10 Things You Should Know about the Organic Checkoff

Submit your comment about organic checkoff by April 19, 2017.
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Organic seal with veggies

by Rochelle Sparko, CFSA’s Policy Director

In May 2015, the Organic Trade Association submitted a proposal for an organic checkoff program to USDA. In January 2017, USDA requested comments about an organic checkoff proposal similar to the one submitted by OTA. We’ve got a deep dive into some of the provisions of USDA’s proposal.

Comments about the USDA’s proposed checkoff program are due on April 19, 2017. USDA will then review all the comments on the Proposed Rules and decide whether to go ahead with an Organic Research, Promotion and Information Order (organic checkoff). If the USDA decides to start an organic checkoff program, it will publish a Final Rule which will address the comments they have received and lay out the details of the organic checkoff. CFSA will alert our certified organic farmer members should this happen. A separate Final Rule will explain how and when a referendum will take place, and which farmers will be eligible to vote either for or against implementation of an organic checkoff program. When do we expect all of this to happen? Since the Final Rule for both the program and the referendum will have to go through all of the vetting by various government agencies, Implementation before 2019 is highly unlikely.

 

How will the proposed checkoff program work?

Q: Who will have to pay into the checkoff program?

Some certified organic producers and handlers, as well as some importers of certified organic products will have to pay. Others can opt to pay, which they might want to do so that they have a say in who sits on the Board, so that they themselves can run to serve on the Board, and so that they can vote on whether to have an organic checkoff program at all.

  • Mandated Assessments: Organically certified producers and handlers who have gross organic sales for the previous marketing year in excess of $250,000, plus importers (not necessarily organically certified) who import greater than $250,000 in transaction value of organic products for the previous marketing year. Gross organic sales means the total amount the person received for all organic products during the fiscal year without subtracting any cost or expenses.
  • Voluntary Assessments: Those organically certified producers and handlers plus importers of certified product who are not mandatorily assessed but choose to participate in the program.
  • Producers and handlers who are in an existing Federal checkoff program have the choice between becoming part of the organic checkoff and continuing to pay assessments to the conventional checkoff program. If the organic checkoff is implemented, there will be no exemptions from other checkoff programs for organic producers and handlers. This is the case regardless of the farmer’s gross income. In other words, if a certified organic farmer has gross income under $250,000, and is selling a product covered by a conventional checkoff program, that farmer must participate in either the conventional or organic checkoff program. Some examples of products covered by conventional checkoff programs include: cotton, eggs, beef, dairy, pork, watermelon, mushrooms, soybeans, Christmas trees, blueberries, peanuts and sorghum.

 

Q: How much will assessed participants have to pay?

Each certified organic producer or certified organic handler with gross organic sales greater than $250,000 during the previous calendar year shall pay one-tenth of one percent (0.001) of net organic sales to the organic checkoff program. Sales of exports are currently excluded in any calculation of net sales. The proposal doesn’t say anything about whether the value of exports is excluded from a calculation of gross organic sales.

Net organic sales means total gross sales in organic products minus (a) the cost of 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.

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.).

 

Q: How much money will the checkoff program generate?

The USDA estimates that the assessments will total $25.3 million in the first year based on USDA census information, reports from importers, and their projection of net organic sales.

 

Q: How will the money collected be used?

Reimbursement to the USDA for costs involved in running the program. There is no limit on what this might cost. This is paid out first.

Next, staff and administrative costs for the Board and program will be deducted next before evaluating what funds are available for Programs, Plans or Projects. The program staff and administrative cost, plus whatever costs the Board has, can be no more than 15 percent of total assessment raised. Reimbursements to the USDA are not included in the 15 percent.

The remaining funds are used to Programs, Plans or Projects. The use of any of the funds has to be approved by USDA. Because the program is run through USDA, which prohibits disparaging or degrading other products, checkoff funds may not be used to claim that organic products are “better than” conventional or “more healthy than” conventional. The funds cannot be used to advocate before the National Organic Standards Board or for a particular position on any regulation or statute.

The Board (more about who is on the Board below) will determine how funds will be used, within certain parameters, so we don’t know exactly how the funds will be divided between research and promotion. Here’s what the proposal lays out:

  • No less than 25% will be used for research and at least 50% of that will be used for agricultural research.
  • 25% will be allocated to information with at least 50% of that allocated to producer information. This includes extension activities like disseminating research to FSA or producers.
  • 25% is allocated to promotion.
  • 25% is discretionary.

So what might this look like in terms of dollars?

Organic Checkoff Budget $million
USDA AMS Projection of total assessments raised 25.30
USDA administration cost (OTA’s projection)  (0.30)
Board and program administration at 15%  (3.80)
Available for Programs, Plans and Projects (PPP) 21.21
Research allocation (25% of total for PPP) 5.30
      Agriculture research (50%-100% of research allocation)    2.65-5.30
      Other research    0.0-2.65
Information allocation 5.30
      Information for producers (50% -100%of information allocation)    2.65-5.30
      Industry and consumer information    0.0-2.65
Promotion for expanding organic markets 5.30
Discretionary funds 5.30

 

Q: When are payments due?

All payments must be received by the organic checkoff program no later than March 31st for the previous calendar year in which the product was ‘produced, handled or imported.’

 

Q: How will USDA enforce checkoff?

Payment into the checkoff program will be enforced in accordance with the requirements laid out in The Commodity Promotion, Research, and Information Act of 1996. Penalties range from a court order to comply with the program to fines of $1000-$10,000 per violation. Because there is already a database of certified organic producers and handlers, it will be relatively simple for USDA to determine who hasn’t paid into checkoff. Late payment (90 days after the end of the year) of the assessment will result in a late payment fee and the collection of interest on the amount overdue.

 

Q: How much paperwork will I have to do?

It depends on whether you will be paying into organic checkoff, claiming that you are exempt from checkoff because of your gross income, or are paying into another checkoff program.

Just paying into organic checkoff:

Producers and handlers who either have to or choose to pay the assessment and whose crops/livestock aren’t covered by another checkoff program will calculate their net organic sales (remember this is gross sales less certain inputs) for the previous year ending on December 31st, multiply it by 0.001 and submit a check to the program by March 31st.

In addition to a check, producers and handlers have to submit a report that would include, but not be limited to, the entity’s name, address and telephone number, and the value of its net organic sales. They need to maintain books and records to document their gross income and the deductions used to determine net income and retain those records for at least two years beyond the applicable calendar year.

Eligible for a different checkoff program:

Producers or handlers who are part of a commodity with an existing conventional checkoff will have to apply annually for exemption from assessment by that program. Before the start of the calendar year, producers and handlers will fill out a form and submit it to the Secretary of Agriculture requesting an exemption from assessment by the conventional program to ensure that they would not have double deduction. These producers and handlers would have to prove that they paid into the organic checkoff the previous year. It appears that producers would need to request refunds if conventional checkoff deductions are taken when farmers receive payment, for example dairy, beef and lamb.

If the entity is part of a State promotion program rather than a Federal program, the USDA will “encourage” those programs to recognize the Federal program. Entities can apply for an offset of 25 percent of the payment to the federal program to compensate for monies paid to a State or Regional program if the State and Regional programs

Not mandatory assessed and choose not to be voluntarily assessed:

These producers and handlers will apply annually, prior to January 1st, for exemption by supplying proof that they had gross organic sales of under $250,000 in the previous year. They would submit to the program past shipment/sales data that would document their gross organic sales. They would need to maintain books and records that document the amount of gross sales, and retain those records for at least two years beyond the applicable calendar year. The Organic Research and Promotion Board (Board) would then issue a certificate of exemption for that calendar year.

Those producers and handlers that are part of a conventional checkoff program and choose not to pay into the organic checkoff will have to pay into their conventional program. The existing exemption for organic producers and handlers exempting them from the conventional programs would disappear.

 

Q: Who serves on the Organic Research and Promotion Board? What does the Board do?

The proposal includes a 17 member Board including 1 non-voting member and a quorum of 9 members. Board members are appointed by the Secretary of the USDA. The Board is made up of:

    • 7 either mandatorily or voluntary assessed producers, one of whom has to be from the following list of states: 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;
    • 1 voluntarily assessed producer grossing under $250,000;
    • 5 mandatorily or voluntarily assessed handlers;
    • 2 mandatorily or voluntarily assessed product processors;
    • 1 mandatorily or voluntarily assessed importer; and
    • 1 public member at-large who is a non-voting member.

The first time a Board is appointed, nominations will be handled by the Department and the Organic Trade Association. The terms for service of the initial Board shall be staggered for two, three and four years. Board members will only be reimbursed for travel and other expenses but not for their time. After the first Board is appointed, future Board members will be selected following voting among those the Board member will represent. The top vote getters in each category will be submitted to the Secretary, who will select a nominee from among the two submitted names for each seat.

Members of the Board have a number of powers and duties. They are responsible for hiring and setting the salary of one or more people to implement the checkoff program; for advertising, holding and keeping minutes of Board meetings; to develop programs, plans and projects using the checkoff funds; investigate violations of the checkoff program, to recommend changes to the assessment rates, and more.

 

Q: Who gets to vote on whether there should be an organic checkoff program?

The first time there is a referendum, producers, handlers and importers who will have to pay into the checkoff program get one vote. Voluntarily assessed entities can vote if they sign an affidavit promising to pay into the program for the majority of years before the next referendum. Every domestic, certified organic entity in the NOP database will receive a ballot by mail.

Every seven years, there will be another vote to determine whether the majority of participants want to continue or disband the checkoff program. Voluntarily assessed entities have to sign an affidavit to participate in the majority of the next seven years in order to vote as well as showing that it paid into the program for a majority of years since the last referendum. Dual covered entities (those that could pay into either the organic checkoff or commodity-based checkoff program) must show they paid into the organic checkoff rather than the commodity-based checkoff for the majority of years since the last referendum. A new organic farm must demonstrate that it has paid into the organic checkoff for all years since it received its certification in order to vote.

Ballots are cast by mail, in person at the local FSA office, or in another way established by USDA.  The program will be implemented if a majority of those voting agreed to it.

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