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Organic Trade Association

Organic Check-off proposal, and some answers to NODPA Questions

An organic check-off will affect all organic certificate holders, from producers selling in farmers market to the board room of conglomerates. As such, all organic certificate holders should have a vote on establishing an organic check-off. This can be done by a proposal to the USDA AMS that assesses all organic certificate holders. IF a check-off is set up, the governing Board of the check-off will be appointed by the Secretary and will then set the level of assessments and opt-in/opt-out criteria as mandated by the Commodity Promotion, Research, and Information Act of 1996 (Generic Act).
The current proposal by OTA will restrict voting rights to establish a check off to self-determined (especially in mixed operations that market directly to wholesalers or through several handlers) economic criteria and those that choose to ask for a certificate to OPT-IN to the check-off. There will be no central list to verify and validate who qualifies to meet these criteria. All those that want to vote would have to apply for a ballot and receive it by mail. All these criteria and processes will restrict who votes in a referendum and, given the economic demographics of organic certificate holders there may well be less than 30% of certificate holders eligible to vote, you would only need 51% of those that vote out of the 30% to establish an organic check-off. This may mean that a tiny percentage of certificate holders will establish an organic check-off.
Other points from Version 6 of the OTA proposal:

  • Assessed entities: No $100 dollar annual membership. Under the new proposal all certificate holders (except retailers) are covered by the order/check-off. There are no exemptions from the order/check-off. There are two types of assessments; one is voluntary and one is mandatory. For those under $250,000 gross organic revenue the assessment will be voluntary and under the OTA proposal they will have to opt in prior to any referendum on setting up a check-off in order to vote. OTA defines gross organic revenue as “total gross sales in organic products.” Organic producers with over $250,000 in self-declared gross organic revenue are mandatorily assessed and shall have the option of paying one-tenth of one percent of either (A) net organic sales or (B) producer net profit. Net profit and net organic sales will be self-declared and paid directly to the Board by the individual producer. Approximately 70% of certificate holders are under the $250,000 threshold and will have to opt in to vote on setting up an organic check-off.
  • Opt-in: Those organic producers who choose to opt in would need to do it on an annual basis.
  • Definitions: OTA’s definition of net organic sales: means total gross sales in organic products minus the cost of certified organic ingredients, feed, and inputs used in the production of organic products. And producer net profit: means organic producer income received from organic products less the associated production expenses excluding fixed non-cash costs. So many questions on what these may mean - how these can be verified, and by whom - this isn't currently in certifier documents, nor income tax, nor FSA reporting. Will organic dairy farmers who grow their own feed be allowed to deduct full feed cost (including the rent of land – cash cost), as if they had purchased all of it?
  • Exemption from conventional check-off $: The majority of organic dairy/corn/soybean producers would have to opt in to the organic check-off on an annual basis to avoid paying into the conventional check-off at the higher rates. Once the organic check-off is set up there will be no exemptions from paying into the conventional check-off program.
  • Retailers will not be assessed.
  • Spending Check-off Taxes: With the change in producer assessments to a net farm income model, the current projection is closer to $30- 35 million per year in total income to the check-off program instead of the $40 million previously projected at the outset. IF $30 million is raised, $4.5 million will go to the Board to administer the program and pay salaries; $4 million will go to administer the grants using check-off monies that the Board will recommend; an undetermined amount of the $21.5 million that’s left will be paid to USDA AMS to run the program and collect assessments (there is no cap on this). This will leave ¼ of what is left to go to research, approximately a maximum of $5 million.
  • Imports will be assessed at the same rate as all other organic operations. For imports, for which there is a Harmonized Tariff Schedule (HTS) code, the assessment will be paid by the organic importer to Customs at the time of entry into the United States, and shall be remitted by Customs to the Board. For imports, for which there is not a HTS code (the majority of organic imports), the assessment will be self-declared and voluntarily paid directly to the Board.
  • Check-off Board: OTA proposes that the governing Board will be 17. One Board seat will be reserved for those producers that fall under the $250,000 in gross organic revenue exemption level (approximately 70% of producers). Seven Board seats will be reserved for producers with over $250,000 in gross organic revenue from different regions (2 from California), by definition large operations. The OTA defines the northeast which has one Board member as the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, West Virginia, and the District of Columbia. There will be five seats for organic handlers; two for organic product processors; one for organic importers and one at-large member. The producer members will be nominated by each region in a structure that will be expensive to administer and difficult to ensure accountability and transparency. The assumption is that that process the regions use for nominating Board members for appointment by the Secretary will either be paid for by the Board from check-off dollars or be part of the work that USDA AMS will be paid for from check-off dollars.
  • When will there be a proposal: It is OTA’s goal to submit a proposal to USDA within the first half of 2015, although we hear from a source at USDA that they have received a draft proposal for consideration.

For the full draft of OTA’s reply to NODPA, please see bottom

Attached File: