The Organic Foods Production Act, the process/product distinction, and a case for more end product regulation in the organic foods market.

Author:Watnick, Valerie J.

Introduction I. THE HISTORY OF ORGANIC AND THE ORGANIC FOODS PRODUCTION ACT A. History B. Implementing Regulations C. Organic Plans D. Production and Handling Standards 1. Crops 2. Livestock 3. Residue Testing E. Labeling Under the OFPA II. ORGANIC FOOD: AN EXPANDING PROFITABLE CONSUMER MARKET A. The Expansion of the Organic Market B. Consumer Expectations and Perceptions III. SHORTCOMING OF THE "PROCESS" REGULATION OF ORGANIC FOOD: MISALIGNMENT BETWEEN REGULATIONS AND CONSUMER EXPECTATIONS A. Quality Not Guaranteed B. National List Loophole C. Livestock Loopholes in the National Organic Program IV. THE ORGANIC MARKET IS NOT A MARKET FOR LEMONS BUT SHOULD BE CLOSELY REGULATED FROM A PROCESS AND A PRODUCT PERSPECTIVE A. A Market for Lemons B. Consumer Preferences for Organic Food Can Be Used to Determine if the Organic Food Market is a Market for Lemons 1. Factors Suggesting That the Organic Market Will Not Collapse 2. Why the Organic Market Might Collapse V. CHANGES NEEDED TO MORE ETHICALLY CONFORM THE IMPLEMENTATION OF THE OFPA TO WHAT CONSUMERS BELIEVE AND EXPECT A. Should the OFPA and its Implementing Regulations Meet Consumer Expectations B. A Normative Goal: Meeting Consumer Expectations Under the OFPA C. Proposed Changes 1. Increase period for transition farming for crops from three years to ten years 2. Change existing regulations to require that dairy cows can only produce organic milk when organically raised from the last third of gestation 3. Encourage new entrants to the market, but clearly label their products as "transition" products 4. Give small, conscientious, local farmers a boost and a new label 5. Create a "Local" label 6. Require certifiers to test a larger percentage of crops and to test for a broader spectrum of pesticides, including both those banned and those currently in use, as well as for antibiotics and GMos VI. Conclusion INTRODUCTION

Congress passed the Organic Foods Production Act (the "OFPA"), (1) and over a decade later, rules implementing the Act were finally promulgated in 2002. (2) In the time between the Act's passage and its implementation, the number of consumers purchasing organic food in the United States, and globally, increased dramatically. (3) Since 1990, the market has grown approximately 20 percent per year. (4) The consumer interest in organic food is particularly striking given the OFPA does not guarantee that food sold as "organic" will be free from toxins or pesticide residues. (5) Indeed, the legislative history of the Act makes clear that Congress did not intend to guarantee that food labeled "organic" would be free from toxins or pesticide residues. (6)

Rather, the OFPA focuses intently on process rather than end product regulation. (7) In this regard, the OFPA has a different focus than much of American business regulation, (8) where the focus appears to be mainly on end product regulation. (9)

This paper asserts that regulation of organic food products should be more product-based for a number of reasons. The most important reason is that organic farming and marketing is unique. Not only does the process by which the food is produced matter to these particular consumers, but consumers also care deeply about the quality of the end product. (10) organic food buyers recognize that the process by which food is produced has moral and ethical implications. (11) This process impacts farm workers, the environment, and ultimately the quality of the food itself. (12) Given that concerns about farming methods and their relation to environmental health are on the rise, this paper will discuss consumer preferences for process and/or product information. (13)

Additionally, in analyzing this product/process distinction, this paper will discuss the "market for lemons" theory first espoused by Professor and economist, George A. Akerlof, in "'The Market For 'Lemons:' Quality Uncertainty and the Market Mechanism." (14) In "Lemons," (15) Professor Akerlof analyzed a market where buyer and seller relied on asymmetric information. This market ultimately resulted in low quality goods, or "a lemons market." (16) This paper explores the application of the "Market for Lemons" theory to the organic foods market, and considers that while the organic market is one where asymmetric information exists between buyer and seller, the market for organic foods continues to flourish. (17)

Part I of this paper discusses the current regulation of organic food under the OFPA and the implementation of regulations, including recent changes to regulations effective January 2013. (18) Part II discusses consumer perceptions about, and preferences for, organic food, analyzing whether those perceptions align with reality. Part II also explores factors that influence consumers' reasons for buying in the organic food market. in light of these perceptions and preferences, Part III discusses the shortcomings of the OFPA. Finally, Part IV of this paper urges that the market for organic food ought to be more heavily regulated from a product perspective in spite of the fact that the market for organic food is not a "Lemons" market.

This paper ultimately asserts that, despite asymmetric information about ultimate product quality, the reasons for purchasing organic food will remain sound, and the market for organic food will remain fundamentally strong. However, for a multitude of other reasons, including the religious and ethical concerns of consumers relative to health and environment, I propose a regulatory paradigm that would include stricter "organic specific" regulation, as well as thorough end product testing to support the continued expansion of this profitable market.


    1. History

      In 1942, J.J. Rodale, a Pennsylvania farmer and publisher, first used the word "organic" to describe a method of farming in which the farmer strove for improved natural soil condition through the use of natural additions of manure and compost and the avoidance of chemical amendments. (19) "In the late 1940 s, organic farming took hold in the United States." (20) It initially began on small family farms that provided food for the farmers themselves and for their immediate families. (21) Over the next half century, organic farming picked up steam, growing in demand and in the number of farmers. (22) Farmers brought these products to market and labeled them "organic," even though the precise meaning behind the term "organic" varied from farmer to farmer. (23)

      Oregon was first to respond to this lack of clarity, passing the nation's original state organic certification law in 1973. (24) By the early 1990s, twenty-two state legislatures had passed organic food statutes, each unique to their states. (25) Farmers in states lacking regulation continued to market their products in a haphazard manner, and existing state regulations lacked consistency. (26)

      In response to the lack of consistent regulation for organic farming and marketing, Congress passed the OFPA on November 28, 1990. (27) The OFPA's stated goals were to "(1) [establish" national standards governing the marketing of certain agricultural products as organically produced products; (2) [assure" consumers that organically produced products meet a consistent standard; and (3) [facilitate" interstate commerce in fresh and processed food that is organically produced." (28)

    2. Implementing Regulations

      Ten years after the Act was passed, the United States Department of Agriculture ("USDA") finally passed implementing regulations, which set national standards for organic food production, and attempted to inform consumers about and protect them from false or misleading organic claims. (29) Under the OFPA, these standards, which allow farmers to make organic claims, describe a method of production and certification, rather than provide a guarantee about product quality. (30) There is no clear definition for the term "organic," but rather something "organic" would be better described, although not commonly understood, as "organically produced." (31)

      Under the OFPA, Congress defines "organic food" as either crops produced "by farmers who emphasize the use of renewable resources and the conservation of soil and water to enhance environmental quality for future generations," or meat, poultry, eggs, and dairy "products from animals that are given no antibiotics or growth hormones." (32) For food to be considered organic, it must be produced without using most man-made pesticides--in particular fertilizers made with synthetic ingredients or "sewage sludge." (33) In addition, the OFPA and its implementing regulations prohibit bioengineering and ionizing radiation in the production of organic food. (34)

      Toward these ends, the OFPA authorized the Secretary of the USDA to administer the National Organic Program ("NOP") (35) and to form the National Organic Standards Board ("NOSB"). (36) The Act outlines the proper ways to manufacture, handle, label, and test organic products. (37) Additionally, the NOSB makes recommendations about the "development of standards for substances to be used in organic production." (38) In 1995, the NOSB first defined organic as:

      An ecological production management system that promotes and enhances biodiversity, biological cycles, and soil biological activity. It is based on minimal use of off-farm inputs and on management practices that restore, maintain, and enhance ecological harmony. "Organic" is a labeling term that denotes products produced under the authority of the Organic Foods Production Act. The principal guidelines for organic production are to use materials and practices that enhance the ecological balance of natural systems and that integrate the parts of the farming system into an ecological whole. Organic agriculture practices cannot ensure that products are completely free of residues; however, methods are used to minimize pollution from air, soil and water. Organic food...

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