An estimated 5 percent of total U. S. sales are from exports. Currently, despite restricted access to the European market, the United States is the most important non EU supplier of 489 organic products to EU countries ( Foreign Agriculture Service ( FAS), 1995). Import authorizations have been granted for a number of raw and processed commodities, including sunflowers, buckwheat, beans, sugar, and apples. Demand is strong throughout the European market, and the organic market share was 1 2 percent of total food sales in 1997 ( Collins 1999).

Medium term growth rate forecasts range from 5 10 percent for Germany to 30 40 percent for Denmark, and is 20 30 percent in most of the EU countries, according to the International Trade Centre UNCTAD/ WTO. However, most analysts are basing their projected future growth rates on straight line extrapolations of current sales and growth rates without understanding the underlying market mechanisms and price elasticities ( Lohr 1998).

Costs of the Final Rule The costs of the regulation are the direct costs of complying with the specific standards.

It is important to note that while some costs associated with accreditation and certification are quantified, costs stemming from other provisions of the final regulations are not. In addition, this is a short run analysis. The analysis examines the costs that may be incurred through 2002. It is not possible at this time to conduct a longer run analysis because we do not know enough about the fundamental supply and demand relationships to make economically sound long run projections.

Accreditation Costs USDA has identified 36 private certifying agents and 13 State programs providing certification in the United States. These 49 entities are considered likely applicants during the first 18 months during which USDA will not charge application fees or hourly fees for accreditation. An unknown number of new entrants to the certifying business may also apply. 490 However, over the last 10 years, the number of certifying agents does not appear to have grown significantly, with the net effect of entries and exits maintaining a population of certifying agents at about 40 50.

The final rule allows USDA to collect fees from certifying agents for USDA accreditation.

The first proposal would have permitted USDA to collect fees from producers and handlers as well, but USDA decided that it would be administratively simpler to collect fees only from certifiers and would enable State programs that want to keep client costs low to be able to do so.

Applicants for accreditation will be required to submit a nonrefundable fee of $ 500 at the time of application, which will be applied to the applicant's fees for service account. This means that the $ 500 fee paid at the time of application is credited against any subsequent costs of accreditation arising from the initial review and the site evaluation. The $ 500 fee is the direct cost to applicants who are denied accreditation based on the initial review of the information submitted with their application. Charges for the site evaluation visit will cover travel costs from the duty station of USDA employees, per diem expenses for USDA employees performing the site evaluation, an hourly charge ( per each employee) for services during normal working hours ( higher hourly rates will be charged for overtime and for work on holidays), and other costs associated with providing service to the applicant or certifying agent.

At present, the base per diem for places in the United States is $ 85 ($ 55 for lodging and $ 30 for meals and incidental expenses). Per diem rates are higher than $ 85 in most large cities and urbanized places, but over half of the current U. S. certifiers are located in places that have an $ 85 per diem rate, and that is the rate used to calculate average certifier expenses in table 3. A review of domestic travel by USDA staff during fiscal year 1999 indicates transportation costs 491 ranging from $ 500 to $ 600 per person. Miscellaneous costs are estimated to add another $ 50 to each site visit.

The hourly rate that USDA anticipates charging for accreditation is the rate that USDA currently charges for services under the Quality Systems Certification Program ( QSCP). Our preliminary estimate that this rate will be no more than $ 95 per hour is presented to give the public some indication of the rate that will be charged following the 18 month transition period.

QSCP is an audit based program administered by AMS, which provides meat producers, handlers ( packers and processors), and other businesses in the livestock and meat trade with the opportunity to have special processes or documented quality management systems verified. The procedures for accreditation evaluation are similar to those used to certify other types of product or system certification programs under QSCP.

Accreditation will include verification of adherence to ISO Guide 65 and the regulations.

Although much of the site evaluation for accreditation will involve comparisons against ISO Guide 65, additional hours will be required because USDA will be evaluating additional aspects of the applicant's operation to determine if the applicant is qualified to perform as an accredited agent for the NOP. Based on experience with the QSCP and more limited experience performing audits verifying that certifying agents meet ISO Guide 65, we project that a site evaluation visit for small applicants with a simple business structure will require 3 days of review, and for those large applicants with more complex business structure will require 5 days of review.

USDA will use two reviewers for each site evaluation visit during the 18 month implementation period, as well as for new applicants after that period. One reviewer will come from the QSCP audit staff and will be familiar with the ISO Guide 65 verification; the other 492 reviewer will come from the NOP staff and will be familiar with requirements of the organic program. The two will conduct the site evaluation jointly. Two reviewers will also be needed for the site evaluation visits for the accreditation renewals, which will take place every 5 years. In the proposed rule, USDA had projected that only one reviewer would be needed for site evaluations and renewals that took place after the 18 month implementation period but has changed that projection based on additional experience with the ISO Guide 65 program.

During the 18 month implementation period, applicants will be charged for travel and per diem costs for two persons and for miscellaneous expenses but will not be charged application fees or hourly fees. The estimated expenditures for these initial accreditations is $ 1,560$ 2,100,

with $ 510$ 850 for per diem expenses, $ 1,000$ 1,200 for travel expenses, and $ 50 for miscellaneous expenses ( table 3). The cost of initial site evaluation visits will vary with the cost of travel from the USDA reviewer's duty station to the applicant's place of business. In general,

more distant and remote locations will involve higher travel costs.

USDA estimates the costs of a site evaluation visit after the transition period may average $ 6,120$ 9,700, depending on the characteristics of the applicant, including $ 4,500$ 7,600 for the hourly site evaluation charges that are not billed to the certifier during the first 18 months ( table 3). USDA has received appropriated funds to pay for the hourly site evaluation charges only during the first 18 months of the program.

Currently, few private certifying agents are operating with third party accreditation.

Fetter ( 1999) reports that in a sample of 18 certification programs, four programs were accredited, and one had accreditation pending. All of these were large, private certifying agents.

Those certifying agents currently accredited by third parties will likely pay less for USDA 493 accreditation. In its first proposal, USDA stated at FR 62: 65860, " We are aware that certifiers currently may pay in excess of $ 15,000 for accreditation by a private organization." Commenters thought this figure was too high. One commenter, which operates the International Federation of Organic Agriculture Movements ( IFOAM) Accreditation Programme under license to IFOAM,

stated, " It is possible that the largest programme operating a chapter system with activities in many countries ( which is included in their IFOAM evaluation) paid this amount in their first year.

On the other hand the average cost to a medium sized certifier works out at around $ 3000 to $ 4000 per year." Another commenter stated, " At the present time IFOAM accreditation costs less than $ 10,000/ year for the largest certifier and $ 3 5,000 for smaller certifiers."

The 18 month NOP implementation period affects the distribution of program costs between the organic industry and the taxpayer. Some of the costs of accreditation would be absorbed by the NOP operation budget appropriated by Congress. In effect, the taxpayers are subsidizing the organic industry. Without this subsidy, the total cost of accreditation would approach $ 1 million.

The direct accreditation costs to an estimated 59 certifying agents ( including all 49 current U. S. certifiers and an estimated 10 foreign certifiers) during the first 18 months following the final rule, are approximately $ 92,000 to $ 124,000. This figure is derived from the per firm costs in table 3. In addition, USDA will use appropriated funds to cover approximately $ 270,000

$ 448,000 in hourly charges for site evaluation. USDA will also use appropriated funds to cover the costs of producing and publishing an accreditation handbook in several languages, translating USDA reports to foreign clients, and developing and funding a peer review panel to evaluate NOP's adherence to its accreditation procedures. And if more than the estimated 59 certifiers 494 apply for accreditation during the first 18 months of the program, USDA will use appropriated funds to cover additional hourly charges for site evaluation.

Private certifying agents and State programs that do not mirror the regulation may incur additional costs to change their programs to adopt the national standards. The discussion on the effect of the regulation on existing State programs is in " State Program Costs." The cost associated with changing existing private certifying programs is not quantified.

Also, certifying agents who have been operating without third party accreditation will face new costs. For certifying agents who currently obtain third party accreditation, the direct costs of USDA accreditation, which are only incurred every 5 years, may be lower on an annual basis compared to the direct costs for third party certification of $ 3,000$ 5,000 per year indicated by the commenters. The direct costs for certifying agents obtaining accreditation during the first 18 months, when USDA will not impose an application fee or hourly charges, will be limited to travel, per diem, and miscellaneous expenses.

A national accreditation program may shrink the market for a third party accreditation.

Certifying agents will have little incentive to maintain or seek a second accreditation by a private organization unless that accreditation sufficiently enhances the market value of the certifying agent's services. Thus, the market will determine whether other accrediting entities continue to have a U. S. market for their services.

Training programs are currently offered by the Independent Organic Inspectors Association ( IOIA), an organization of approximately 165 organic certification inspectors, and by some of the larger certifying agents ( IOIA). Costs to existing certifying agents to provide additional training to other staff are difficult to measure in the absence of information on current 495 staff skill levels or the existence of formal training other than inspector training. Some agencies rely on volunteer staff who may have had no formal training, but the extent of this practice is unknown. AMS intends to offer assistance to certifying agents, producers, and handlers by providing accreditation training for certification agents and other printed material that would enable participants to better understand the regulations. In addition, AMS intends to continue open and frequent communication with certifying agents and inspectors to provide as much information as possible to aid them in fulfilling the requirements of the regulations.

The OFPA requires that private certifying agents furnish reasonable security for the purpose of protecting the rights of participants in the organic certification program. It is expected that there will be costs to certifying agents from these requirements.

Implementation of the final rule will also impose a less tangible cost on some certifiers.

Some private certifiers have advertised their program and logo as representing higher standards than other programs. The brand value associated with the logos of these certifiers will be lost when uniform standards are implemented as part of the national program. However, certifiers will still be able to distinguish themselves to clients based on the quality of their services and other characteristics.

A key change was made in the final rule, based on comments to the March 2000 proposal,

to make the standard used by certifiers to determine maximum allowable pesticide residues ( the level above which a product could not be called organic) consistent with the current industry standard and with NOSB recommendations. In the final rule, the standard will be set at 5 percent of the pesticide residue tolerances calculated by the Environmental Protection Agency ( EPA).

This change could conceptually reduce costs, but the magnitude of this reduction is uncertain. 496 Certification Costs Under the final rule, USDA will not impose any direct fees on producers and handlers.

Certifying agents will establish a fee schedule for their certification services that will be filed with the Secretary. Certifying agents will provide all persons inquiring about the application process with a copy of their fees. The certifying agent will provide each applicant with an estimate of the total cost of certification and an estimate of the annual costs of updating the certification. Under the proposed rule, certifiers could charge a maximum of $ 250 at the time of application, but under the final rule, certifiers are not limited in the amount of certification fees that they may charge at the time of application.

Some States charge minimal fees for certification by subsidizing operating costs from general revenues. The majority of certifying agents structure their fee schedules on a sliding scale based on a measure of size, usually represented by the client's gross sales of organic products but sometimes based on the acres operated ( Fetter 1999 and Graf and Lohr 1999). Some certifying agents charge an hourly rate for inspection and audit services.

Graf and Lohr have applied fee schedules provided by ten certifying agents to four hypothetical farms, small, medium, large, and a super farm. Tables 2A and 2B summarizes the fees that Graf and Lohr found by applying schedules of each certifying agent to hypothetical farms. Total first year costs and subsequent year ( renewal) costs for certification are shown. The average cost for each size class should be interpreted with care because it is not weighted by the number of clients certified. In their study, the Texas Department of Agriculture program is the low cost certifying agent for all size operations. The high cost certifying agent differs across farm sizes. None of these certification programs mentions costs for residue testing, which the 497 NOP will require in the form of preharvest testing when there is reason to believe that agricultural products have come into contact with prohibited substances. Preharvest testing is expected to be infrequent. Some certifying agents currently require soil nutrient testing and water quality testing.

The estimated total initial costs for a producer or handler to become certified are presented in table 3.

We have not extended the average costs reported in Tables 2A and 2B to aggregate certification costs for all organic farms because the number of organic farms is not known with precision, nor is their geographic location, and there are no data to distribute the population of organic farms across size classes. The data from California suggest that a large number of small farmers produce and market organic goods without third party certification, but those data may not be representative of the national trend. Although many of the smallest farms would qualify for the small farm exemption from certification, if consumers accept the labeling practices required by this final rule, small farmers may obtain certification to stay in the organic market, which may involve some cost.

In response to comments, the March 2000 proposal was changed to provide that if a conflict of interest is identified within 12 months of certification, the certifying agent must reconsider the application and may reinspect the operation if necessary. Additionally, if a conflict of interest is identified, the certifying agent must refer the operation to a different accredited certifying agent. These provisions would likely increase costs to certifiers; however, the magnitude of this increase is unknown.

Production and Handling Costs Producers and handlers currently active in the organic industry may bear costs under the 498 national standards. We believe that while most provisions of the program mirror current industry practices, there are some differences. In addition to the cost associated with becoming familiar with the national program, any adjustments stemming from these differences will result in costs.

These costs were qualitatively discussed in the March 2000 RIA for major provisions of the rule and are described below. The March 2000 proposal adhered closely to recommendations from the NOSB and largely reflected current industry standards. Marginal changes have been made in the final rule in response to comments on the March 2000 proposal. These changes have been made in concert with NOSB recommendations and, in general, have been made to clarify or add flexibility to producer and handler provisions or to make them better reflect current industry standards.

Producers Producers of organic food will face numerous provisions that will regulate their production methods. As indicated in the Baseline section, many of the requirements are currently followed by certified organic farmers. Farming operations that are not certified but are registered with a State government, such as California, receive copies of the State laws to which they must comply. The costs associated with adjusting to provisions in the final rule may be minimal for certified and State registered growers but may be more substantial for noncertified organic producers that do not follow a specific set of guidelines or regulations. Some organic producers are neither certified nor registered and, therefore, may not practice the requirements in the final rule. Major provisions of the final rule   the withdrawal period required for land to be free of prohibited substances, National List, animal drug use, and residue tests   are discussed to illustrate costs; other provisions may also impose additional costs. 499 A 3 year withdrawal period, during which prohibited materials cannot be applied to a field to be certified as organic, is currently required by most private and State organic standards, and the final rule also specifies a 3 year period. The effect of this provision on the currently certified organic farming operations may be minimal, but the effect on farming operations that are neither certified nor registered may be significant. Farming operations that have completed a 3 year withdrawal period will not be affected by this requirement. To stay in the organic industry, those who have not completed the 3 year period must comply with this requirement. They may incur the cost of organic production for a significant length of time, yet not be allowed to sell their products as organic. Hence, some small organic operations may exit the industry.

The impact of the National List, which lists allowed synthetic substances and prohibited nonsynthetic substances that may or may not be used in organic production and handling operations, will be determined by how the national standards differ from current certification standards and from actual practice. Lists of approved synthetic materials, including soil amendments and pesticides, vary from one certification program to another, but a detailed analysis of specific differences in the various existing materials lists shows them to be overlapping in most cases with each other and with the National List. The degree of overlap should mitigate the costs for certified operations, but farming operations, particularly those that aren't certified, may need to make some adjustments to comply with the list. These adjustments will impose costs on these operations. The magnitude of the costs resulting from these adjustments is not quantified.

Where livestock standards have been adopted by existing State programs and by private certifying agents, most prohibit the use of animal drugs except for the treatment of a specific disease condition, and use of animal drugs is generally prohibited within 90 days prior to the sale 500 of milk or eggs as organic. Some State and private certifiers allow the use of animal drugs in animals for slaughter under certain conditions, while others prohibit the use of animal drugs. The standards in the final rule would prohibit the sale as organic of edible products derived from an animal treated with antibiotics or other unapproved substances. The standards may not differ from existing State or private standards in prohibiting the use of drugs on healthy animals.

However, the effect of this provision may differ among certified and registered organic farms.

The effect on the certified farming operations is unknown. We assume that this provision may have costs, but the magnitude of these costs is not quantified.

Additional costs may be imposed by several further changes to the March 2000 proposal.

These changes involve the use of treated lumber, confinement requirements, and the commercial availability of ingredients in products labeled " organic."

The replacement of lumber treated with prohibited substances that comes into contact with soil, crops, or livestock under organic management with treated lumber is now specifically prohibited in organic systems. Since the use of lumber treated with prohibited substances for the purpose of preventing degradation is not a common practice in livestock production, this prohibition is not expected to increase producer costs substantially. The exact magnitude of any increase is uncertain and mainly dependent upon the number of producers seeking organic certification that currently use treated lumber in their operations and are planning to replace that lumber.

The confinement provisions in the March 2000 proposal have been slightly modified.

Access to the outdoors is now an explicitly required element for all organically raised livestock.

We expect this change to have a minor impact on overall producer costs, since we assume most 501 producers raising organic livestock already provide access to the outdoors. Additionally, the term, " pasture," has been defined to emphasize that livestock producers must manage their land to provide nutritional benefit to grazing animals while maintaining or improving soil, water, and vegetative resources of the operation. To the extent producers desiring to raise organic livestock do not currently manage pasture in this manner, we expect livestock production costs to increase.

The organic plan now requires using organically produced minor agricultural ingredients unless not commercially available. This applies to the previously allowed 5 percent nonorganic agricultural and other ingredients in products labeled " organic." Handlers of organically produced minor ingredients, especially herbs and spices, are likely to benefit from this market incentive,

while producers of nonorganic minor ingredients will likely be adversely affected. Producers will also realize a burden associated with providing the documentation of commercial availability for ingredients in the 5 percent component. Since the criteria to determine commercial availability will be developed after additional comments and information are considered, the magnitude of the cost and benefit implications from this standard are currently unquantifiable but will likely be largely dependent upon the stringency of the developed criteria.

Producers will also have administrative costs for reporting and recordkeeping, although producers who currently are active in the organic industry already perform most of these administrative functions, and additional costs to them would depend upon the extent to which their current practices are different from the requirements of the final rule. The annual reporting and recordkeeping burden on producers is estimated at 24 hours for certified producers and 1 hour of recordkeeping for small producers who choose to operate as exempt entities and is valued at $ 23 per hour. 502 Other provisions of the final rule, such as those on residue testing, livestock housing and feed, and health care practices, may vary enough from those followed by some growers that they may impose costs due to the variability in current housing, feed, and health care practices, but lacking information, we have not quantified these costs.

There were also several key changes made in the final rule, based on comments to the March 2000 proposal, that will add flexibility to producer standards. A specific type of production facility was required for composting manure in the proposal, and this provision has been modified to ensure that manure is adequately composted while allowing variation in the type of facility that is used. Also, the transition period of a dairy operation to make a whole herd conversion to organic production has been reduced in order to make conversion affordable for a wider range of dairy farms, including smaller operations. Finally, the requirement that slaughter stock sold, labeled, or represented as organic be under continuous organic management from birth was changed to require continuous organic management from the last third of gestation. This change is also expected to provide possible cost savings and added flexibility for producers.

Handlers Handlers of organic food are defined and regulated differently across different certifying agents and States. Due to this variability, handlers may incur some cost associated with complying with the requirements of the regulation. Several key changes were made in the final rule, based on comments to the March 2000 proposal, to make handler standards more consistent with current industry standards. The proposal prohibited the addition of sulfites to wine as required by OFPA. The statute has been changed since March, and the final rule will permit added sulfites in wine labeled " made with organic grapes," consistent with industry standards and 503 NOSB recommendations.

Also, the March proposal required products labeled " made with organic ingredients" to have ingredients that were at least 50 percent organic, and this threshold has been raised to 70 percent in the final rule. Some certifiers set their thresholds at 50 percent, others at 70 percent,

while others restrict labeling to individual ingredients only. The international industry standard outside the United States is set at 70 percent. The threshold is set at 70 percent in the final rule inresponese to comments received on the proposal and to be consistent with international standards, which will help ease export of U. S. organic product into those markets. Alternatively,

to the extent handlers do not currently meet the 70 percent threshold to label products " made with organic ingredients," handlers may incur additional costs to reach the threshold or exit the industry. The magnitude of those effects is unknown.

In addition to the labeling requirement, a handler's current use of nonsynthetic and synthetic substances may change in response to the final rule. The March 2000 proposal provided for the use of any prohibited substance to prevent or control pests. This provision has been changed to first limit the use of nonsynthetic and synthetic substances to substances which are on the National List before allowing the use of any synthetic substance. To the extent to which handlers are now required to consider substances on the National List before using a prohibited substance and these substances on the National List are priced differently from the substance otherwise used, handlers may incur a change in production costs. This requirement may increase costs on handlers, but the magnitude of this increase is unknown.

In addition, the commercial availability requirement in the final rule, described in the producer costs section, may also create a burden on handlers to consistently apply the standard. 504 To the extent to which sourcing organically produced ingredients in excess of 95 percent of the finished product is more expensive than sourcing nonorganically produced ingredients, handlers seeking the " organic" label for their products will incur additional costs. As previously described,

the magnitude of the cost implications from this standard is currently unquantifiable but will likely be largely dependent upon the stringency of the standard that is developed.

Handlers will also have administrative costs for reporting and recordkeeping, although handlers who currently are active in the organic industry already perform most of these administrative functions, and additional costs to them would depend upon the extent to which their current practices are different from the requirements of the final rule. The annual reporting and recordkeeping burden on handlers is estimated at 63 hours for certified handlers and 1 hour of recordkeeping for small handlers who choose to operate as exempt entities and is valued at $ 23 per hour.

Retail Food Establishments Most retailers are not currently subject to either voluntary practices or mandatory standards of the organic industry. Retailers that have organic processing operations, such as organic food delis and bakeries, are not required to be certified in the final rule. However,

retailers will be subject to requirements such as prevention of contamination of organic products with prohibited substances, and commingling organic with nonorganic products. Obtaining certification and complying with these provisions will incur some cost.

Labeling Costs Certified handlers will have to comply with requirements regarding the approved use of labels. In addition, any producers, handlers, and retailers who are not currently certified but who 505 package organic products are also subject to the labeling requirements. The estimated annual cost for handlers to determine the composition of 20 products to be reported on labels is $ 1,647,000.

This figure is based on an average of 1 hour per product per handler and an hourly cost of $ 27.

Similarly, certified handlers will have to design their labels to comply with the regulation. This is expected to take 1 hour per label at $ 27 per hour for a compliance cost of $ 1,647,000. Total label costs for handlers are $ 3.3 million. Any changes to existing labels and new labels that need to conform to the regulation will incur a cost. The costs associated with these activities are not quantified. Hence, the lower bound on the labeling cost is approximately $ 4 million.

State Program Costs The national program may impose additional costs on States by requiring changes in their existing programs. The rule encompasses most of the principles of existing State programs.

However, there are also departures.

Where State standards are below Federal standards or where elements of the Federal standards are missing from a State program, these States would be required to make changes in their programs that they might otherwise not make. Where State programs have standards in addition to the Federal standards and they are not approved by the Secretary, States also would be required to make changes in their programs. States without organic standards or whose current standards either would conform to those of the national program or would be approved by the Secretary would not incur additional costs resulting from required changes. Currently, USDA cannot predict which States may be required to adjust their existing programs.

States that conduct certification activities will be charged for accreditation, something none of them pay for now. The cost associated with this provision is discussed in the 506 Accreditation section.

Enforcement costs Enforcement costs will fall upon USDA's NOP, States operating State organic programs,

and on State and private certifying agents. Certifying agents will review clients' operations and will notify clients of deficiencies. Certifying agents can initiate suspension or revocation of certification. Certifying agents will be aware of these overhead costs, and we assume that they will establish fee schedules that will cover these costs. Actual costs to certifying agents for enforcement activities will depend on the number of clients, how well informed clients are of their obligations, and client conduct. State certifying agents will face the same obligations and types of costs as private certifying agents.

In States operating State organic programs ( SOP), State enforcement costs are costs associated with ensuring that certified operations fulfill their obligations. These States will bear the costs of investigating complaints, monitoring use of the State organic seal and organic labeling, and taking corrective action when needed. These States will bear costs related to reviewing an applicant's or certified operation's appeal and for administrative proceedings. Many of these activities are already a routine part of the certification program in States that have programs, and USDA will fill in gaps in enforcement in States that choose not to have programs.

USDA's enforcement costs are costs associated with ensuring that certifying agents fulfill their obligations. In States without an organic program, USDA will bear the costs of investigating complaints, monitoring use of the USDA organic seal and organic labeling, and taking corrective action when needed. USDA will bear costs related to reviewing an applicant's or certified or accredited operation's appeal and for administrative proceedings. USDA expects 507 to effectively carry out its enforcement responsibilities using funds that are already allocated for operating the NOP. To the extent to which we did not estimate the likely noncompliance rate, the cost associated with enforcement remains unknown.

Reporting and Recordkeeping Costs The Paperwork Reduction Act of 1995 requires an estimate of the annual reporting and recordkeeping burden of the NOP. The estimated annual reporting and recordkeeping burden reported is approximately $ 13 million. This figure should be understood within the context of the requirements of the Paperwork Reduction Act. The Paperwork Reduction Act requires the estimation of the amount of time necessary for participants to comply with the regulation in addition to the burden they currently have. Information gathered by AMS in auditing activities in conjunction with ISO Guide 65 verifications leads us to believe that the paperwork burden on current certifying agents and certified operators will be 10 to 15 percent greater than their current business practices as a result of this final rule.

Certifying Agents. The regulation will impose administrative costs on certifying agents for reporting and recordkeeping. The actual amount of the additional administrative costs that would be imposed by the rule is expected to be different for those entities that would begin their activities only after the national program is implemented. Certifying agents that currently are active in the organic industry already perform most of these administrative functions; therefore,

the additional costs to them would depend upon the extent to which their current practices are different from the requirements of the regulation. An estimate of the cost of compliance is the annual reporting and recordkeeping burden documented in the Paperwork Reduction Act of 1995 analysis. Table 4 shows the estimated annual costs for certifying agents. Certifying agencies each 508 have an estimated burden of 1,068 hours valued at roughly $ 27,729.

The following list describes several of the most significant administrative requirements or optional submissions and the probable resources required for compliance. Details on the reporting and recordkeeping burdens estimated for each item are in the paperwork analysis.

1. A list of farmers, wild crop harvesters, and handlers currently certified. This information can be compiled from existing records. After implementation, certifying agents will be required to submit on a quarterly basis a list of operations certified during that quarter.

2. A copy of procedures used for certification decisions, complying with recordkeeping requirements, maintaining confidentiality of client's business related information, preventing conflicts of interest, sampling and residue testing, training and supervising personnel, and public disclosure of prescribed information concerning operations they have certified and laboratory analyses. These policies may have to be created or modified to conform to the regulation.

3. Documentation on the qualifications of all personnel used in the certification operation,

annual performance appraisals for each inspector and personnel involved in the certification, and an annual internal program evaluation. Existing certifying agents may already perform these operations. New certifying agents will have to establish procedures to achieve these things.

4. Documentation on the financial capacity and compliance with other administrative requirements ( e. g., fee structure, reasonable security to protect the rights of the certifying agent's clients as provided in the NOP, and business relationships showing absence of conflicts of interest). Some of this information can be compiled from existing records, e. g., fee schedules, and some may be generated from other sources.

5. Copies must be submitted to USDA of all notices that are issued on certification denial, 509 noncompliance, and suspension or revocation of certification. This requirement will be fulfilled simultaneously with sending notices to applicants or clients.

6. An annual report to the Administrator including an update of previously submitted business information, information supporting any requested changes in the areas of accreditation,

and steps taken to respond to previously identified concerns of the Administrator regarding the certifying agent's suitability for continued accreditation. The annual report requirement will draw on records created in the normal course of business.

7. Retention of records created by the certifying agent regarding applicants and certified operations for not less than 10 years, retention of records obtained from applicants and certified operations for not less than 5 years, and retention of other records created or received for USDA accreditation for not less than 5 years. This activity requires records, database management capabilities, and resources ( storage space, file cabinets, electronic storage, etc.). In an informal inquiry, AMS found that most existing certifying agents currently retain records for at least 10 years and use both electronic and paper storage. We believe that this requirement will not pose an additional burden on existing certifying agents.

8. Public access to certification records, such as a list of certified farmers and handlers,

their dates of certification, products produced, and the results of pesticide residue tests. This requirement will have minimal impact given the requirements for retaining records.

9. Providing program information to certification applicants. To comply with this requirement, certifying agents may need to modify existing standards and practices. The criteria for qualified personnel in the rule may likely result in an increase in labor costs for some existing certifying agents and, initially, an increase in training costs. The amount of additional costs to 510 these certifying agents would depend on the level of expertise among current certification agency staff, the extent to which certifying agents currently rely on volunteers, and the current costs of training certification staff.

Producers and Handlers. The regulation will impose administrative costs on producers and handlers for reporting and recordkeeping. The actual amount of the additional administrative costs that would be imposed by the final rule is expected to be different for those entities that would begin their activities only after the national program is implemented. Producers and handlers who currently are active in the organic industry already perform most of these administrative functions; therefore, the additional costs to them would depend upon the extent to which their current practices are different from the requirements of the final regulation. An estimate of the cost of compliance is the annual reporting and recordkeeping burden documented in the Paperwork Reduction Act of 1995 analysis.

The following list describes several administrative requirements or optional submissions and the probable resources required for compliance.

1. Establish, implement, and update annually an organic production or handling plan.

Organic plans are a standard feature in the organic industry and are required by certifying agents.

Thus, producers and handlers who are already involved in organics can rely on their current plan with revisions as needed to meet elements of the national program which are new to them or differ from their current practice. Although producers and handlers are generally aware of the goals of organic plans, current practice may fall short of the rigor that will be required by the national program. New producers and handlers will have higher costs because they will have to prepare a plan from scratch. 511 2. Maintain records pertaining to their organic operation for at least 5 years and allow authorized representatives of the Secretary, the applicable State organic program's governing State official, and the certifying agent access to records. Existing organic producers and handlers maintain records. New producers and handlers will have to develop records systems. Access is expected to be infrequent, will require little time of the certified entity, and will not require buildings or equipment other than what is required for storing records.

3. Notify the certifying agent as required ( e. g., when drift of a prohibited substance may have occurred) and complete a statement of compliance with the provisions of the NOP.

Notifications are expected to be infrequent.

The total reporting burden includes creation and submission of documents. It covers the greatest amount of reporting burden that might occur for any single creation or submission of a document during any one of the first 3 years following program implementation; i. e., 2000, 2001,

and 2002. The total estimated reporting burden reflects the average burden for each reporting activity that might occur in 1 year of this 3 year period.

The total recordkeeping burden is the amount of time needed to store and maintain records. For the purpose of measuring the recordkeeping burden, the year 2002 is used as the reporting year for which the largest number of records might be stored and maintained.

The annual reporting and recordkeeping burden on producers, handlers, and certifying agents is summarized in table 4. The annual burden on certified producers is estimated at 24 hours and $ 552. Certified handlers have an estimated burden of 63 hours valued at $ 1,449. The burden on small producers and handlers who choose to operate as exempt entities is minimal, 1 hour of recordkeeping valued at $ 23. If this cost is applied to the total estimated number of 512 affected producers, the reporting and recordkeeping cost would be $ 5,260,100 in 2000 and $ 6,835,554 in 2002. By applying this cost figure to the estimated total number of affected handlers, the reporting and recordkeeping cost would be $ 2,143,002 in 2000 and $ 3,013,552 in 2002.

Barriers to Entry  Importers of Organic Products Currently, there are no Federal restrictions on importing organic products to the United States in addition to those regulations applying to conventional products. If the imposition of the NOP decreases the importation of organic food into the United States, then this regulatory action may result in some cost.

Small Business Ramifications USDA's final rule has an 18 month period during which applicants for accreditation would not be billed for hourly services. The rationale for this transition period is to reduce the costs to certifying agents and, thus, increase the prospect that certifying agents, producers, and handlers will be able to afford to participate in the national program. The choice of 18 months is intended to provide sufficient time for parties desiring accreditation to submit their application and prepare for a site evaluation.

USDA will operate the program partially with appropriated funds, in effect sharing the cost of the program between taxpayers and the organic industry, to respond to public concerns regarding the effects of the regulation on small businesses. Thousands of comments were received opposing the first proposal's fee provisions with most focusing on the substantial impact on small certifying agents.

Congress has expressed public policy concern with the impacts of regulations on small 513 entities generally and with the impacts on the NOP regulations on small entities particularly. The Small Business Regulatory Enforcement Fairness Act of 1996 and the Regulatory Flexibility Act express Congressional concern regarding regulatory burden on small businesses. The Report from the Committee on Appropriations regarding the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Bill, 2000, includes the following language ( U. S. Senate 1999):

" The Committee continues to recognize the importance of organic markets for small farmers and fishermen. The Committee expects the Secretary to construct a national organic program that takes into consideration the needs of small farmers and fishermen. ...

Furthermore, the Committee expects that of the funding available for the National Organic Program, necessary funds should be used to offset the initial costs of accreditation services, a subsidy necessary due to the lack of expertise in the Department of Agriculture in the areas of organic accreditation and insufficient data on the industry."

Certifying agents applying for accreditation during the first 18 months following the final regulation will face lower direct costs than subsequent applicants. The cost for later applicants for accreditation will be higher because they will have to pay a $ 500 application fee and hourly charges for completing their site evaluation. The requirement for accreditation was established in the OFPA in 1990 and the accreditation program was part of the 1997 proposal. Because in this final rule, USDA is using appropriated funds to cover some of the costs of initial accreditation during the first 18 months of the program, certifying agents may set lower fees initially benefiting the producers and handlers who are certified during this period.

It is important to note that many small organic operations may not be certified currently. 514 In California, for example, many small farms are registered but not certified. Even if certifying agents pass on the cost savings of the 18 month period provision to applicants for certification,

the cost of certification may be higher than the cost of registration. Hence, becoming a certified operation for small organic producers and handlers may be more costly than the current practices.

The costs imposed on small operations may be mitigated by a $ 5000 certification exemption to aid the smallest organic operations. However, these operations are still subject to other requirements of the regulation. To the extent that these requirements differ from their current practices, complying with the national standards may be costly for exempt operations.

In addition, the certification exemption allowed under the regulation includes limits on what an exempt operation may do. Without the certification, small organic operations may not display the USDA seal and may not use a certifying agent's seal. If the consumers of organic food view the seals as important information tools on organic food; that is, if consumers of organic products insist on only certified organic products, the inability of small operations to display these seals may prevent them from realizing the price premiums associated with certified organic products.

Industry Composition The imposition of the national standards may change the composition of the organic industry. Even with the small business exemptions, some small organic operations may choose to exit the industry, and small organic operations may also be discouraged from entering the industry, resulting in a higher concentration of larger firms. On the other hand, it may be easier for small operations to comply with certain NOP standards, such as the livestock standards that prohibit confinement production systems and require 100 percent organic feed. And State and 515 Federal certification and conservation cost share programs and other government programs may help lower the impact on small producers.

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Farmers Market Outlook. Various issues. www. seasonalchef. com/ orgnews1. htm. 516 Fetter, Robert T. 1999. Economic Impacts of Alternative Scenarios of Organic Products Regulation. Senior Honors Thesis. University of Massachusetts, Amherst, MA.

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Natural Foods Merchandiser ( June): 74 76. 518 Mergentime, Ken and Monica Emerich. 1996. Widening Market Carries Organic Sales to $ 2.8 Billion in 1995. Natural Foods Merchandiser ( June): 36 38.

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Exacerbating Certifier/ Manufacturer Tensions. April.

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Year Export Direct Export/ Mass Natural Natural Total Total Direct Market Foods Foods Sales Sales Subtotal Stores ( 1999 $) Stores ( 1999 $)

1990       1 1.27 1991 0.04 0.27 0.31 0.09 0.85 1.04 1.25 1.53 1992 0.07 0.32 0.39 0.12 1.03 1.22 1.54 1.83 1993 0.11 0.36 0.47 0.14 1.29 1.49 1.90 2.19 1994 0.20 0.39 0.60 0.17 1.54 1.73 2.31 2.60 1995 1/ 1/ 0.71 0.21 1.87 2.04 2.79 3.05 1996   1/ 1/ 1/ 1/ 3.5 3.72 1997     2/

1998     3.28 3.35

1999     4.00 4.00

Source: Natural Foods Merchandiser, New Hope Communications .  = Not reported.

1/ New Hope Communications reported a combined estimate for export and direct sales in 1995 and reported a different set of subcategories in 1996 and has reported only on sales in natural foods stores since 1996.

2/ New Hope Communications did not estimate natural product store sales in 1997, but the Hartman Group estimated these sales at $ 4.9 billion. 517 TABLE 2A.   FIRST YEAR CERTIFICATION COSTS, FROM GRAF AND LOHR ANALYSIS ( dollars)

Certifying agent Small farm Medium farm Large farm Super farm CCOF 850 1,750 4,850 51,250 FVO 698 1,737 5,214 51,550 FOG 810 1,860 4,860 51,210 NOFA VT 335 535 585 585 NC/ SCS 700 900 1,000 2,000 OGBA 1,290 3,300 12,300 33,296 OTCO In 608 1,603 2,517 150,300 OTCO Out 768 1,698 2,852 12,052 OCIA WI 315 1,590 6,090 75,090 OCIA VA 258 320 495 1,745 TDA 90 155 200 575 WSDA 480 1,555 3,040 12,480 Average cost 579 1,414 3,623 33,276 Notes: CCOF   California Certified Organic Farmers FVO   Farm Verified Organic FOG   Florida Certified Organic Growers & Consumers NOFA VT   Northeast Organic Farming Association   Vermont NC/ SCS   NutriClean/ Scientific Certification Systems OBBA   Organic Growers and Buyers Association OTCO In   Oregon Tilth Certified Organic, inside Oregon OTCO Out   Oregon Tilth Certified Organic, outside Oregon OCIA WI   Organic Crop Improvement Association, Wisconsin chapter OCIA VA   Organic Crop Improvement Association, Virginia chapter TDA   Texas Department of Agriculture WSDA   Washington State Department of Agriculture Small farm   25 acres with annual sales of $ 30,000. Medium farm   150 acres with annual sales of $ 200,000. Large farm   500 acres with annual sales of $ 800,000. Super farm   3,000 acres with annual sales of $ 10,000,000. 518 TABLE 2B.   SUBSEQUENT YEAR CERTIFICATION COSTS, FROM GRAF AND LOHR ANALYSIS ( dollars)

Certifying agent Small farm Medium farm Large farm Super farm CCOF 425 1,300 4,350 50,550 FVO 510 1,499 4,851 51,187 FOG 325 845 2,525 25,525 NOFA VT 300 500 550 550 OTCO In 454 1,611 2,362 11,363 OTCO Out 424 1,353 2,207 11,208 OCIA WI 290 1,565 6,065 75,065 OCIA VA 233 295 470 1,720 TDA 90 155 200 515 WSDA 330 1,375 2,800 12,000 NC/ SCS 700 900 1,000 2,000 Average cost 371 1,036 2,489 21,971 Notes: CCOF   California Certified Organic Farmers FVO   Farm Verified Organic FOG   Florida Certified Organic Growers & Consumers NOFA VT   Northeast Organic Farming Association   Vermont NC/ SCS   NutriClean/ Scientific Certification Systems OBBA   Organic Growers and Buyers Association OTCO In   Oregon Tilth Certified Organic, inside Oregon OTCO Out   Oregon Tilth Certified Organic, outside Oregon OCIA WI   Organic Crop Improvement Association, Wisconsin chapter OCIA VA   Organic Crop Improvement Association, Virginia chapter TDA   Texas Department of Agriculture WSDA   Washington State Department of Agriculture Small farm   25 acres with annual sales of $ 30,000. Medium farm   150 acres with annual sales of $ 200,000. Large farm   500 acres with annual sales of $ 800,000. Super farm   3,000 acres with annual sales of $ 10,000,000. 519 TABLE 3.   COSTS OF ACCREDITATION AND CERTIFICATION Estimated costs to certifying agents during first 18 months Application fee $ 0 1 Site evaluation costs ( two person team)

Per diem ( 3 to 5 days at $ 85/ day)

Travel ( domestic)

Hourly charges ( not billed during the first 18 months)

Miscellaneous charges ( copying, phone, and similar costs) $ 510 to $ 850 $ 1,000 to $ 1,200 $ 0 $ 50 Total $ 1,560 to $ 2,100 Estimated costs to certifying agents for initial accreditation after first 18 months Site evaluation costs ( two person team)

Per diem ( 3 to 5 days) $ 510 to $ 850 Travel ( domestic) $ 1,000 to $ 1,200 Hourly charges ( 24 to 40 hours at $ 95/ hour)) $ 4,560 to $ 7,600 Miscellaneous charges ( copying, phone, and similar costs) $ 50 Total $ 6,120 to $ 9,700 Annual review fees for certifying agents ( 2 to 8 hours at $ 95/ hour) 2 $ 190 to $ 760 Estimated costs to producers for certification 3 Certification fee ( renewals) $ 730 520 Estimated costs to handlers for certification 4 Certification fee ( initial certification) $ 2,337 Certification fee ( renewals) $ 1,665 Nonrefundable fee that will be applied to the applicant's fee for service account. 1 Certifying agents are required to submit annual reports to USDA. Review of these 2 reports is expected to range from 2 to 8 hours at an approximate rate of $ 95 per hour.

Estimated certification fees are calculated from Graf and Lohr 1999 which, for a 3 selection of certification agents, provides certification costs for four hypothetical farm sizes: ( 1)

small farm ( family farm): 25 acres, $ 30,000 annual sales, 5 hours to certify; ( 2) medium farm ( cottage industry): 150 acres, $ 200,000 annual sales, 6 hours to certify; ( 3) large farm ( commercial farm): 500 acres, $ 800,000 annual sales, 8 hours to certify; and ( 4) super farm:

3,000 acres, $ 10,000,000 annual sales, 16 hours to certify. Our estimated certification fees only include those charged for small and medium farms because most organic producers fall into these categories as defined by Graf and Lohr. In the 1997 OFRF survey, 90 percent of respondents had gross organic farming income of less than $ 250,000, with 82 percent less than $ 100,000.

The average current certification cost for most organic producers is about $ 1,025 for the first year of certification ($ 579 for small and $ 1,414 for medium farms) and about $ 705 for subsequent years ($ 371 for small and $ 1,036 for medium farms). Approximately $ 25 is added to cover the costs associated with the National Organic Program for an estimated first year certification fee of $ 1,000 and subsequent year certification fee of $ 730 for producers. Larger producers could expect higher fees. 521 Because Graf and Lohr do not estimate certification fees for handlers, we estimate these 4 fees by applying a ratio of handler to producer certification fees from the regulatory impact assessment from 1997. The ratio is 2: 28 and results in estimated fees of $ 2,337 and $ 2,665,

respectively.

TABLE 4.   ESTIMATED ANNUAL REPORTING AND RECORDKEEPING BURDEN Type of respondent Annual hours per Hourly rate Annual cost respondent Certified producer 24 $ 23 $ 552 Certified handler 63 $ 23 $ 1,449 Exempt producers and handlers 1 $ 23 $ 23 Certifying agency 1,068 $ 27 $ 27,729 Note: Estimates derived from Paperwork Reduction Act of 1995 analysis.

Appendix B. Unfunded Mandates Reform Act This rule has been reviewed under the Unfunded Mandates Reform Act ( P. L. 104 4). The Act requires that agencies prepare a qualitative and quantitative assessment of the anticipated costs and benefits before issuing any rule that may result in annual expenditures by State, local,

and tribal governments, in the aggregate, or by the private sector of $ 100 million ( adjusted annually for inflation) in any 1 year. According to the Act, the term, " Federal mandate," means any provision in legislation, statute, or regulation that would impose an enforceable duty upon State, local, or tribal governments or the private sector, except a duty arising from participation in a voluntary Federal program. 522 The National Organic Foods Production Act ( OFPA) of 1990 mandates that the Secretary develop a national organic program to accredit eligible governing State officials or private persons as certifying agents who would certify producers or handlers of agricultural products that have been produced using organic methods as provided for in the OFPA. The OFPA also permits a governing State official to voluntarily establish a State organic program ( SOP) if the program is approved by the Secretary and meets the requirements of the OFPA. The OFPA does not require that States establish their own SOP's or that State, local, or tribal governments or the private sector become accredited; therefore, the OFPA is not subject to the Unfunded Mandates Reform Act because it is a voluntary program.

Although the U. S. Department of Agriculture has determined that this rule is not subject to the Unfunded Mandates Reform Act, USDA has sought to consider the rule's impact on various entities. USDA prepared a Regulatory Impact Assessment ( RIA) that is discussed in the section entitled " Executive Order 12866" ( also attached as an appendix to this regulation). The RIA consists of a statement of the need for the action, an examination of alternative approaches,

and an analysis of the benefits and costs. Much of the analysis is necessarily descriptive of the anticipated impacts of the rule. Because basic market data on the prices and quantities of organic goods and services and the costs of organic production are limited, it is not possible to provide quantitative estimates of all benefits and costs of the rule. The cost of fees and recordkeeping required by USDA are quantified, but the anticipated benefits are not. Consequently, the analysis does not contain an estimate of net benefits.

The analysis employed in reaching a determination that this rule is the least costly and least burdensome to the regulated parties is discussed in the sections entitled " The Regulatory 523 Flexibility Act and the Effects on Small Businesses" and " Paperwork Reduction Act of 1995."

The rule has been designed to be as consistent as possible with existing industry practices, while satisfying the specific requirements of the OFPA.

We have had numerous occasions during which to communicate with various entities during the development of the rule; States, for example. Currently, there are 32 States with some standards governing the production or handling of organic food and 13 States with organic certifying programs. Representatives of State governments have participated in public meetings with the National Organic Standards Board, while the NOP staff has made presentations, received comments, and consulted with States and local and regional organic conferences, workshops, and trade shows. States have been actively involved in training sessions for organic inspectors; public hearings concerning standards for livestock products during 1994; a national Organic Certifiers meeting on July 21, 1995; a USDA hosted meeting on February 26, 1996; a State certifiers meeting in February 1999; and an International Organization for Standardization ( ISO) 65 assessment training session for certifiers in April May 1999. More detail about contact with States regarding this rule is in the Federalism section. It is unknown at this time how many States, if any, might voluntarily establish their own SOP's pursuant to the OFPA and the regulations.

Appendix C. Final Regulatory Flexibility Analysis The Regulatory Flexibility Act ( 5 U. S. C. 601 et seq.) requires agencies to consider the economic impact of each rule on small entities and evaluate alternatives that would accomplish the objectives of the rule without unduly burdening small entities or erecting barriers that would restrict their ability to compete in the market. The purpose is to fit regulatory actions to the scale 524 of businesses subject to the action.

1. Need for and objectives of the National Organic Rule Currently, organic certification is voluntary and self imposed. Members of organic industries across the United States have experienced numerous problems marketing their organically produced and handled agricultural products. Inconsistent and conflicting organic production standards may have been an obstacle to the effective marketing of organic products.

There are currently 36 private and 13 State organic certification agencies ( certifying agents) in the United States, each with its own standards and identifying marks.

Some existing private certifying agents are concerned that States might impose registration or licensing fees which would limit or prevent private certification activities in those States. Labeling problems have confronted manufacturers of multiingredient organic food products containing ingredients certified by different certifying agents because reciprocity agreements have to be negotiated between certifying agents. Consumer confusion may exist because of the variety of seals, labels, and logos used by certifying agents and State programs.

Also, there is no industrywide agreement on an accepted list of substances that should be permitted or prohibited for use in organic production and handling. Finally, a lack of national organic standards may inhibit organic producers and handlers in taking full advantage of international organic markets and may reduce consumer choices in the variety of organic products available in the marketplace.

To address these problems in the late 1980' s, the organic industry attempted to establish a national voluntary organic certification program. At that time, the industry could not develop consensus on the standards that should be adopted, so Congress was petitioned by the Organic 525 Trade Association to establish national standards for organic food and fiber products.

In 1990, Congress enacted the Organic Foods Production Act of 1990, as amended ( 7 U. S. C. 6501 et seq.) ( OFPA). The OFPA requires all agricultural products labeled as " organically produced" to originate from farms or handling operations certified by a State or private agency that has been accredited by USDA.

The purposes of the OFPA, set forth in section 2102 ( 7 U. S. C. 6501), are 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 commerce in fresh and processed food that is organically produced.

The National Organic Program ( NOP) is the result of the OFPA.

Recently, the Organic Trade Association published American Organic Standards,

Guidelines for the Organic Industry ( AOS). However, not all participants in the organic industry elected to participate in developing the AOS. Many certifying agents preferred to wait for implementation of the national standards, and some certifying agents disagree with portions of the AOS. For these reasons, USDA will implement a regulation for the NOP. .

2. Summary of the significant issues raised by public comments in response to the Initial Regulatory Flexibility Analysis ( IRFA), a summary of agency assessment of such issues, and a statement of any changes made in the final rule as a result of such comments.

Although we received many individual comments in reference to the proposed rule's IRFA,

they were, for the most part, variations of several form letters. Most of the concern on the part of commenters regarded the fees that small certifying agents would be subject to under the rule.

Comments Accepted: 526 ( 1) We received numerous comments to the effect that the fees, recordkeeping, and paperwork requirements for producer and handler certification must be kept as low as possible while still offering a quality certification program. We believe that we have made every effort in this rule to minimize the cost and paperwork burden to certifiers and certified operations as much as possible. We have permitted certifiers and certified operations to develop their own recordkeeping and reporting systems   so long as they conform to the needs of the program. For the most part, the paperwork and recordkeeping requirements for certified operations conform to the requirements that they presently face under existing certification programs. In order to minimize the cost to the industry of transitioning to a system where certifying agents are accredited ( assuming that there will be a learning curve as agents familiarize themselves with the requirements of accreditation), we have waived the per hour cost that USDA will charge to conduct an accreditation review for the first 18 months of the program.

( 2) In the proposed rule, we requested comment on the benefits of an exemption for small certifiers similar to that for small producers. We received comments in opposition to such an exemption because commenters wanted to maintain documented verification of standards that is afforded by certification and accreditation. They felt that exemptions weakened the organic system in its ability to assure consumers of products that meet a consistent standard. We concurred with this comment and have not developed an exemption for certifiers in the final rule.

Comments Rejected:

( 3) We received comments suggesting that, in order to lower the direct cost of accreditation to smaller certifier applicants, we should eliminate on site visits during accreditation or extend the time beyond the initial on site visit for a subsequent visit. Although eliminating the 527 on site visits would certainly lower the applicant's costs, we have not made the change to reduce or eliminate on site visits. We did not see how USDA could make an informed decision about whether or not to continue to accredit a certifying agent without complete access to the relevant records documenting the agent's business practices. This can only be efficiently done through a site visit.

( 4) We received numerous comments that the fees proposed by USDA will result in certification fees that are excessive for small farming operations. The commenters suggested that USDA impose fees on a sliding scale based on a farmer's income so as not to drive these farmers out of business and deprive consumers of the benefits of these operations. We received a similar comment to the Fees section of the proposed rule, and our response is the same. Although one of our top priorities is assisting the small farmer, AMS is primarily a user fee based Federal agency.

We are aware that our accreditation fees will figure into the fees that certifiers charge their clients.

However, the fee we will charge to accredit an applicant is based not on earning profits, but on recovery of costs. In addition, our waiver of the hourly service charges for accreditation during the first 18 months of the program should help to keep the cost of accreditation to certifying agents down. We believe the requirements that fees charged by a certifying agent must be reasonable and that certifiers must file a fee schedule for approval by the Administrator will help to keep costs under control. Since certifiers are required to provide their approved fee schedules to applicants for certification, the applicants will be able to base their selection of certifying agent on price if the applicants so choose. In addition, nothing in the regulations precludes certifying agents from pricing their services on a sliding scale so long as their fees are consistent and nondiscriminatory and are approved during the accreditation process. 528 ( 5) Other commenters were concerned that in the rule USDA neglects to establish " reasonable fees" annually for farm/ site/ wild crop production and handling operation certification.

Commenters did not believe that a valid Regulatory Flexibility Act analysis could be made without the annual farm and handling operation fee projection. We have not established guidelines for what constitutes a " reasonable fee" in the final rule. Accredited certifying agents will be required to submit a proposed fee schedule as a part of their application. At that time, we will work with applicants for accreditation to ensure that their fees are appropriate. In addition, certifying agents will be required to send a copy of their fee schedule to anyone who requests one. This will allow operations that wish to be certified to shop around and will provide a disincentive for accredited agents to price themselves out of the market.

3. Description of and an estimate of the number of small entities to which the rule will apply.

Small business size standards, Standard Industrial Code ( SIC) ( 13 CFR part 121), are developed by an interagency group, published by the Office of Management and Budget, and used by the Small Business Administration ( SBA) to identify small businesses. These standards represent the number of employees or annual receipts constituting the largest size that a for profit enterprise ( together with its affiliates) may be and remain eligible as a small business for various SBA and other Federal Government programs.

There are three categories of operations that contain small business entities that would be affected by this rule: certifying agents, organic producers, and/ or organic handlers. The term,

" certifying agent," means the chief executive officer of a State or, in the case of a State that provides for the statewide election of an official to be responsible solely for the administration of 529 the agricultural operations of a State, such official and any person ( including private entities) who is accredited by the Secretary as a certifying agent for the purpose of certifying a farm or handling operation as a certified organic farm or handling operation.

According to the most complete data available to USDA's Agricultural Marketing Service ( AMS), there are 49 certifying agents ( 36 private and 13 State) in the United States. More than half of the private and State certifying agents certify both producers and handlers, while the others certify only producers. Over three fourths of private and State certifying agents each certify fewer than 150 producers and 20 handlers. The number of certifying agents has remained fairly stable,

between 40 and 50, for some years, with entries and exits tending to offset each other. The NOP staff anticipates that, in addition to the 49 domestic certifying agents, 10 foreign certifying agents may seek accreditation during the initial phase of the program.

Small businesses in the agricultural services sector, such as certifying agents, include firms with average annual revenues of less than $ 5 million ( SIC Division A Major Group 7). Based on SBA's small business size standards for the agricultural services sector, it is not likely that many, if any, of the 49 domestic certifying agents have annual revenue greater than $ 5 million. All private,

nonprofit certifying agents would be considered small by SBA's standards. Based on anecdotal information, only a few private, for profit, certifying agents might be categorized as large businesses. In addition, the 13 State certifying agents, although not exceeding the revenue threshold, would not be considered to be small entities under the Act as only government jurisdictions with populations under 50,000 are considered to be small entities under section 601( 5). Therefore, at least 30 certifying agents would qualify as a small business.

The term, " producer," means a person who engages in the business of growing or 530 producing food or feed. It is more difficult to establish the number of organic producers. Organic farming was not distinguished from conventional agriculture in the 1997 Census of Agriculture.

There are sources which give insight into the number of producers. The Organic Farming Research Foundation ( OFRF), a California based nonprofit organization, has conducted three nationwide surveys of certified organic producers from lists provided by cooperating certifying agents. The most recent survey applies to the 1997 production year ( 1). OFRF sent its 1997 survey to 4,638 names and received 1,192 responses. Because OFRF did not obtain lists from all certifying organizations or their chapters ( 55 out of a total of 64 identified entities provided lists),

its list count is likely an understatement of the number of certified organic producers. Note that the estimated number of organic producers includes only certified organic farms. Comments filed in response to the first proposal and studies indicate that the total number of organic farms is higher.

Dunn has estimated the number of certified organic producers in the United States ( 2, 3)

Dunn's 1995 work, a USDA study, estimated the number of certified producers at 4,060 in 1994;

this estimate was used in the first proposal. Dunn's 1997 work reported 4,060 certified organic farms in 1994 and 4,856 in 1995.

Data collected by AMS indicate that the number of organic farmers increased about 12 percent per year during the period 1990 to 1994. OFRF survey efforts indicate that growth has continued, although it is not clear whether the growth rate has changed. Similarly, growth in retail sales, the addition of meat and poultry to organic production, and the possibility of increased exports suggest that the number of operations has continued to increase. Lacking an alternative estimate of the growth rate for the number of certified organic producers, we use the average 531 growth rate of about 14 percent from Dunn's 1997 study. The true rate of growth could be higher or lower. Applying the 14 percent growth rate to Dunn's estimate of certified producers in 1995 gives an estimate of 8,200 organic producers for 1999.

An adjustment is needed to account for the number of producers who are practicing organic agriculture but who are not certified and who would be affected by this regulation. We assume that the number of organic but not certified producers in 1999 is about 4,000. This assumption is based on very limited information about the number of registered but not certified organic producers in California in 1995. Thus, the total number of certified organic producers used in assessing the impact of the rule is 12,176.

Producers with crop production ( SIC Division A Major Group 1) and annual average revenues under $ 500,000 are small businesses. Producers with livestock or animal specialities are also considered small if annual average revenues are under $ 500,000 ( SIC Division A Major Group 2), with the exception of custom beef cattle feedlots and chicken eggs, which are considered small if annual average revenues are under $ 1,500,000.

Based on SBA's small business size standards for producers, it is likely that almost all organic producers would be considered small. The OFRF survey asked for the producer's total gross organic farming income during 1997. Only 35 ( less than 3 percent) of the survey respondents reported gross income greater than $ 500,000, the SBA's cutoff between small and large businesses. Over 70 percent reported gross income of less than $ 50,000. The OFRF survey does caution readers about potential survey " errors." It is particularly important to emphasize potential " non response error"; that is, it is unknown if those who responded to the survey accurately represent the entire population of certified organic growers. Also, some producers 532 combine organic and conventional production on the same operation, some with total sales that may exceed $ 500,000. However, it is likely that a majority of organic producers would be considered small. We have estimated that there would be 12,176 producers certified in the first year and of those 97 percent, or 11,811, based on OFRF's survey results, would qualify as a small business.

The term, " handler," means any person engaged in the business of handling agricultural products, excluding final retailers of agricultural products that do not process agricultural products. Little information exists on the numbers of handlers and processors. USDA has estimated that there were 600 entities in this category in 1994. In California, there were 208 registered organic processed food firms in 1995 and 376 in 1999, a growth rate of 20 percent ( 4).

We assume that this growth rate is applicable to the U. S. and project 2,077 certified handlers in 2001. This figure includes 100 livestock feed handlers who would become certified organic.

Again, the rate of growth could be higher or lower.

In handling operations, a small business has fewer than 500 employees ( SIC Division D Major Group 20). It is also likely that the vast majority of handlers would be considered small,

based on SBA's small business size standards for handlers. Based on informal conversations with organic certifying agents, currently, about 25 ( about 2 percent) of the estimated 1,250 organic handlers in 1999 had more than 500 employees. This includes firms that handle or process both organic and conventional foods. We have estimated that 2,077 handlers would be certified organic in the first year. Based on this information, 98 percent or 2,035 would qualify as a small business.

4. An estimate of the projected reporting, recordkeeping, and other compliance requirements of the rule, including an estimate of the classes of small entities which will be subject 533 to the requirement and the type of professional skills necessary for preparation of the report or record.

The reporting, recordkeeping, and compliance requirements of the rule will directly affect three sectors of the organic industry that contain small business entities: accredited certifying agents, organic producers, and organic handlers. We have examined the requirements of the rule as it pertains to each of these entities, however several requirements to complete this Regulatory Flexibility Analysis ( RFA) overlap with the Regulatory Impact Assessment ( RIA) and the Paperwork Reduction Act ( PRA) section. In order to avoid duplication, we combine some analyses as allowed in section 605( b) of the Act. This RFA provides information specific to small entities, while the RIA or PRA should be referred to for more detail. For example, the RFA requires an analysis of the rule's costs to small entities. The RIA provides an analysis of the benefits and costs of this regulation. This RFA uses the RIA information to estimate the impact on small entities. Likewise, the RFA requires a description of the projected reporting, recordkeeping,

and other compliance requirements of the final rule. The PRA section estimates the reporting and recordkeeping ( information collection) requirements that would be required by this rule from individuals, businesses, other private institutions, and State and local governments. The burden of these requirements is measured in terms of the amount of time required of program participants and its cost. This RFA uses the PRA information to estimate the burden on small entities.

Certifying Agents We have identified 36 private certifying agents and 13 State programs providing certification. These 49 domestic entities are considered likely applicants during the first 12 months, as are an estimated 10 foreign certifying agents. An unknown number of new entrants to 534 the certifying business may also apply. However, over the last 10 years, the number of certifying agents does not appear to have grown significantly, with the net effect of entries and exits maintaining a population of U. S. based certifying agents at about 40 to 50. Of the 49 domestic certifying agents, based on information discussed previously, we estimate that 30 of the 36 private certifying agents are small businesses.

The recordkeeping and paperwork requirements are outlined in the Paperwork Reduction Act section. The requirements for small and large certifying agents are identical. The recordkeeping and paperwork requirements for accreditation will be a new burden to most agents as the majority of them have not been accredited in the past. However, the actual amount of the additional administrative costs that would be imposed by the final rule is expected to be different for those entities that would begin their activities only after the national program is implemented.

Certifying agents that currently are active in the organic industry already perform most of these required administrative functions; therefore, the additional costs to them would depend upon the extent to which their current practices are different from the requirements of the final regulation.

Because the rule does not require any particular system or technology, it does not discriminate against small businesses. The ability of an agent to carry out the paperwork and recordkeeping sections of the rule will be more dependant on the administrative skill and capacity of their particular organization than their size. We did not receive significant comments about the paperwork requirements of the proposed rule that would indicate that they will be onerous for small certifying agents.

Certifying agents will be the front line in monitoring and ensuring that certified operations stay in compliance with the Act and the regulations. However, most of the compliance 535 requirements, with the exception of some reporting requirements, are consistent with what certifiers are currently expected to do. Like the paperwork and reporting requirements, the additional costs to an agent will depend on how different their current practices are from the final regulation.

The final, and probably most significant, area in which certifying agents are affected by the rule is in the fees that they must pay for accreditation. Certifying agents will be assessed for the actual time and travel expenses necessary for the NOP to perform accreditation services, including initial accreditations, 5 year renewals of accreditation, review of annual reports, and changes to accreditation. Although the fees have not been set yet, we are using as a starting point the hourly fees that are charged for the voluntary, fee for service program provided by AMS to certification bodies requesting conformity assessment to the ISO Guide 65, " General Requirements for Bodies Operating Product Certification Systems." We expect that at the time the NOP's final rule is implemented, the fees will be approximately $ 95 per hour with higher overtime and holiday rates.

Certifying agents will also be charged for travel, per diem, and other related costs associated with accreditation. To ease the financial burden of accreditation during the 18 month transition period after the NOP has been implemented, USDA will not impose hourly charges on certifying agents.

The direct costs for certifying agents to obtain accreditation will be limited to per diem and transportation costs to the site evaluation. Review of the certifying agent's annual report is anticipated to range from 2 to 8 hours at the ISO Guide 65 hourly rate. Also, if certifying agents wish to become accredited in additional areas for which they were not accredited previously, a site evaluation ( with associated fees) will be necessary. Detail about the expected costs of accreditation can be found in the RIA. 536 Several factors will influence the amount of time needed to complete an accreditation audit.

An operation in which documents are well organized and that has few nonconformities within the quality system will require less time for an audit than an organization in which documents are scattered and there are many nonconformities ( 7). Similarly, in a followup audit, operations that lack organization in their documents and that had a large number of nonconformities during previous audits will require a greater amount of time. The scope of a followup audit is to verify the correction of nonconformities and to evaluate the effectiveness of the corrections. Certifying agents are able to control these cost factors by making certain that documents are well organized and by educating themselves about quality systems.

The complexity of a certification agency's organization also will affect the time needed to complete an audit. An agency with a central office in which all certification activities take place will require less time for document review and site evaluation than a chapter organization or a business structured so that responsibility for making certification decisions is delegated outside of the central office. In the latter cases, the auditors' document review would require additional time and site evaluation that would extend from the central office to one or more of the chapters or to the site to which the certification decision making is delegated.

Other factors determine the amount of time needed to complete an accreditation audit. For an agency with numerous clients, auditors may need to spend more time reviewing client files or examining business operations than they would have to spend for a smaller agency. Audit of an agency with a large number of processor clients may require an extended amount of time to follow audit trails, confirm that organic ingredients remain segregated from nonorganic ingredients, and establish that foreign produced ingredients originate from approved entities. Finally, the 537 complexity of the agricultural practices certified could influence the amount of time necessary to complete an accreditation audit. An agency whose certification covers only producers who grow and harvest one crop per field per year, such as wheat or sugar beets, could quickly be audited. An agency whose producers grow several different crops per field per year or an agency that certifies producers of crops and livestock as well as handlers would require a greater amount of time.

All of these factors will affect both small and large certifying agents. A small certifying agent could be assumed to have a less complex organization or have fewer clients, and, thus,

potentially less time would be necessary for review. However, other factors, such as the degree of paperwork organization or the complexity of the agricultural practices certified, may influence the time needed for review for any size of business.

Currently, relatively few certifying agents have third party accreditation because accreditation of certifying agents is voluntary. Fetter reports that in a sample of 18 certification programs, selected to include six large, private programs, six smaller private programs, and six State programs, four programs were accredited and one had accreditation pending ( 8). All of these were large private certifying agents. Three of the certifying agents identified by Fetter as accredited requested ISO Guide 65 assessments by USDA and have been approved for selling organic products into the international market. Those certifying agents currently accredited by third parties will likely pay less for USDA accreditation because their documents are organized and they have fewer nonconformities.

It is expected that all certifying agents will set their fee schedule to recover costs for their certification services, including the costs of accreditation. The larger the number of clients per certifying agent, the more fixed costs can be spread out. It is possible, however, that small 538 certifying agents could be significantly affected by this final rule and may not be able to continue in business from a financial standpoint.

Costs to Producers and Handlers The OFPA established a small farmer exemption from certification and submission of organic plans for small producers with a maximum of $ 5,000 in gross sales of organic products.

For purposes of the exemption, the OFPA defines a " small farmer" as those who sell no more than $ 5,000 annually in value of agricultural products. In this rule, we have clarified that the exemption applies to producers and handlers who sell no more than $ 5,000 annually in value of organic products ( 9). In addition, handling operations are exempt if they: are a retail food establishment that handles organically produced agricultural products but does not process them; handles agricultural products that contain less than 70 percent organic ingredients by weight of finished product; or does not use the word, " organic," on any package panel other than the information panel if the agricultural product contains at least 70 percent organic ingredients by weight of finished product.

A handling operation or specific portion of a handling operation is excluded from certification if it handles packaged certified organic products that were enclosed in their packages or containers prior to being acquired and remain in the same package and are not otherwise processed by the handler, or it is a retail food establishment that processes or prepares on its own premises raw and ready to eat food from certified organic products.

According to the OFRF survey, 27 percent of currently certified farms that responded to the survey would fall under the producer exemption. This percentage does not take into account those organic farms that are not currently certified by a private or State certifying agent. A study 539 of California organic farms found that, of all organic farms ( 10) in 1994 95, about 66 percent have revenues less than $ 10,000 ( 11). If California is representative and the distribution within the sub

$ 10,000 category is uniform, then a third of the farms would be classified as small for purposes of the statutory exemption with annual sales less than $ 5,000. Based on the California study and the OFRF survey results, we estimate that between 25 and 33 percent of organic producers are small and would qualify for exemption from the certification requirements.

We have estimated that there are 4,801 small organic producers and 173 handlers that will be exempt from certification ( this figure does not include excluded operations). These operations would be required to comply with the production and handling standards and labeling requirements set forth under the NOP. They do not have to meet the paperwork requirements of certification and they must only keep records that document compliance with the law for 3 years ( rather than 5 for certified operations. We anticipate that this exemption will be used primarily by small market gardeners and hobbyists who grow and process produce and other agricultural products for sale at farmers markets and roadside stands to consumers within their communities.

Exempt producers will be allowed to market their products as organically produced without being certified by a certifying agent. Products marketed by exempt producers cannot be represented as certified organic or display the USDA organic seal. Products produced or handled on an exempt operation may be identified as organic ingredients in a multiingredient product produced by the exempt operation, but they may not be identified as organic in a product processed by others. These limitations may discourage some small producers from seeking exemption, who instead may choose to become certified. In this case, the costs of certification would apply. The value associated with having organic certification may outweigh the costs of 540 certification.

As with accredited certifying agents, the regulation will impose administrative costs on certified producers and handlers for reporting, recordkeeping, residue testing, and other compliance requirements. The actual amount of the additional administrative costs that would be imposed by the final rule is expected to be different for those entities that become certified only after the national program is implemented. Producers and handlers who currently are active in the organic industry already perform most of these administrative functions; therefore, the additional costs to them would depend upon the extent to which their current practices differ from the requirements of the final regulation. Projected reporting, recordkeeping, and other compliance requirements of certifying agents are discussed in greater detail in the PRA and the RIA. The only distinction made in the final rule between large and small entities for reporting, recordkeeping, and compliance is for operators who produce less than $ 5000 per year in organic products as stated above.

As with the certifying agents, most of the concern this rule generated for small certified operations revolves around fees. Under this rule, USDA will not impose any direct fees on producers and handlers. Certifying agents will establish a fee schedule for their certification services that will be filed with the Secretary and posted in a place accessible to the public.

Certifying agents will provide all persons inquiring about the application process with a copy of their fees. The certifying agent may only charge those fees that it has filed with the Secretary.

Furthermore, the certifying agent will provide each applicant with an estimate of the total cost of certification and an estimate of the annual costs of updating the certification.

Currently, supply and demand for certification services determine the fees charged in most 541 areas. Some States charge minimal fees for certification and instead subsidize operating costs from general revenues. According to separate studies by Fetter, and Graf and Lohr, the majority of certifying agents structure their fee schedules on a sliding scale based on a measure of size, usually represented by the client's gross sales of organic products but sometimes based on the acres operated. Some certifying agents charge an hourly rate for inspection and audit services.

Graf and Lohr's study indicates that even small farms require significant time for the certification process, and this time does not increase proportionately as farm size increases. None of the existing certification programs mention costs for residue testing, which the NOP will require in the form of preharvest testing when there is reason to believe that agricultural products have come into contact with prohibited substances. Preharvest testing is expected to be infrequent.

Certifiers will recover the costs of preharvest testing through explicit charges to the producer whose crop is tested or through a generally higher fee structure that spreads the expected costs of tests over all clients.

This rule imposes no requirements that would cause certifying agents that are presently using a sliding scale type fee schedule to abandon their current fee system. Certifying agents could recover their net additional costs by increasing their flat fee component, their incremental charges,

or both. Because accreditations are renewed only every 5 years, certifying agents will have 5 years to recover their net new costs. Certifying agents who become accredited during the first year of the program would have fewer direct costs to recover because they will not be charged the application fee and hourly charges for accreditation services.

Those currently receiving voluntary certification will likely see a modest increase as the certifying agent passes on its cost incurred under the NOP. Those not currently receiving 542 certification and producing over $ 5,000 annually in organic products will be required to become certified, and they will incur the actual costs of certification.

Some States, such as Texas and Washington, charge producers and handlers nominal fees for certification, and it is possible that more States might provide certification services as the NOP is implemented. Other States, such as Minnesota, have cost share programs to help offset costs for organic producers.

Conclusion This rule will primarily affect small businesses. We have, therefore, attempted to make the paperwork, recordkeeping, and compliance provisions as flexible as possible without sacrificing the integrity of the program. We are not requiring specific technologies or practices and with the 18

month phase in of the program we are attempting to give both certifying agents and certified operators an opportunity to adapt their current practices to conform with the rule. Because we have attempted to make the rule conform with existing industry standards, including ISO guide 65 for certification and ISO guide 61 for accreditation, the changes for most organizations and operations should be relatively straightforward.

The fees required for accreditation will be the most significant change faced by most operations   and this was apparent in the comments received. While we understand the concerns of the affected organizations, in order to administer an accreditation program, it is necessary that we recover our costs. We are hoping that the elimination of the hourly charges in the first round of accreditation will help to alleviate some of this burden.

1. Organic Farming Research Foundation. 1999. Final Results of the Third Biennial National Organic Farmers' Survey. Santa Cruz, CA. 543 2. Dunn, Julie Anton. 1995. Organic Food and Fiber: An Analysis of 1994 Certified Production in the United States. U. S. Department of Agriculture, Agricultural Marketing Service.

3. Dunn, Julie Anton. 1997. AgriSystems International Reports Certified Organic Production in the United States: Half a Decade of Growth. AgriSystems International: Wind Gap, PA.

4. California Department of Health Services ( DHS). 1995. Report on the Registration of California Organic Processed Food Firms. Sacramento: State of California. September 1999 figures obtained via personal communication with California DHS.

5. Graf, Anita and Luanne Lohr. 1999. Analysis of certification program costs. Working Paper, Fund for Rural America project, Market Development for Organic Agriculture Products,

Grant No. 97 36200 5.

6. During the first 18 months, site evaluation for initial accreditation will be conducted jointly by two reviewers. Two reviewers offers: ( 1) anticipated faster turn around; ( 2) different areas of expertise  one reviewer would come from the Quality Systems Certification Program audit staff and would be familiar with ISO Guide 65 verification, while the other reviewer would come from the NOP staff and would be familiar with the requirements of the program; and ( 3)

consistency with the organic industry's desire to have reviewers from both areas of expertise during ISO Guide 65 assessments. AMS would consider sending one reviewer, rather than two, for the site evaluation of small certification agents if an individual possessing both reviewing skill and knowledged of the NOP is available. We anticipate only one reviewer would be required after the 18 month transition period.

7. Adequate advance notice will be given to certifying agents to allow them the opportunity 544 to organize their records prior to the audit and minimize the costs of accreditation.

8. Fetter, Robert T. 1999. Economic Impacts of Alternative Scenarios of Organic Products Regulation. Senior Honors Thesis. University of Massachusetts, Amherst, MA.

9. We asked for comments on the first proposal as to whether the current statutory limitation of $ 5,000 for exemption from certification should be raised to $ 10,000 or to another amount and why such an increased monetary limitation for exemption from certification would be appropriate. Few commenters offered recommendations as to a maximum sales volume to exempt producers. Amounts ranged from $ 2,000 to $ 50,000, with a few suggesting $ 10,000 and $ 20,000 exemptions. These proposed exemption levels and justifications in comments received are not sufficiently consistent enough for us to recommend changing the statute requirement of the $ 5,000 maximum sales volume exemption.

10. California State law requires organic farmers to register with the State. Certification is voluntary at the current time.

11. Klonsky, Karen, and Laura Tourte. 1998. Statistical Review of California's Organic Agriculture, 1992 95. Report prepared for the California Department of Food and Agriculture Organic Program. Cooperative Extension, Department of Agricultural Economics, University of California, Davis.

Appendix D. Executive Order 12988, Civil Justice Reform Executive Order 12988, Civil Justice Reform, instructs each executive agency to adhere to certain requirements in the development of new and revised regulations in order to avoid unduly burdening the court system. The revised proposal was reviewed under this Executive Order. No comments were received on that review, and no additional related information has been obtained 545 since then. This rule is not intended to have retroactive effect.

States and local jurisdictions are preempted under section 2115 of the Organic Foods Production Act ( OFPA) ( 7 U. S. C. 6514) from creating programs of accreditation for private persons or State officials who want to become certifying agents of organic farms or handling operations. A governing State official would have to apply to USDA to be accredited as a certifying agent, as described in section 2115( b) of the OFPA ( 7 U. S. C. 6514( b)). States also are preempted under sections 2104 through 2108 of the OFPA ( 7 U. S. C. 6503 through 6507) from creating certification programs to certify organic farms or handling operations unless the State programs have been submitted to, and approved by, the Secretary as meeting the requirements of the OFPA.

Pursuant to section 2108( b)( 2) of the OFPA ( 7 U. S. C. 6507( b)( 2)), a State organic certification program may contain additional requirements for the production and handling of organically produced agricultural products that are produced in the State and for the certification of organic farm and handling operations located within the State under certain circumstances.

Such additional requirements must: ( a) further the purposes of the OFPA, ( b) not be inconsistent with the OFPA, ( c) not be discriminatory toward agricultural commodities organically produced in other States, and ( d) not be effective until approved by the Secretary.

Pursuant to section 2120( f) of the OFPA ( 7 U. S. C. 6519( f)), this regulation would not alter the authority of the Secretary under the Federal Meat Inspection Act ( 21 U. S. C. 601 et seq.),

the Poultry Products Inspections Act ( 21 U. S. C. 451 et seq.), or the Egg Products Inspection Act ( 21 U. S. C. 1031 et seq.), concerning meat, poultry, and egg products, nor any of the authorities of the Secretary of Health and Human Services under the Federal Food, Drug and Cosmetic Act ( 21 546 U. S. C. 301 et seq.), nor the authority of the Administrator of the Environmental Protection Agency ( EPA) under the Federal Insecticide, Fungicide and Rodenticide Act ( 7 U. S. C. 136 et seq.).

Section 2121 of the OFPA ( 7 U. S. C. 6520) provides for the Secretary to establish an expedited administrative appeals procedure under which persons may appeal an action of the Secretary, the applicable governing State official, or a certifying agent under this title that adversely affects such person or is inconsistent with the organic certification program established under this title. The Act also provides that the U. S. District Court for the district in which a person is located has jurisdiction to review the Secretary's decision.

Appendix E. Executive Order 13132, Federalism This final rule has been reviewed under Executive Order 13132, Federalism. This Order requires that regulations that have federalism implications provide a federalism impact statement that: ( 1) demonstrates the Agency consulted with the State and local officials before developing the final rule, ( 2) summarizes State concerns, ( 3) provides the Agency's position supporting the need for the regulation, and ( 4) describes how the concerns of State officials have been met. The Order indicates that, where National standards are required by Federal statutes, Agencies shall consult with appropriate State and local officials in developing those standards.

The Organic Foods Production Act ( OFPA) of 1990 ( 7 U. S. C. 6501 et seq.) establishes national standards regarding the marketing of agricultural products as organically produced,

assures consumers that organically produced products meet a consistent standard, and facilitates interstate commerce in fresh and processed food that is organically produced. There has been a great deal of support for this law and these regulations from the organic community. 547 OFPA and these regulations do preempt State statutes and regulations related to organic agriculture. OFPA establishes national standards regarding the marketing of agricultural products as organically produced, assures consumers that organically produced products meet a consistent standard, and facilitates interstate commerce in fresh and processed food that is organically produced. Currently, 32 States have organic statutes on their books and have implemented them to various degrees. However, the Act contemplates a significant role for the States and, in fact,

envisions a partnership between the States and the Federal Government in meeting the requirements of the Statute. The Act allows the States to determine the degree to which they are involved in the organic program. States may choose to: ( 1) carry out the requirements of the Act by establishing a State organic program ( SOP) and becoming accredited to certify operations, ( 2)

establish an SOP but utilize private accredited certifying agents, ( 3) become accredited to certify and operate under the National Organic Program ( NOP) as implemented by the Secretary, or ( 4)

not play an active role in the NOP. 7 U. S. C. 6507 provides that States may establish an SOP consistent with the national program. SOP's may contain more restrictive requirements than the NOP established by the Secretary of Agriculture. To be more restrictive, SOP's must: further the purposes of the Act, be consistent with the Act, not discriminate against organic products of another State, and be approved by the Secretary.

Because implementation of OFPA will have a significant effect on many States' existing State statutes and programs, the U. S. Department of Agriculture ( USDA) has reached out to States and actively sought their input throughout the entire process of developing the organic rule.

On publication of the first proposal on December 16, 1997, an announcement and information packet summarizing the proposal was sent to more than 1,000 interested parties, including State 548 governors and State department of agriculture secretaries, commissioners, or directors. Over a period of 6 years, numerous meetings were held to provide States an opportunity to provide information and feedback to the rule. In 1994, States were invited to participate in four public hearings held in Washington, DC; Rosemont, IL; Denver, CO; and Sacramento, CA, to gather information to guide development of standards for livestock products. States were also provided the opportunity to comment specifically on State issues at a National Organic Certifiers meeting held on July 21, 1995. They were invited to discuss accreditation issues at a meeting held on February 26, 1996. Following the publication of the first proposal, State and local jurisdictions had the opportunity to provide input at four listening sessions held in February and March 1998 in Austin, TX; Ames, IA; Seattle, WA; and New Brunswick, NJ. A meeting to discuss the role of States in the NOP was held in February 1999. A State organic certifiers meeting to discuss State issues was held at a March 2000 meeting with the National Association of State Organic Programs.

USDA also drew extensively on the expertise of States and the organic industry by working closely with the National Organic Standards Board. The Board met 12 times before publication of the proposed rule on December 16, 1997, and met five times during 1998 and 1999 and two times in 2000. States were invited to attend each of these meetings, and official State certifier representatives participated in Board deliberations in meetings held in July 1998, July 1999, and March 2000.

Public input sessions were held at each meeting to gather information from all interested persons, including State and local jurisdictions. NOP staff also received comments and consulted with States at public events. They made presentations, received comments, and consulted with 549 States at local and regional organic conferences and workshops and at national and international organic and natural food shows. States were consulted in training sessions held for organic inspectors, as well as numerous question and answer sessions at speaking engagements of the Agricultural Marketing Service ( AMS) Administrator, the NOP Program Manager, and NOP staff.

In addition, during August and September 2000, the Administrator and NOP staff engaged in extensive efforts to discuss the proposed rule. While many organizations declined opportunities for these briefings, AMS staff did meet with the National Conference of State Legislatures ( NCSL)

and, at their request, in lieu of a meeting, provided information to the National Governor's Association ( NGA). NGA and NCSL representatives stated they were aware of the development of the final rule but offered no comments during these consultations beyond those submitted by the individual States during the proposed rule's comment period. In addition, between August and October 2000, NOP staff had telephone or e mail contact with the State organic program directors or other State department of agriculture representatives in 25 States to determine the scope and status of each State's organic program in the context of the issuance of the final rule. These State representatives stated that they were eagerly awaiting the publication of the final rule and had already begun adjusting their programs to conform with the March 2000 proposed rule in anticipation of the publication of the final rule. Finally, States have had the opportunity to comment on two proposed rules. More than 275,000 comments were received on the first proposal, and 40,000 on the second proposed rule   including extensive comments from twelve State departments of agriculture, one State legislator, two members of Congress, and the National Association of State Organic Programs. 550 Through this outreach and consultation process, States have both provided general feedback to the rule and expressed several specific concerns about how this rule will affect State programs. Overwhelmingly, States were extremely supportive of the March 2000 proposed rule.

With a few exceptions, most notably who should bear the cost of enforcement of an SOP, States are supportive of the Federal legislation. We did not receive a single comment from a State that indicated that there should not be a national organic program.

The most prevalent issues they raised regarding the March 2000 proposed rule as to how this rule will affect organic programs in their States, along with USDA's response, are described below. We received no direct comments from States on the Federalism section in the proposed rule. Many of these concerns and others are addressed in more detail in the relevant sections of the rule.

Applicability Regarding section 205.100( b), five States currently offer a " transition to organic" label for producers who are in the process of becoming certified. Many of these States would like to continue to offer this label. However, OFPA does not authorize a " transition to organic" label.

Although the States ( or private certifiers) are free to come up with a different label for these farmers, they cannot utilize the term, organic," in any seal or labeling associated with the conversion period. There is no change in this provision from the proposed rule.

Accreditation Regarding section 205.501( a), many States wanted the NOP to add an additional subsection to the Accreditation section requiring certifiers to prove that they can carry out a 551 State's more restrictive standards in order to be accredited to certify in that State. AMS concurs with this suggestion and has added a new paragraph 205.502( a)( 20) requiring the certifying agent to demonstrate its ability to comply with a State's additional requirements.

Regarding section 205.501( b), there was strong support by all of the States for the provision that States with SOP's are able to have higher standards than the NOP for operations within their State. However, there was not consensus among the States on the prohibition on private certifiers requiring more stringent standards.

Although most supported the prohibition on private certifiers imposing additional requirements as a condition of certification because they perceived that it lowered barriers to farmers and processors in their States, three States were strongly opposed to this provision.

Because having a consistent national standard is one of the primary purposes of the legislation,

there is no change in this provision from the proposed rule.

State Programs There was general confusion about what is the difference between a State organic certification program and an SOP. In addition, some States wanted the scope of the NOP's oversight for State organic activities to be limited to certification. A State organic certification program is equivalent to a private or foreign certification program. States wishing to certify operations in their State must apply to the NOP for accreditation.

An SOP, on the other hand, requires the State to submit a plan to the NOP for approval to,

in effect, administer the NOP within their State. Included in this is the opportunity to include requirements that differ from the NOP. In creating an SOP, a State is also agreeing to take on enforcement activities that would otherwise be the responsibility of the NOP. One exception to a 552 State's enforcement authority is that States with SOP's do not have jurisdiction over the accreditation of certifying agents and cannot revoke accreditation. They can investigate and report accreditation violations to the NOP. States with only an accredited certification program are only responsible for the level of enforcement that all accredited certifying agents, State, private, or foreign, are required to take on.

Regarding section 205.620( c), several States want broader language than " unique environmental conditions" to be the basis for a State to have the right to establish more restrictive requirements under an SOP. AMS does not concur. There is no change to this language in the final rule. It is the opinion of AMS that the current language is broad enough to cover the scope of more restrictive requirements as authorized by OFPA.

Regarding section 205.620( d), many States want it to be optional for States with SOP's to take on enforcement obligations; several want funding from USDA for enforcement activities.

AMS does not concur with this change. AMS does not envision that participation under the NOP will impose additional fiscal costs on States with existing organic programs, other than the costs of accreditation.

Regarding section 205.621( b), several States commented that States with SOP's should not be required to publish proposed changes to their programs in the Federal Register for public comment. AMS concurs with this comment. This language was an oversight from the first proposed rule.

Fees A few States commented that the proposed fees for accreditation could cost more than some States could afford to pay. They made some suggestions for reducing accreditation fees, 553 ranging from no fees ( a completely federally funded program) to charging reduced rates for travel or eliminating hourly charges. AMS has no plans to change the fee structure. As in the proposed rule, hourly charges for accreditation will be waived for all applicants in the first 18 months of the program to facilitate the conversion to a national accreditation system.

Compliance Regarding section 205.665, several States wanted to know what their authority was to revoke the accreditation of private certifiers in their State who do not meet additional State standards under an SOP. An SOP's governing State official is authorized to review and investigate complaints of noncompliance with the Act or regulations concerning accreditation of certifying agents operating in their State. If they discover a noncompliance, they shall send a written report to the NOP program manager. Because accreditation is a Federal license, States do not have the authority to revoke a certifying agent's accreditation. There is no change in this section from the proposed rule Appeals Regarding section 205.668( b), several State commenters want appeals from SOP's to go to State district court rather than Federal district court. AMS disagrees. The Act provides that a final decision of the Secretary may be appealed to the U. S. District Court for the district in which the person is located. AMS considers an approved SOP to be the NOP for that State. As such,

AMS considers the governing State official of such State program to be the equivalent of a representative of the Secretary for the purpose of the appeals procedures under the NOP. Because the final decision of the governing State official is considered the final decision of the Secretary,

under the Act it is then appealable to the U. S. District Court, not the State district court. 554 Regarding section 205.680, State commenters want a process by which people who feel they were adversely affected by the organic program in a State with an SOP may appeal to the SOP's governing State official, rather than the Administrator. AMS has amended the language in section 205.680 to clarify to whom an appeal is made under various situations. If persons believe that they were adversely affected by a decision made by the NOP Program Manager, they appeal to the Administrator. If they were adversely affected by a decision made by a certifying agent ( State,