificate of exemption to the eligible certified organic producer 
or certified organic handler. It is the responsibility of any entity 
granted an exemption to retain a copy of the certificate of exemption.
    (2) Importers declaring $250,000 or less in transaction value of 
organic products imported during the prior marketing year may apply to 
the Board, on a form provided by the Board, for a certificate of 
exemption prior to the start of the marketing year. This is an annual 
exemption and importers must reapply each year. Upon receipt of an 
application for exemption, the Board shall determine whether an 
exemption may be granted. The Board will issue, if deemed appropriate, 
a certificate of exemption to the eligible importer. It is the 
responsibility of any entity granted an exemption to retain a copy of 
the certificate of exemption.
    (b) Exporters. Shipments of certified organic commodities by 
domestic producers and handlers to locations outside of the United 
States are exempt from assessment. The Board shall establish procedures 
for approval by the Secretary for refunding assessments that may be 
inadvertently paid on such sales and establish any necessary safeguards 
as appropriate. Safeguard procedures would be implemented by the 
Secretary through rulemaking. If the Board determined that exports 
should be assessed, it would make that recommendation to the Secretary. 
Any such action would be implemented by USDA through rulemaking.
    (c) Dual-covered commodities. Certified organic producers; 
certified organic handlers, and importers of dual-covered commodities 
may apply to the Secretary, on a form provided by the Board, for a 
certificate of exemption any time initially, and annually thereafter 
prior to the January 1 start of the marketing year. The exemption for 
dual-covered commodities is effective for one marketing year. Entities 
granted an exemption must reapply each year. Eligible applicants shall 
certify that they have remitted any and all assessments due for the 
dual-covered commodity pursuant to the provisions of an agricultural 
commodity promotion order issued under a commodity promotion law. 
Within 30 days of receipt of an application for exemption, the 
Secretary shall determine whether an exemption may be granted. The 
Secretary may request documentation providing proof of the remittance 
of the assessment for the dual-covered commodity. If all requirements 
have been met, the Secretary will issue a certificate of exemption to 
the eligible certified organic producer, certified organic handler, or 
importer effective for the marketing year. If the application is 
denied, the Secretary will notify the applicant, in writing, within 30 
days of application. Such notification must detail the justification 
for the denial. Applicants notified of denial may reapply for an 
exemption for the forthcoming marketing year, so long as the 
reapplication is received prior to the beginning of such marketing 
year. It is the responsibility of any entity granted an exemption to 
retain a copy of the certificate of exemption.


Sec.  1255.54   Assessment offset.

    The Board may, with the approval of the Secretary, authorize a 
credit to a certified organic producer and certified organic handlers 
of up to 25 percent of the amount to be remitted to the Board pursuant 
to Sec.  1255.52 of this subpart to offset collection and compliance 
costs relating to such assessments and for fees paid to Qualified State 
Commodity Boards required by State law. This offset is available only 
for those monies that go to research and promotion, and not for dues or 
quality specifications.

Promotion, Research and Information


Sec.  1255.60  Programs, plans and projects.

    (a) The Board shall develop and submit to the Secretary for 
approval programs, plans and projects authorized by this subpart. Such 
programs, plans and projects shall provide for promotion, research, 
information and other activities including consumer and industry 
information and advertising.
    (b) No program, plan or project shall be implemented prior to its 
approval by the Secretary. Once a program, plan or project is so 
approved, the Board shall take appropriate steps to implement it.
    (c) The Board must evaluate each program, plan and project 
authorized under this subpart to ensure that it contributes to an 
effective and coordinated program of research, promotion, and 
information. The Board must submit the evaluations to the Secretary. If 
the Board finds that a program, plan or project does not contribute to 
an effective program of promotion, research, or information, then the 
Board shall terminate such program, plan or project.


Sec.  1255.61  Independent evaluation.

    At least once every five years, the Board shall authorize and fund 
from funds otherwise available to the Board, an independent evaluation 
of the effectiveness of all generic promotion, research and information 
activities undertaken under the Order. The Board shall submit to the 
Secretary, and make available to the public, the results of each 
periodic independent evaluation conducted under this section.


Sec.  1255.62  Patents, copyrights, trademarks, inventions, product 
formulations, and publications.

    Any patents, copyrights, trademarks, inventions, product 
formulations, and publications developed through the use of funds 
received by the Board under this subpart shall become part of the U.S. 
Government, as represented by the Board, and shall along with any 
rents, royalties, residual payments, or other income from the rental, 
sales, leasing, franchising, or other uses of such patents, copyrights, 
trademarks, inventions, publications, or product formulations, inure to 
the benefit of the Board, shall be considered income subject to the 
same fiscal, budget, and audit controls as other funds of the Board, 
and may be licensed subject to approval by the Secretary. Upon 
termination of this subpart, section 1255.83 shall apply to determine 
disposition of such property.

Reports, Books, and Records


Sec.  1255.70   Reports.

    (a) Certified organic producers, certified organic handlers and 
importers will be required to provide periodically to the Board such 
information as the Board, with the approval of the Secretary, may 
require. Such information may include, but not be limited to:
    (1) For certified organic producers and certified organic handlers:
    (i) The name, address and telephone number of the certified organic 
producer and/or certified organic handler and
    (ii) The value of net organic sales of the organic products.
    (2) For importers:
    (i) The name, address and telephone number of the importer;

[[Page 5787]]

    (ii) The transaction value of the organic products imported by 
type; and
    (iii) The country/countries of export.
    (b) For certified organic producers and certified organic handlers, 
such information shall be reported to the Board no later than 90 days 
following the end of the year in which the organic product was produced 
or handled and shall accompany the collected payment of assessments as 
specified in Sec.  1255.52. Quarterly payments may be accepted.
    (c) Importers who paid their assessments through Customs would not 
have to submit such reports to the Board because Customs would collect 
this information upon entry. For importers who pay their assessments 
directly to the Board, such information shall accompany the payment of 
collected assessments within 90 calendar days after the end of the year 
in which the organic product was imported specified in Sec.  1255.52. 
Quarterly payments may be accepted.


Sec.  1255.71  Books and records.

    Each certified organic producer, certified organic handler and 
importer shall maintain any books and records necessary to carry out 
the provisions of this subpart and regulations issued thereunder, 
including such records as are necessary to verify any required reports. 
Such books and records must be made available during normal business 
hours for inspection by the Board's or Secretary's employees or agents. 
Certified organic producers, certified organic handlers and importers 
must maintain the books and records for two years beyond the fiscal 
year to which they apply.


Sec.  1255.72   Confidential treatment.

    All information obtained from books, records, or reports under the 
Act, this subpart and the regulations issued thereunder shall be kept 
confidential by all persons, including all employees and former 
employees of the Board, all officers and employees and former officers 
and employees of contracting and subcontracting agencies or agreeing 
parties having access to such information. Such information shall not 
be available to Board members or certified organic producers, certified 
organic handlers and importers. Only those persons having a specific 
need for such information solely to effectively administer the 
provisions of this subpart shall have access to such information. Only 
such information so obtained as the Secretary deems relevant shall be 
disclosed by them, and then only in a judicial proceeding or 
administrative hearing brought at the direction, or at the request, of 
the Secretary, or to which the Secretary or any officer of the United 
States is a party, and involving this subpart. Nothing in this section 
shall be deemed to prohibit:
    (a) The issuance of general statements based upon the reports of 
the number of persons subject to this subpart or statistical data 
collected therefrom, which statements do not identify the information 
furnished by any person; and
    (b) The publication, by direction of the Secretary, of the name of 
any person who has been adjudged to have violated this part, together 
with a statement of the particular provisions of this part violated by 
such person.

Miscellaneous


Sec.  1255.80   Right of the Secretary.

    All fiscal matters, programs, plans or projects, contracts, rules 
or regulations, reports, or other substantive actions proposed and 
prepared by the Board shall be submitted to the Secretary for approval.


Sec.  1255.81   Referenda.

    (a) Initial referendum. The Order shall not become effective unless 
the Order is approved by a majority of assessed entities voting in the 
referendum. A single assessed entity may cast one vote in the 
referendum. All currently certified domestic entities in the list that 
is maintained by the National Organic Program will be mailed a ballot. 
Importers of products with organic HTS codes from the last year will 
also be mailed a ballot. Requests for ballots shall include an 
affidavit attesting to (a) an importer's participation in the organic 
industry, and (b) a voluntarily assessed entity's commitment to be 
assessed for the majority of years until the next referendum. Bloc 
voting shall be prohibited.
    (b) Subsequent referenda. (1) Every seven years, the Department 
shall hold a referendum to determine whether assessed entities favor 
the continuation, suspension, or termination of the Order. The Order 
shall continue if it is favored by a majority of the assessed entities 
voting. The Department will also conduct a referendum if 10 percent or 
more of all assessed entities request the Department to hold a 
referendum. Each ballot request shall include an affidavit attesting 
to:
    (i) An importer's participation in the organic industry, and
    (ii) A voluntarily assessed entity's commitment to be assessed for 
the majority of the next seven years. Bloc voting shall be prohibited.
    (2) All assessed entities in good standing shall be eligible to 
vote in a subsequent referendum. To be in good standing:
    (i) A dual-covered entity must demonstrate that it has paid into 
the organic research and promotion program for a majority of the years 
since the most recent referendum; or
    (ii) A voluntarily assessed entity must have paid into the organic 
research and promotion program for a majority of the years since the 
most recent referendum; or
    (iii) An entity must have attained its organic certification since 
the most recent referendum and have paid into the organic research and 
promotion program for every year since entering the program; or
    (iv) An assessed entity that does not meet any of the above 
descriptions must demonstrate that it has paid into the organic 
research and promotion program every year since the most recent 
referendum.


Sec.  1255.82  Suspension or termination.

    (a) The Secretary shall suspend or terminate this part or subpart 
or a provision thereof, if the Secretary finds that this part or 
subpart or a provision thereof obstructs or does not tend to effectuate 
the purposes of the Act, or if the Secretary determines that this 
subpart or a provision thereof is not favored by persons voting in a 
referendum conducted pursuant to the Act.
    (b) The Secretary shall suspend or terminate this subpart at the 
end of the fiscal year whenever the Secretary determines that its 
suspension or termination is favored by a majority of assessed entities 
voting in the referendum.
    (c) If, as a result of a referendum the Secretary determines that 
this subpart is not approved, the Secretary shall:
    (1) Not later than one hundred and eighty (180) calendar days after 
making the determination, suspend or terminate, as the case may be, the 
collection of assessments under this subpart.
    (2) As soon as practical, suspend or terminate, as the case may be, 
activities under this subpart in an orderly manner.


Sec.  1255.83  Proceedings after termination.

    (a) Upon termination of this subpart, the Board shall recommend to 
the Secretary up to five of its members to serve as trustees for the 
purpose of liquidating the Board's affairs. Such persons, upon 
designation by the Secretary, shall become trustees of all of the funds 
and property then in the possession or under control of the Board, 
including claims for any funds

[[Page 5788]]

unpaid or property not delivered, or any other existing claim at the 
time of such termination.
    (b) The said trustees shall:
    (1) Continue in such capacity until discharged by the Secretary;
    (2) Carry out the obligations of the Board under any contracts or 
agreements entered into pursuant to the Order;
    (3) From time to time account for all receipts and disbursements 
and deliver all property on hand, together with all books and records 
of the Board and trustees, to such person or persons as the Secretary 
directs; and
    (4) Upon request of the Secretary execute such assignments or other 
instruments necessary or appropriate to vest in such persons title and 
right to all of the funds, property, and claims vested in the Board or 
the trustees pursuant to the Order.
    (c) Any person to whom funds, property, or claims have been 
transferred or delivered pursuant to the Order shall be subject to the 
same obligations imposed upon the Board and upon the trustees.
    (d) Any residual funds not required to defray the necessary 
expenses of liquidation shall be turned over to the Secretary to be 
disposed of, to the extent practical, to one or more organic 
organizations in the United States whose mission is generic organic 
promotion, research, and information programs.


Sec.  1255.84   Effect of termination or amendment.

    Unless otherwise expressly provided by the Secretary, the 
termination of this subpart or of any regulation issued pursuant 
thereto, or the issuance of any amendment to either thereof, shall not:
    (a) Affect or waive any right, duty, obligation, or liability which 
shall have arisen or which may thereafter arise in connection with any 
provision of this subpart or any regulation issued thereunder;
    (b) Release or extinguish any violation of this subpart or any 
regulation issued thereunder; or
    (c) Affect or impair any rights or remedies of the United States, 
or of the Secretary or of any other person, with respect to any such 
violation.


Sec.  1255.85   Personal liability.

    No member or employee of the Board shall be held personally 
responsible, either individually or jointly with others, in any way 
whatsoever, to any person for errors in judgment, mistakes, or other 
acts, either of commission or omission, as such member or employee, 
except for acts of dishonesty or willful misconduct.


Sec.  1255.86   Separability.

    If any provision of this subpart is declared invalid or the 
applicability of it to any person or circumstances is held invalid, the 
validity of the remainder of this subpart, or the applicability thereof 
to other persons or circumstances shall not be affected thereby.


Sec.  1255.87   Amendments.

    Any changes to the assessment rate may be proposed by the Board and 
will be subject to a referendum. Any other amendments to this subpart 
may be proposed by the Board. A list of all amendments made since the 
last referendum will be sent to all assessed entities in advance of 
each subsequent referendum.


Sec.  1255.88  OMB control numbers.

    The control numbers assigned to the information collection 
requirements by the Office of Management and Budget pursuant to the 
Paperwork Reduction Act of 1995, 44 U.S.C. Chapter 35, are OMB control 
number 0505-0001 (Board nominee background statement) and OMB control 
number 0581-NEW.

Subpart B--[Reserved]

    Dated: January 9, 2017.
Elanor Starmer,
Administrator, Agricultural Marketing Service.
[FR Doc. 2017-00601 Filed 1-17-17; 8:45 am]
 BILLING CODE 3410-02-P