Strategy: Organic Certification

Franklin Egan, Yawen Lu, Jeff MilderNTRES 454 October 30, 2003

Environmental Problems of Conventional Agriculture

• Salinization & Desertification• Erosion• Reduced soil fertility• Excessive irrigation water demand• Decreased on-farm & near-farm biodiversity• Runoff & leaching of nutrients and toxins• High energy usage• Agricultural wastes

Organic Agriculture as an Environmental Strategy

Organic Agriculture

“Integrated” Agriculture Agro-Environmental Goals

Regulations, Taxes, and Subsidies that Affect the Environmental Impact of Agriculture

• What is the most cost-effective combination of strategies to achieve agro-environmental goals?

• What role should organic agriculture play?

Sales of Organic Foods

Source: International Trade Centre UNCTAD/WTO (1997)

U.S. Sales :(unit: billion)

1990: 1.01996: 3.31997: 4.21999: 6.52000: 7.82002: 11.0Sales grows at least 20% each year since 1990

Organic Certification

• Certification and labels create consumer confidence.• Certification agencies developed along with organic

agriculture.• Discontinuities across standards limit market

growth.

The National Organic Program: Background

• Organic Foods Production Act, 1990.• USDA appointed National Organic Standards Board to develop the NOP.• 1997 USDA released a standard that permitted GMOs, sewage sludge, and ionizing radiation. •After public backlash, standards revised.•Final Rule released Dec. 2000, implemented Oct. 2002.

The National Organic Program: Rules

The NOP is “the strongest and most comprehensive standard in the world.”--Dan Glickman, Secretary of Agriculture

• Crops must be grown organically 3 years before certification.

• Buffer zones.• Mandatory crop rotation.• No GMOs, sewage sludge, or ionizing radiation.• All inputs and processing chemicals must be approved

by the National List.

The National Organic Program: Certification

• Pre-existing certifying agencies absorbed under the NOP.

• Farmers must contact an accredited agency to certify their operation.

• USDA owns the word organic. $10,000 fine for sales without certification.

The National Organic Program: Labels

<70% organic95% organic70-95% organic100% organic

Hypothesized Environmental Benefits of Going Organic

• Higher on-farm & near-farm biodiversity• Healthier soil (e.g., organic matter, microbial activity, fertility)

• Less erosion• Less runoff & leaching of nutrients and toxins• Lower energy usage• Low input, low waste system

To what extent does organic agriculture, as practiced in the U.S. under the USDA standard, achieve these benefits?

Biodiversity

RELEVANT ORGANIC PRACTICES: Cover crops/fallows, intercropping, hedgerows, fewer biocides.

FINDINGS: Practices are not mandated by the USDA standard or consistently used in the U.S. Nevertheless, evidence of higher biodiversity on organic farms.

Energy Usage

Farm Component GJ/ha (conventional)

% used on organic farm

Machinery 74 101%Fuel 183 95%Electricity 11 100%Fertilizer 16 2%Biocides 87 46%Infrastructure 144 100%TOTAL 516 86%

Comparison of apple production systems in Washington, USA. Source: Reganold et al. 2001. Nature 410:926.

Inputs and Wastes

• Few organic farms approximate closed systems

• “Input substitution” is common• The USDA standard is consistent with, but

does not mandate, a lower-input, lower-waste system

One Assessment of the Environmental Benefits of Organic Agriculture

USDA Organic Standard & Sustainability: The Verdict

• Sustainable agriculture is difficult to codify• “In almost all cases, organic farming practices

fall notably short of agro-ecological ideals”; still, substantial environmental benefits exist

• USDA organic certification has limited value as an environmental strategy, but is important for other reasons

• Organic certification is not a substitute for stronger national agro-environmental policies

Characteristics of U.S. Organic Market

Moderate High High Highest Health focus for buying organics

Low Moderate High Highest Environmental focus for buying organics

0.4 0.3 1.1 2.7Average number of organic products purchased within year

None Weak Moderate Very highDegree of purchase interest

40 28 22 10 Percent of consumers

Organic Uninterested

Organic Borderline

Organic Attached

Organic Engaged

Source: Hartman and New Hope (1997)

Information Asymmetries

• Label function: Reducing information gap and transaction costs between producers and consumers

• Label effectiveness and mislabeling: When extensive mislabeling occurs, the value of labeling is undermined and the organic food market fails

Organic Certification Costs

• Can be expected to rise under the NOP• Certifier must bear the added costs of

USDA accreditation• Costs will be passed on from producers and

handlers to consumers

Organic Certification Costs (Examples)

• A State-based Private Certifier:Initial application fee of $250, plus costs of inspection, plus a 25% service charge

• California Certified Organic Farmers (CCOF):Annual cost of certification (F) is

F = 137.5 + (0.005)(Total Revenue) + et* et includes one-time fee of $250, the cost of annual on-site

inspection, and the costs related to the extensive paperwork

Impact of USDA/NOP on Small Farms

• All growers with more than $5,000 annual sales must be certified

• More paperwork, higher cost• The Final Rule of USDA/NOP is designed for

industrial agriculture farms• Results: Larger, less diverse operations will

benefit most; smaller growers will need to focus on direct marketing or leave organic certified system (uncertified organic like ‘naturally grown’)

Questions

• Will these labels help consumers make educated choices?

• What other national policies are needed to complement organic certification?