Stop the Organic Checkoff Program (a Tax)!
Submit Comments on the Proposed Rule before April 19th.
Analysis and talking points follow.
By Ed Maltby, NODPA Executive Director
Added March 23, 2017. A federally mandated, USDA administered Research and Promotion Program (R&P) is not the right structure for raising research money to boost domestic organic production. The 1996 Act under which the organic checkoff was made possible with the 2014 Farm Bill was not designed for a multi-commodity checkoff to promote domestic production and research for a process based standard.
The OTA’s proposed organic checkoff now translated into a Proposed Rule by USDA is impractical; invasive; bureaucratic; inequitable; undemocratic and ineffective.
- Producers will have to pay a poll tax to qualify to vote on establishing an organic checkoff and then have no effective say in how the money is spent.
- Those that designed the method of assessment obviously had no idea about the economics of small to mid-size organic family farms.
- USDA stretches the term ‘de minimis quantity of the commodity’ to include 76% of organically certified producers and 12% of the dollar value of organic production.
- For those organic producers and handlers that are part of a conventional checkoff they will have no choice as to paying into a checkoff as they will lose the exemption from all checkoffs once an organic checkoff is approved.
Consumers purchase organic product at a higher price because they see them as better and healthier for their environment and themselves than other commodities. Producers prefer organic production methods because they are better for the soil, the environment and their health. It is illegal for USDA R&P programs to use program money to promote one commodity or method of production over another. Any message coming from this program will be confused and ineffective.
Below are some answers for some common points that the proponents of the program have offered and some questions about how unfair the program and process are.
1. Farmers and handlers with gross organic revenue below $250,000 are free to choose whether to pay into the checkoff program.
- Those dairy producers and handlers that choose not to pay into the organic checkoff will have to pay into their conventional checkoff. The exemption for organic producers and handlers from paying into the conventional checkoff program ends once an organic checkoff starts. For those producers that do not go through the annual paperwork of exempting themselves from the conventional checkoff and applying to and paying into the organic checkoff - they will continue to have automatic deductions from their pay check going into the conventional checkoff. If they don’t pay attention to the paperwork they will be paying into both.
2. The Check-off Governing Board would consist of 50 percent producers, 50 percent handlers.
Technically true but misleading:
- There will be 8 producer Board members eligible to vote out of 16 Board members BUT a producer representative can be anything from an individual to an employee from a multi-national corporation – we have seen how USDA has applied this definition with the NOSB members. Producers will receive their basic expenses to travel to and stay at meetings – nothing else to compensate for their time away from their farm. It will be an expensive hobby that most producers could not afford.
- 5 domestic mandatorily or voluntarily assessed handlers.
- 2 ‘at large’ mandatorily or voluntarily assessed product processors – not necessarily domestic with no definition on size.
- 1 mandatorily or voluntarily assessed importer (importers do not need to be certified, are not classified as a handler and need no knowledge of organic production).
- 1 public member at-large who is a non-voting member (no definition for who this might be).
3. Organic producers will select regional representatives through balloting.
True but misleading:
- Those representatives will be selected by a complicated system of balloting and will only be recommendations to the Secretary. There is nothing in the language that says the Secretary (a political appointee) has to choose from these recommendations and there is no language that says these recommendations have to be made public.
4. Every certificate holder subject to an assessment will have a direct vote.
- The burden of documentation to justify ‘net organic income’ for all certified operations will be immense, especially for grain and dairy farmers. This is a very complex issue. Inaccuracies, mistakes, and outright fraud are very likely without careful third-party verification. In the initial vote, there will be no independent data that shows what the organic sales income is for each certificate holder unless they ask for that data from certifiers. Will USDA contractors (certifiers) be required to verify the producer’s claim? The certifier will be put in the position of challenging the accuracy of a farm’s allowed organic expenses against the gross organic income. If the USDA has to verify the eligibility of every ballot, the cost to the future program will be incredible. The result of any referendum under these circumstances would inevitably face a legal challenge. Simpler would be one vote per certificate holder.
5. At least 50 to 75 percent of the funds would go specifically for research, or activities that work hand-in-hand with research such as technical assistance and widespread dissemination of research findings.
- The information in the Organic Checkoff Budget (on page 26, Checkoff: The Facts) is from USDA data and proposed regulation.
6. Twenty-five percent of the assessment from producers would go for local and regional research.
- From the proposed Rule: “Regional certified organic producer Board members shall establish priorities, including regional considerations, for investments in agricultural research.” Establishing priorities by a subset of the Board for use of funds from a portion of the assessment that is not going to be separated out from other assessments is a long way from an allocation of fund by the full Board and it being approved by the Secretary.
7. A referendum is required every seven years to decide whether to continue the program.
- The Secretary has, in the past, refused to acknowledge the vote to discontinue checkoff programs. If there is a vote to disband the organic checkoff, producers and handlers would have to return to paying into their conventional check off including the dairy processor checkoff.
8. Assessments would be made throughout the value chain: producers, handlers, processors, retailers.
- The only retailers that will pay will be those that are certified because they take organic ingredients and make something different with them and want to call the finished product certified organic, for example the retail deli or bakery. These are a very small minority of retailers, mostly consumer cooperatives. Wal-Mart, Whole Foods, and Trader Joe’s will not be paying an assessment on all the organic products they sell. The 30-40% margin that retailers take on organic product will not be assessed. Distributers and marketers will not be paying into the checkoff. CEO salaries and stock options from companies that make and market organic products will not be assessed, but the owner draw from an organic family farm will not be an allowable deduction from gross organic sales and so will be included in the net organic sales that will be assessed.
- The proposed method of assessment uses criteria for determining net organic sales that do not reflect organic production methods, which are based on feeding the soil and building the nutrient value of the soil to increase yield and profitability. A ten year old, established organic operation would have few inputs, after ten years of building fertility, that meet the definition of Agricultural inputs. They would still have the costs of rent for land or mortgage payments, plus the costs of labor, which are higher on organic farms than on conventional operations. This operation’s gross organic sales would be very similar to their net organic sales.
- This assessment proposal is inequitable across commodities. The inequity across commodities underlines the unfairness of a multi-commodity checkoff program and the inability of such a program to assess each participant equally. Some commodities have a high gross sales number (for example organic dairy producers), but typically low net profit, while other commodities, like high-value fruits and vegetables, typically have lower gross sales but higher net profit. They both would be classified as exempt or non-exempt under the unequal conditions of their individual commodity characteristics.
Whichever way you look at this proposed regulation, it makes no sense. Historically, single commodity checkoffs haven’t worked and end up stifled by USDA bureaucracy. Historically, assessments have been channeled to consultants and companies to come up with slogans and promotions that encourage growth at the expense of small to mid-size farming operations. A multi-commodity checkoff is even more difficult and expensive to administer involving more USDA bureaucracy paid for by assessment prior to any budget decision on use of funds. The criteria for assessment that the Organic Trade Association has developed does not reflect the economics of organic farming and will be difficult to evaluate and make accountable. It will end up taxing the family income of small to mid-size organic family farms. The establishment of the organic checkoff will end the exemption that organic producers have from paying into conventional checkoff – this is stated in the 2014 Farm Bill and in the proposed regulation. u
TO STOP THE CHECKOFF, SUBMIT COMMENTS TO USDA TODAY.
THE DEADLINE IS APRIL 19th
Promotion & Economics Division, Specialty Crops Program, AMS, USDA, 1400 Independence Ave. SW, Rm 1406-S, Stop 0244, Washington, D.C. 20250-0244
Posted: to Policy on Thu, Mar 23, 2017
Updated: Wed, Oct 17, 2018