NOP issues proposed rule amending organic requirements to strengthen organic enforcement

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The United States Department of Agriculture (USDA) Agricultural Marketing Service’s (AMS) National Organic Program (NOP) issued a proposed rule in early August that would amend the organic regulations to strengthen oversight and enforcement of the production, handling, and sale of organic products (1). The proposed amendments to the organic framework would make some rather significant changes to certified organic operations, retailers, importers, certifying agents, as well as entities that have historically been exempt from obtaining organic certification. If you are currently offering organic products in your portfolio of products, you should review the proposed changes carefully because of the possible impact they could have on future operations.

Executive summary

The first section of this memorandum summarizes the changes to the scope of the organic certification requirements, with a focus on the revised definition of “handle” and related terms. These changes would broaden the categories of entities that are required to become certified operations, and may particularly impact entities in private label arrangements. The NOP maintains the exemption for retail operations that only sell organic products, while revising the exemption for retail operations that process certain organic products.

The NOP is proposing several records requirements to facilitate traceability and prevent organic fraud, including requirements for certified operations to create a fraud prevention plan and incorporate it into their organic system plan. In addition, the NOP is proposing to calculate the percentage organic content of multi-ingredient products based on the product weight or volume at the time of formulation, rather than after any processing that occurs after formulation. Although the NOP is seeking feedback on questions related to product labeling of finished packaged organic products, it is currently only proposing changes to the labeling requirements for non-retail containers, such as bulk bins. The NOP would also require the use of NOP Import Certificates for imported organic goods regardless of the country of origin. We summarize each of these proposed changes below.

Changes to Scope of Certification Requirements and Exemptions

The proposed rule would amend a number of definitions in the NOP’s regulations, as well as revise the current exemptions from certification requirements, in order to decrease the number of uncertified operations in the organic supply chain. The proposed rule would amend the NOP’s regulations at 7 CFR 205.100(a) to provide that each operation, or portion of an operation, that produces or handles agricultural products intended to be sold, labeled, or represented as organic must be certified unless an exemption applies. Thus, an entity does not have to meet a threshold definition of “production operation” or “handling operation” in order to be required to register – all operations producing or handling organic products, will be required to obtain organic certification unless an exemption applies.

Revised Definitions of “Handle,” “Handler,” and “Handling Operation”

In addition, the NOP is proposing to broaden the definition of “handle,” “handler,” and “handling operation” to encompass any person or operation engaged in the business of “handling” agricultural products, i.e., to sell, process, or package agricultural products, including but not limited to trading, facilitating the sale or trade, brokering, repackaging, labeling, combining, containerizing, storing, receiving, or loading agricultural products. These revised definitions of “handle” and related terms are intended to capture activities that affect the organic status or ownership of an agricultural product after production as it moves from production source through a supply chain, and to require any handling operation whose activities may impact the organic status of an agricultural product as it moves through the supply chain to obtain certification. The NOP makes clear in the preamble that entities that facilitate the trade and sale of organic products, such as importers, brokers, and traders, would be considered “handling operations” and that “even if these operations do not take physical possession or ownership of the product they represent, their decisions affect the status of organic products,” and therefore are required to obtain certification unless an exemption applies 2.

Transportation Alone or Storage Alone Are Not “Handling,” But Packaging and Labeling (Still) Are

The NOP clarifies that mere transportation or storage of agricultural products alone is not “handling,” and the proposed rule would establish an explicit exemption from certification for an operation that only “stores, receives, and/or loads agricultural products, but does not process or alter such agricultural products,” to exempt entities such as warehouses, storage facilities, and other operations whose only function is the temporary holding or storage of organic products 3. The NOP clarifies that transportation or storage operations claiming this exemption must not label, relabel, combine, split, containerize, pack, repack, treat, sort, open, enclose, or otherwise alter the organic products they handle, otherwise certification is required because these activities are considered handling. Like other exempt operations, storage operations would need to comply with the requirements for prevention of commingling and contact with prohibited substances.

Impact of Revised “Handling” Definition on Private Label Arrangements

The NOP states in the preamble that if the proposed changes to the definitions and exemptions in the organic regulations take effect, both entities in a private label arrangement, i.e., the operation that produced/processed the organic product (the “contract manufacturer”) and the operation that sells the product under its own label (the “brand name” or “distributor”) would require certification 4. The NOP appears to be taking the view that the private label brand owner would be required to obtain certification because it is an operation that “handles” (sells) organic products. The NOP does not address how the exemption for retail operations that do not process organic foods would factor into the assessment for a retailer that is the brand name distributor of an organic product but does not manufacture the product.

The NOP requests comment on the following specific questions which can be used to address the impact on private label arrangements:

  1. Are there additional activities that should be included in the proposed definition of handle (i.e., are there additional activities that require certification)? Are there any activities in the proposed definition of handle that should be exempt from certification?
  2. Are there specific activities not included in the proposed rule that you believe should be exempt from organic certification?
  3. Are there additional requirements that exempt handlers described in this proposed rule should follow?

The NOP Seeks Input on Labeling Considerations for Private Brand Arrangements

The NOP explains in the preamble that there has been confusion regarding which certified operation and certifying agent is required to be listed on the label of an organic product produced under a private label arrangement. Although the NOP is not proposing any amendments to the packaged product labeling regulations in this proposed rule, the NOP is seeking feedback on the following questions related to private label arrangements and product labeling:

  1. For private-label packaged products, which certified operation(s) should be listed on the retail label (brand name/distributor, contact manufacturer, or both)?
  2. Which certifying agent(s) should be listed?
  3. Should the certifying agent on a label always be the certifying agent of the certified operation listed on the label (i.e., should the certifying agent match the operation)?
  4. Should listing contract manufacturers on labels be mandatory? Should it be optional? (emphasis added)
  5. What terminology should be used to describe private-labeled organic products?
  6. What terminology should be used to describe the operations involved in packaged product or private labeling (e.g., brand name manufacturer, contract manufacturer, and distributor)?

Requiring contract manufacturers in private label arrangements to be identified on the labels of organic foods would be a significant departure from current requirements for both organic and conventional foods. We encourage food companies in private label agreements to consider submitting comments on the questions above.

Changes to Retail Exemptions: New Definition of “Retail Operation” and Applicability to Virtual Transactions

The proposed rule would remove the term “retail food establishment” from the organic regulations and establish a new defined term, “retail operation,” as “an operation that sells agricultural products directly to consumers through in-person and/or virtual transactions.” “Virtual transaction” is used to describe any form of transaction that does not occur in person, e.g., telephone, mail-order, and/or online sales; NOP intends to capture the full range of direct-to-consumer sales that may occur in the current era of electronic and internet commerce 5.

Retail Operations That Sell, But Do Not Process, Organic Products

The proposed rule retains the exemption for retail operations that do not process, and merely sell, organically produced agricultural products 6. As discussed above, repackaging, packaging, or labeling products, among other activities, would constitute “handling,” therefore, if a retailer conducts any of these activities, they must determine whether they meet the retail processing exemption. Retail operations that fall under this exemption comply with the production and handling requirements in 7 CFR Part 205 Subpart C, including the provisions for prevention of contact of organic products with prohibited substances.

Exemption for Retail Operations That Process Organic Products Onsite at Point of Sale to the Consumer

In addition, the NOP proposes to revise the existing exemption for retail operations that do process organically produced agricultural products. The current regulations provide that retail food establishments that process, on the premises of the food establishment, raw and ready-to-eat food from organically produced agricultural products are exempt from certification 7. The NOP proposes removing the limitation on the types of organically produced agricultural products that can be processed by retail operations (i.e., processing is no longer limited to raw or ready-to-eat foods), instead emphasizing that the processing has to occur in connection with the final sale to the consumer, i.e., at the point of sale. The revised exemption would cover:

A retail operation or portion of a retail operation that processes agricultural products that were previously labeled for retail sale as “100 percent organic,” “organic,” or“made with organic (specified ingredients or food group(s)),” provided that the products are processed onsite at the point of sale to the final consumer 8.

The NOP explains in the preamble that under this exemption, any processing of the organic products performed by the retail operation must occur at the same physical location where the product is sold to the final consumer, and that an operation processing a product for sale at another site would require certification, including retailers that sell products virtually 9. The NOP notes that while it is proposing to retain the exemption for retail operations that process organically produced agricultural products onsite at the point of sale to the final consumer, the agency could in the future consider requirements for the certification of retailers that process agricultural products and is seeking input from stakeholders on the need for and impact of removing this exemption and recommended standards for retailers 10.

Retail operations that process organically produced agricultural products under this exemption are required to comply with the labeling provisions of 7 CFR § 205.310, and must maintain records sufficient to (1) prove that agricultural products identified as organic were organically produced and handled; and (2) verify quantities produced or sold from such agricultural products 11. Such retailers must also comply with the production and handling requirements in 7 CFR Part 205 Subpart C, including the provisions for prevention of contact of organic products with prohibited substances.

Organic Fraud Prevention Plans and Traceability Records

The NOP expects both certified operations and accredited certifying agents to share responsibility for product traceability to prevent organic fraud 12, and is proposing the following records requirements to clarify expectations for trace-back audits and product verification:

  • Organic operations must maintain audit trail documentation to facilitate supply chain traceability, including identification of products as “100% organic,” “organic,” or “made with organic (specified ingredients or food groups)” on documents (proposed § 205.103);
  • Organic operations must describe in their organic system plan the monitoring practices and procedures used to prevent organic fraud and verify suppliers and organic product status (proposed § 205.201);
  • Certifying agents must share information with other certifying agents to verify supply chains and conduct investigations (proposed §§ 205.501 and 205.504; and
  • Certifying agents must have procedures for (1) identifying high-risk operations and agricultural products to conduct risk-based supply chain audits and for (2) reporting credible evidence of organic fraud to the USDA (proposed § 205.504) 13.

Certified operations would be responsible for traceability within their own operations, back to their suppliers, and forward to their customers. Certifying agents would be responsible for tracing products along a supply chain back to their origin, and assessing the traceability efforts of operations.

Certified Operation’s Organic System Plan Must Include Organic Fraud Prevention Plan

The NOP is proposing to require that an Organic System Plan (OSP) must describe how existing monitoring and certification practices are used to verify suppliers and products and detect and prevent fraud, often referred to as a “fraud prevention plan.” There is inherent flexibility in how to design a fraud prevention plan, as the NOP acknowledges the scope and complexity of the plan will depend on the type of operation:

For example, AMS does not expect a producer who does not handle products produced by another operation to develop supplier verification practices, beyond verifying that any purchased inputs meet organic requirements. In contrast, a processor that receives many organic ingredients from numerous suppliers would need to augment their organic system plan to describe practices to minimize organic fraud risks in lengthy supply chains 14.

The NOP states that it believes a robust plan for supply chain oversight and organic fraud prevention under the proposal would include:

  • A map or inventory of the operation’s supply chain which identifies suppliers;
  • Identification of critical control points in the supply chain where organic fraud or loss of organic status are most likely to occur;
  • A vulnerability assessment to identify weaknesses in the operation’s practices and supply chain;
  • Practices for verifying the organic status of any product they use;
  • A process to verify suppliers and minimize supplier risk to organic integrity;
  • Mitigation measures to correct vulnerabilities and minimize risks;
  • Monitoring practices and verification tools to assess the effectiveness of mitigation measures; and
  • A process for identifying suspected organic fraud to certifying agents and the NOP.

Proposed Changes to Calculating the Percentage of Organically Produced Ingredients

The NOP is proposing changes on how to calculate the percentage of organic ingredients in a multi-ingredient organic product to clarify what is meant by the finished product. Under the NOP’s current regulations, the weight or volume of the organic ingredients is divided by the total weight or volume of the finished product, excluding water and salt 15. The NOP explains in the preamble of the proposed rule that the terminology “finished product” is confusing, because it is unclear whether it is meant to describe the product after processing, or if it simply means the sum of the ingredients in the formulation 16. The NOP proposes amending the regulations to clarify that the calculation should be performed at the time of formulation, regardless of whether additional processing occurs after formulation. The NOP explains that this change would be consistent with the agency’s December 2016 draft guidance and that the agency received no objections via public comments to calculating organic content based on the weight of the ingredients at the time of formulation 17.

Proposed Labeling Requirements for Non-retail Containers

Although the NOP is not proposing any changes to the labeling of packaged organic products, the NOP is proposing additional labeling requirements non-retail containers, i.e., containers used to ship or store either packaged or unpackaged organic products, and may include produce boxes, totes, bulk containers, bulk bags, harvest crates and bins; and boxes, crates, cartons and master cases of wholesale packaged products 18. Currently nonretail containers are only required to be labeled with the production lot number; the proposal would require non-retail containers to also be labeled with:

  1. A statement identifying the product as organic; and
  2. The name of the certifying agent that certified either the producer of the product, or if the product is processed, the last handler that processed the product 19.

The non-retail container labeling requirements would not apply to large nonretail containers that are associated with a mode of transportation or storage, such as trailers, tanks, railcars, shipping containers, grain elevators/silos, vessels, cargo holds, freighters, barges, or other method of bulk transport or shipping; however, the information required under proposed § 205.307 must be evident in the documentation associated with and traceable to the container, to ensure that organic integrity is maintained during transport, storage, and handling 20.

The NOP seeks comment regarding the proposed amendments to the labeling of nonretail containers, specifically whether or not the certified operation that produced or last processed the product must be listed (i.e., not optional) on all nonretail container labels.

Changes to Import Recordkeeping Requirements – Use of NOP Import Certificates

Under the current organic regulations, NOP Import Certificates are only required for organic products imported from a country that NOP has determined uses an equivalent system of organic certification, i.e., Canada, the European Union, Switzerland, Japan, South Korea, Taiwan, and the United Kingdom. The NOP Import Certificate contains detailed information about the quantity and origin of imported organic products, and is associated with a specific physical shipment to ensure a smooth, auditable business transaction by documenting that the products in the shipment are organic and may be sold, represented, and distributed as such in the U.S 21.

The proposed rule would require all imported products to be declared as organic to U.S. Customs and Border Protection (CBP) and associated with an NOP Import Certificate, regardless of the country of origin 22. In addition, the proposal would require NOP Import Certificates to utilize the NOP’s standardized electronic format (likely Form NOP 2110-1) for consistency and to ensure compatibility with the CBP’s Automated Commercial Environment (ACE) system, which will be used to track the NOP Import Certificates. This information would be required to be uploaded into the ACE system within 10 calendar days of the shipment entering the U.S. The NOP believes that by requiring imports to be associated with, rather than accompanied by, the NOP Import Certificate, there will be little to no impact on the timely import of organic products 23.

Other Proposed Changes to Organic Framework

The proposed rule includes several other categories of changes to the organic regulations not summarized in this memorandum, including to:

Certified Organic Operations

  • Clarify that certified organic operations only need to submit changes to their organic system plan during their annual updates;
  • Specify that certifying agents must conduct annual inspections of certified operations;

Certifying Agents and Certification Activities

  • Clarify the NOP’s authority and oversight of certification activities, certifying agents, and agents and offices of a certifying agent;
  • Specify that a certifying agent must conduct unannounced inspections of at least 5 percent of the operations it certifies annually, and require supply chain audits to be completed during on-site inspections;
  • Require certifying agents to issue standardized certificates of organic operation generated from USDA’s INTEGRITY database;
  • Establish specific qualifications and training requirements for certifying agent personnel, including inspectors and certification reviewers;
  • Specify certification requirements for grower group operations, restricted to crop production and handling only and requiring the use of an internal control system to monitor compliance;

Foreign Equivalence Determinations

  • Clarify the conditions for establishing, evaluating, and terminating equivalence determinations with foreign government organic programs;

Enforcement

  • Clarify that the NOP can initiate enforcement action against any violator of the Organic Food Production Act, including responsible parties;
  • Define the term “adverse action” and clarify what actions may be appealed and to whom; and
  • Clarify the NOP’s appeal procedures and options for alternate dispute resolution.

We will continue to monitor developments related to the NOP’s proposed rule and changes to the organic framework.

 

  1. Proposed Rule, National Organic Program; Strengthening Organic Enforcement, 85 Fed. Reg. 47536 (August 5, 2020).
  2. Id. at 47542.
  3. Id. at 47544.
  4. Id. at 47575.
  5. Id. at 47543.
  6. Proposed 7 CFR § 205.101(b).
  7. 7 CFR § 205.101(b)(2).
  8. Proposed 7 CFR § 205.101(c).
  9. 85 Fed. Reg. 47536 at 47543.
  10. Id. at 47543.
  11. Proposed 7 CFR § 205.101(c)(1)-(2).
  12. 85 Fed. Reg. 47536 at 47572.
  13. Id. at 47573.
  14. Id. at 47573.
  15. 7 CFR § 205.302(a).
  16. 85 Fed. Reg. 47536 at 47571.
  17. Id. at 47571. See also AMS NOP Draft Guidance, Calculating the Percentage of Organic Ingredients in Multi-Ingredient Products (Dec. 2016).
  18. Id. at 47548.
  19. Proposed 7 CFR § 205.307.
  20. 85 Fed. Reg. 47536 at 47548.
  21. Id. at 47545.
  22. Id. at 47546.
  23. Id. at 47547.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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