National Organic Program-Revisions to Livestock Standards Based on Court Order (Harvey v. Johanns) and 2005 Amendment to the Organic Foods Production Act of 1990 (OFPA), 24820-24824 [06-4006]

Download as PDF 24820 Proposed Rules Federal Register Vol. 71, No. 81 Thursday, April 27, 2006 This section of the FEDERAL REGISTER contains notices to the public of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule making prior to the adoption of the final rules. DEPARTMENT OF AGRICULTURE Agricultural Marketing Service 7 CFR Part 205 [Docket Number TM–06–06–PR] RIN 0581–AC60 National Organic Program—Revisions to Livestock Standards Based on Court Order (Harvey v. Johanns) and 2005 Amendment to the Organic Foods Production Act of 1990 (OFPA) Agricultural Marketing Service, USDA. ACTION: Proposed rule. rmajette on PROD1PC67 with PROPOSALS1 AGENCY: SUMMARY: This proposed rule amends the National Organic Program (NOP) regulations to comply with the final judgment in the case of Harvey v. Johanns (Harvey) issued on June 9, 2005, by the U.S. District Court, District of Maine, and to address the November 10, 2005, amendment made to the Organic Foods Production Act of 1990 (7 U.S.C. 6501 et seq., the OFPA), concerning the transition of dairy livestock into organic production. Further, this proposed rule amends the NOP regulations to clarify that only nonorganically produced agricultural products listed in the NOP regulations may be used as ingredients in or on processed products labeled as ‘‘organic’’ or ‘‘made with organic (specified ingredients or food group(s)).’’ In accordance with the final judgment in Harvey, the revision emphasizes that only the nonorganically produced agricultural ingredients listed in the NOP regulations can be used in accordance with any specified restrictions and when the product is not commercially available in organic form. To comply with the court order in Harvey, USDA is required to publish final revisions to the NOP regulations within 360 days of the court order, or by June 4, 2006. Accordingly, this proposed rule amends the NOP regulations to eliminate the use of up to 20 percent VerDate Aug<31>2005 12:41 Apr 26, 2006 Jkt 208001 nonorganically produced feed during the first 9 months of the conversion of a whole dairy herd from conventional to organic production. This proposed rule also addresses the amendment made to the OFPA concerning the transition of dairy livestock into organic production by allowing crops and forage from land included in the organic system plan of a dairy farm that is in the third year of organic management to be consumed by the dairy animals of the farm during the 12-month period immediately prior to the sale of organic milk and milk products. DATES: Comments on this proposed rule must be submitted on or before May 12, 2006. FOR FURTHER INFORMATION CONTACT: Mark Bradley, Associate Deputy Administrator, Transportation & Marketing Programs, National Organic Program, 1400 Independence Ave., SW., Room 4008—So., Ag Stop 0268, Washington, DC 20250. Telephone: (202) 720–3252; Fax: (202) 205–7808. SUPPLEMENTARY INFORMATION: I. Background In 1990, Congress passed the OFPA, which required the U.S. Department of Agriculture (USDA) to develop national standards for organically produced agricultural products to assure consumers that agricultural products marketed as organic meet consistent, uniform standards. Based on the requirements of the OFPA, USDA established the National Organic Program (NOP) to develop national organic standards, including a National List of substances approved for and prohibited from use in organic production and handling, that would require agricultural products labeled as organic to originate from farms or handling operations certified by a State or private entity that has been accredited by USDA. On December 21, 2000 USDA published the final rule for the NOP in the Federal Register (7 CFR part 205). On October 21, 2002, the NOP regulations became fully implemented by USDA as the uniform standard of production and handling for organic agricultural products in the United States. In October 2003, Arthur Harvey filed a complaint under the Administrative Procedure Act in the U.S. District Court, District of Maine. Mr. Harvey alleged that several subsections of the NOP PO 00000 Frm 00001 Fmt 4702 Sfmt 4702 regulations violated OFPA, were arbitrary, and not in accordance with law. On January 26, 2005, the U.S. Court of Appeals for the First Circuit issued a decision in the case. The court upheld the NOP regulations in general, but remanded the case to the U.S. District Court, District of Maine, for, among other things, the entry of a declaratory judgment that stated 7 CFR 205.606 does not establish a blanket exemption to the National List requirements specified in 7 U.S.C. 6517, permitting the use of nonorganic agricultural products in or on processed organic products when their organic form is not commercially available. The district court ordered the Secretary to make publicly known within 30 days— through notice in the Federal Register to all certifying agents and interested parties—that 7 CFR 205.606 shall be interpreted to permit only the use of a nonorganically produced agricultural product that has been listed in 7 CFR 205.606 pursuant to National List procedures, and when a certifying agent has determined that the organic form of the agricultural product is not commercially available. USDA complied with this order on July 1, 2005 (70 FR 38090). The court also ruled in favor of Mr. Harvey with respect to 7 CFR 205.605(b) of the NOP regulations, concerning the use of synthetic substances in or on processed products which contain a minimum of 95 percent organic content and are eligible to bear the USDA seal (7 CFR 205.605(b)). The court found § 205.605(b) contrary to the OFPA and in excess of the Secretary’s rulemaking authority. In addition, the court found in favor of Mr. Harvey with respect to 7 CFR 205.236(a)(2)(i) of the NOP regulations. This section creates an exception to the general requirements for the conversion of whole dairy herds to organic production. The court found the provisions at 7 CFR 205.236(a)(2)(i) contrary to the OFPA and in excess of the Secretary’s rulemaking authority. On June 9, 2005, the district court issued its final judgment and order in the case. A copy of the final judgment and order may be found at https:// www.ams.usda.gov/nop. Congressional Amendment to the OFPA After the court issued its final judgment and order, Congress amended E:\FR\FM\27APP1.SGM 27APP1 Federal Register / Vol. 71, No. 81 / Thursday, April 27, 2006 / Proposed Rules the OFPA. On November 10, 2005, Congress amended the OFPA by permitting the addition of synthetic substances appearing on the National List for use in products labeled ‘‘organic.’’ The amendment restores the NOP regulation for organic processed products containing at least 95 percent organic ingredients on the National List and their ability to carry the USDA seal. Therefore, USDA will not have to revise the NOP regulations to prohibit the use of synthetic ingredients in processed products labeled as organic nor restrict these products’ eligibility to carry the USDA seal. Congress also amended the OFPA to allow a special provision for transitioning dairy livestock to organic production. The NOP regulations currently provide that when an entire, distinct herd is converted to organic production, the producer may, for the first 9 months of the year, provide a minimum of 80-percent feed that is either organic or raised from land included in the organic system plan and managed in compliance with organic crop requirements. The circuit court found these provisions to be contrary to the OFPA and in excess of the Secretary’s rulemaking authority. In the amendments to OFPA, Congress provided a new provision to allow crops and forage from land included in the organic system plan of a farm that is in the third year of organic management to be consumed by the dairy animals of the farm during the 12month period immediately prior to the sale of organic milk and milk products. USDA is proposing to revise § 205.236(a)(2) to reflect this amendment to the OFPA in this rulemaking. rmajette on PROD1PC67 with PROPOSALS1 II. Overview of Amendments The following provides an overview of the amendments to designated sections of the NOP regulations, based on the order of the U.S. District Court, District of Maine and a Congressional amendment to the OFPA: Origin of Livestock (section 205.236). The circuit court declared that 7 CFR 205.236(a)(2)(i) is contrary to the OFPA and in excess of the Secretary’s rulemaking authority. 7 CFR 205.236(a)(2)(i) and (ii) provide that ‘‘When an entire, distinct herd is converted to organic production, the producer may: (i) For the first 9 months of the year, provide a minimum of 80percent feed that is either organic or raised from land included in the organic system plan and managed in compliance with organic crop requirements; and (ii) Provide feed in VerDate Aug<31>2005 12:41 Apr 26, 2006 Jkt 208001 compliance with § 205.237 for the final 3 months.’’ The circuit court pointed to the OFPA requirement that dairy animals be fed 100 percent organic feed for twelve full months prior to the sale of their products as organic and stated that the OFPA does not authorize the Secretary to create an exception permitting a more lenient phased conversion process for dairy animals. On remand, the district court ordered the Secretary to revise the NOP regulations accordingly. On November 10, 2005, Congress amended the dairy livestock provisions in the OFPA to provide a more lenient conversion process for dairy animals. Specifically, the amended OFPA language regarding dairy livestock transition reads that ‘‘Crops and forage from land included in the organic system plan of a dairy farm that is in the third year of organic management to be consumed by the dairy animals of the farm during the 12-month period immediately prior to the sale of organic milk and milk products’’ (7 U.S.C. 6509(e)(2)(B)). Therefore, taking the court judgment and order in consideration with the OFPA amendment for dairy livestock transition, this proposed rule revises 7 CFR 205.236(a)(2) to read: ‘‘Milk or milk products must be from animals that have been under continuous organic management beginning no later than 1 year prior to the production of the milk or milk products that are to be sold, labeled, or represented as organic, Except, That, crops and forage from land included in the organic system plan of a dairy farm that is in the third year of organic management may be consumed by the dairy animals of the farm during the 12-month period immediately prior to the sale of organic milk and milk products.’’ Subparagraph § 205.236(a)(2)(iii) is renumbered (a)(2)(i). This paragraph was not addressed by the Harvey final judgment and order or by the subsequent statutory amendments, and thus the application of this subparagraph to dairy herd conversion remains unchanged. Nonorganically produced agricultural products allowed as ingredients in or on processed products labeled as organic or made with organic ingredients (section 205.606). In the final judgment, the district court ordered the Secretary to declare that 7 CFR 205.606 shall not be interpreted to create a blanket exemption to the National List requirements specified in 7 U.S.C. 6517, permitting the use of nonorganic agricultural products in or on processed organic products when their organic form is not commercially available. The PO 00000 Frm 00002 Fmt 4702 Sfmt 4702 24821 court further ordered the Secretary to declare that 7 CFR 205.606 shall be interpreted to permit only the use of a nonorganically produced agricultural product that has been listed in § 205.606 pursuant to National List procedures, and when a certifying agent has determined that the organic form of the agricultural product is not commercially available. Consistent with the court’s final judgment, this proposed rule revises 7 CFR 205.606 to clarify that the section shall be interpreted to permit the use of a nonorganically produced agricultural product only when the product has been listed in § 205.606 pursuant to National List procedures, and when an accredited certifying agent has determined that the organic form of the agricultural product is not commercially available. The revised section now reads: ‘‘Only the following nonorganically produced agricultural products may be used as ingredients in or on processed products labeled as ‘organic’ or ‘made with organic (specified ingredients or food group(s)),’ only in accordance with any restrictions specified in this section, and only when the product is not commercially available in organic form: cornstarch (native); gums—water extracted only (arabic, guar, locust bean, carob bean); kelp—for use only as a thickener and dietary supplement; lecithin—unbleached; pectin (highmethoxy).’’ III. Related Documents Documents related to this proposed rule include the OFPA, as amended, (7 U.S.C. 6501 et seq.), its implementing regulations (7 CFR part 205), and a Federal Register notice publishing the final judgment and order in the case of Harvey v. Johanns (70 FR 38090). A. Executive Order 12866 This action has been determined non significant for purposes of Executive Order 12866, and therefore, does not have to be reviewed by the Office of Management and Budget. B. Executive Order 12988 Executive Order 12988 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. This proposed rule is not intended to have a retroactive effect. States and local jurisdictions are preempted under section 2115 of the 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 E:\FR\FM\27APP1.SGM 27APP1 rmajette on PROD1PC67 with PROPOSALS1 24822 Federal Register / Vol. 71, No. 81 / Thursday, April 27, 2006 / Proposed Rules 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 are also preempted under section 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 proposed rule 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 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 OFPA 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. C. Regulatory Flexibility Act and Paperwork Reduction Act The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) requires agencies to consider the economic impact of each VerDate Aug<31>2005 12:41 Apr 26, 2006 Jkt 208001 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 of businesses subject to the action. Section 605 of the RFA allows an agency to certify a rule, in lieu of preparing an analysis, if the rulemaking is not expected to have a significant economic impact on a substantial number of small entities. Pursuant to the requirements set forth in the RFA, the Agricultural Marketing Service (AMS) performed an economic impact analysis on small entities in the final rule published in the Federal Register on December 21, 2000 (65 FR 80548). AMS has also considered the economic impact of this action on small entities and has determined that this proposed rule would have an impact on a substantial number of small entities. Small agricultural service firms, which include producers, handlers, and accredited certifying agents, have been defined by the Small Business Administration (SBA) (13 CFR 121.201) as those having annual receipts of less than $6,500,000 and small agricultural producers are defined as those having annual receipts of less than $750,000. This proposed rule would have an impact on a substantial number of small entities. The U.S. organic industry at the end of 2001 included nearly 6,949 certified organic crop and livestock operations. These operations reported certified acreage totaling just over 2 million acres of organic farm production. Data on the numbers of certified organic handling operations (any operation that transforms raw product into processed products using organic ingredients) were not available at the time of survey in 2001; but they were estimated to be in the thousands. Based on 2003 data, certified organic acreage had increased to 2.2 million acres. By the end of 2004, the number of certified organic crop, livestock, and handling operations totaled nearly 11,400 operations, based on reports by certifying agents to NOP as part of their annual reporting requirements. AMS believes that most of these entities would be considered small entities under the criteria established by the SBA. U.S. sales of organic food and beverages have grown from $1 billion in 1990 to an estimated $12.2 billion in 2004. Organic food sales are projected to reach nearly $15 billion for 2005. The organic industry is viewed as the fastest growing sector of agriculture, representing 2 percent of overall food PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 and beverage sales. Since 1990, organic retail sales have historically demonstrated a growth rate between 20 to 24 percent each year. This growth rate is projected to decline and fall to a rate of 5 to 10 percent in the future. In addition, USDA has accredited 96 certifying agents who have applied to USDA to be accredited in order to provide certification services to producers and handlers. A complete list of names and addresses of accredited certifying agents may be found on the AMS NOP Web site, at http:// www.ams.usda.gov/nop. AMS believes that most of these entities would be considered small entities under the criteria established by the SBA. Impact of Lawsuit and Congressional Amendment on Dairy The loss of the 80–20 feed exception can be measured depending on various feed costs, for average farm sizes, and for the sector as a whole using 2003 estimates of the number of certified dairy livestock in the United States—the latest year for which numbers are available.1 Generally, for organic dairy operations, feed and labor are the most significant cost components, comprising upwards of 50 percent of the total variable costs of the operation.2 Organic feed is significantly more expensive than conventional feed, and various quotes for organic feed run as high as double the cost of conventional or nonorganic feed rations. According to one study, higher feed cost was the largest and most important difference between organic and nonorganic dairy production, with the additional expense of feeding organic dairy costs being 54 percent of the price differential received for organic milk.3 In this study, for a 48cow organic herd, purchased feed cost $1,003 per cow, or $298 per cow more than for a conventional dairy operation. For the entire year, the average farm spent approximately $49,000 for purchased organic feed for the 48-cow herd in this study. A rough estimate of the loss of the 80– 20 feed exception can be determined using this study’s farm cost numbers. Using the estimated per-cow feed numbers, if a dairy farmer had to switch 1 Greene, Catherine. Certified organic livestock, 2003, numbers were obtained from the author on permission; forthcoming from the Economic Research Service (ERS), U.S. Department of Agriculture. 2 Dalton, Timothy J., Lisa A. Bragg, Rick Kersbergen, Robert Parson, Glenn Rogers, Dennis Kauppila, Qingbin Wang. ‘‘Cost and Returns to Organic Dairy Farming in Maine and Vermont for 2004,’’ University of Maine Department of Resource Economics and Policy Staff Paper #555, November 23, 2005. 3 Ibid. E:\FR\FM\27APP1.SGM 27APP1 Federal Register / Vol. 71, No. 81 / Thursday, April 27, 2006 / Proposed Rules from using 80 percent organic feed to 100 percent organic feed, and purchased all of the organic feed, the additional cost to the dairy farmer is $27 per month, or about 2.7 percent higher than using the 80–20 feed exception. For the sector, based on Economic Research Service’s (ERS) latest estimate of approximately 74,435 certified dairy cows in 2003, the loss of the 80–20 feed provision using the above cost estimates would amount to around $2 million. But this assumes that: (1) All of the dairy cows in the sector are converted to organic in the same year; (2) all farm operators use the 80–20 feed provision in that same year; and (3) all organic feed was purchased. Because it is unlikely that all operations exercise 24823 these options, the $2 million estimated for the sector likely overstates the total cost of the loss of the 80–20 feed provision. This cost estimate more likely represents an upper bound estimate based on this farm study’s feed cost estimate, as if all dairy cows were converted to organic at a single point in time under the above assumptions. TABLE 1.—COST OF LOSING 80–20 FEED PROVISION [Based on Vermont-Maine Dairy Study Cost Estimates] $1,003 per year or $84 per month. $795 per year or $66 per month. (0.2)*($66)*(9) = $119. (0.8)*($84)*(9) = $605. (1.0)*($84)*(3) = $252. Total Feed Using 80–20 ................................................................................................................... 12 months using organic feed only .......................................................................................................... Difference (loss) of 80–20, 48-cow herd .................................................................................................. rmajette on PROD1PC67 with PROPOSALS1 Organic feed per cow ............................................................................................................................... Nonorganic feed per cow ......................................................................................................................... 9 months: 20% nonorganic feed cost ...................................................................................................... 80% organic feed costs .................................................................................................................... 3 months: 100% organic feed .................................................................................................................. $976 12 months*$84/cow = $1,003. 12 mo*$27/cow loss = $1,296. Instead, an alternative estimate could be derived for a growing industry that is adding new dairy cows to the industry. According to ERS, in 2000, there were just over 38,000 certified dairy livestock, increasing to nearly 49,000 by 2001, and 67,000 in 2002. With reports of rising milk prices and shortages in the U.S. organic dairy market in 2005, continued growth in organic dairy livestock numbers could be expected. Therefore, an alternative estimate of the loss is to calculate the number of dairy cows added to the sector each year and assume they were all added to the sector by being converted using the 80– 20 feed transition provision. Using the ERS numbers above, between 2000 and 2001, 11,000 certified dairy cows were added. Another 18,000 cows were added by 2002, and 7,435 in 2003. On average, 12,145 dairy cows were added each year since 2000. Based on these numbers from ERS and the additional cost of $27 per cow from the study above, using the 80–20 feed provision, the loss of the 80–20 provision would have cost dairy farmers approximately $327,915 per year, or nearly $1 million over the 3-year period. Different estimates were obtained from discussions with Western state industry experts in dairy feed and nutrition, and budgets developed by certifying agents who work with certified dairy operations.4 These estimates resulted in higher costs due to the loss of the 80–20 feed provision, of 4 Information provided in conversations with Pacific Nutrition-Consulting (PNC) based on USDA–ACA budgets for estimating the cost of the transition year for dairy farmers using the 80–20 feed provision. VerDate Aug<31>2005 12:41 Apr 26, 2006 Jkt 208001 as much as $416 per cow annually, or assuming an addition of approximately 12,000 cows per year to the sector, a loss of nearly $5 million per year to the sector. Depending on location, climate, size, and purchased feed, costs may vary considerably. The west, for example, tends to be a feed-deficit region where farmers purchase more feed and rely less on feed from on-farm or nearby sources. The farther the distance a farmer has to go to obtain feed, the more costly the feed will be, all other things being equal, making it likely that costs would vary by region or climate. With higher milk prices, more farmers might be attracted to enter organic dairy farming. In the short run, this would add to pressure (due to more competition) on feed supplies. With the loss of the 80–20 feed provision, this could drive up the cost of feed; in the short run, therefore, there could be additional upward pressure on these cost estimates. Regardless, these additional costs would have to be absorbed somewhere. They must either be passed forward to consumers in the form of higher fluid milk and dairy product prices—already at high premiums relative to conventional dairy product prices—or they would have to be absorbed by farmers. However, Congress did amend OFPA for transitioning dairy farmers, by permitting such dairy farmers to graze dairy livestock on land being converted to organic production during its 3rd year of transition. Thus, the loss of the 80–20 feed exception is mitigated in part by the action that Congress took. In effect, a farm transitioning its dairy PO 00000 Frm 00004 Fmt 4702 Sfmt 4702 cows to organic could put its cows on that farm’s pasture being converted to organic and the milk from those cows would be organic at the same time as crops being harvested from that land— at the end of the third year that the land completed organic management. Contrary to many reports since Congress amended the OFPA, this does not mean that dairy cows can be fed prohibited substances or genetically modified organisms (GMOs). The land on which the dairy cows are being managed could not have any prohibited substances applied to it for 3 years prior to crops being harvested from that land; if the dairy cow grazes on that land, she is not consuming ‘‘conventional’’ feed. At the end of the 12 months of organic management on that land, the milk from that dairy cow is analogous to the crops harvested from that same field at the end of that third year—both are eligible to be sold as organic, provided all other requirements of the regulations are met. Congress leveled the playing field for dairy farmers when they amended OFPA in this area by removing any penalties that dairy farmers faced with the so-called ‘‘4th year’’—‘‘i.e., the additional transition year that dairy cows underwent due to lactation cycles. And Congress did not change the basic requirement of OFPA. Dairy cows must be organically managed for at least 12 months; after these 12 months of organic management, only her milk and milk products may be represented as organic. The status of the dairy cow is a different story. The dairy cow is only organic if she was raised organically from the last third of the mother’s gestation. When a dairy cow is slaughtered, she cannot be sold as E:\FR\FM\27APP1.SGM 27APP1 24824 Federal Register / Vol. 71, No. 81 / Thursday, April 27, 2006 / Proposed Rules organic slaughter stock unless she was raised organically from the last third of the mother’s gestation, the same as other slaughter livestock (except poultry, which must be raised organically beginning with the second day of life). That remains the same in the NOP regulation. In providing the transition language, entry in organic dairying may become easier, which could ease current milk shortages in the organic milk market at retail. Certainly it should help smaller dairy farmers entering the organic industry who may be faced with having to purchase higher priced organic feed, by allowing them to graze dairy livestock on their land that is being transitioned to organic certification. With respect to alternatives to this proposed rule, this proposed rule merely implements language which Congress has enacted and complies with the court’s final judgment and order. AMS is committed to compliance with the Government Paperwork Elimination Act (GPEA), which requires Government agencies in general to provide the public the option of submitting information or transacting business electronically to the maximum extent possible. USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this rule. No additional collection or recordkeeping requirements are imposed on the public by this proposed rule. Accordingly, OMB clearance is not required by § 350(h) of the Paperwork Reduction Act of 1995, 44 U.S.C. 3501, et seq., or OMB’s implementing regulation at 5 CFR part 1320. D. General Notice of Public Rulemaking This proposed rule reflects amendments made by Congress to the OFPA that were passed on November 10, 2005 and a court final order that requires USDA to publish final revisions to the NOP regulations within 360 days of the court order, by June 4, 2006. Accordingly, AMS believes that a 15day period for interested persons to comment on this rule is appropriate. rmajette on PROD1PC67 with PROPOSALS1 List of Subjects in 7 CFR Part 205 Administrative practice and procedure, Agriculture, Animals, Archives and records, Imports, Labeling, Organically produced products, Plants, Reporting and recordkeeping requirements, Seals and insignia, Soil conservation. For the reasons set forth in the preamble, 7 CFR part 205, is proposed to be amended as follows: VerDate Aug<31>2005 12:41 Apr 26, 2006 Jkt 208001 PART 205—NATIONAL ORGANIC PROGRAM DEPARTMENT OF EDUCATION The authority citation for 7 CFR part 205 continues to read as follows: RIN 1890–AA13 1. Authority: 7 U.S.C. 6501–6522. 2. Section 205.236(a)(2) is revised to read as follows: § 205.236 Origin of livestock. (a) * * * (2) Dairy animals. Milk or milk products must be from animals that have been under continuous organic management beginning no later than 1 year prior to the production of the milk or milk products that are to be sold, labeled, or represented as organic, Except, That, crops and forage from land included in the organic system plan of a dairy farm that is in the third year of organic management may be consumed by the dairy animals of the farm during the 12-month period immediately prior to the sale of organic milk and milk products; (i) Once an entire, distinct herd has been converted to organic production, all dairy animals shall be under organic management from the last third of gestation. (ii) [Reserved] * * * * * 3. Section 205.606 is revised to read as follows: § 205.606 Nonorganically produced agricultural products allowed as ingredients in or on processed products labeled as organic or made with organic ingredients. Only the following nonorganically produced agricultural products may be used as ingredients in or on processed products labeled as ‘‘organic’’ or ‘‘made with organic (specified ingredients or food group(s)),’’ only in accordance with any restrictions specified in this section, and only when the product is not commercially available in organic form. (a) Cornstarch (native) (b) Gums—water extracted only (arabic, guar, locust bean, carob bean) (c) Kelp—for use only as a thickener and dietary supplement (d) Lecithin—unbleached (e) Pectin (high-methoxy) Dated: April 24, 2006. Lloyd C. Day, Administrator, Agricultural Marketing Service. [FR Doc. 06–4006 Filed 4–25–06; 10:52 am] BILLING CODE 3410–02–P PO 00000 Frm 00005 Fmt 4702 Sfmt 4702 34 CFR Part 76 State-Administered Programs Department of Education. Notice of proposed rulemaking. AGENCY: ACTION: SUMMARY: The Secretary proposes to amend the regulations in 34 CFR part 76 governing State reporting requirements. States are required to submit their performance reports, financial reports, and any other required reports, in the manner prescribed by the Secretary, including through electronic submission, if the Secretary has obtained approval from the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (PRA). The amendments proposed in this notice would provide that: (1) Failure to submit these reports in the manner prescribed by the Secretary constitutes a failure, under section 454 of the General Education Provisions Act, 20 U.S.C. 1234c, to comply substantially with a requirement of law applicable to the funds made available under the program for which the reports are submitted; and (2) if the Secretary chooses to require submission of information electronically, the Secretary may establish a transition period during which a State would not be required to submit such information electronically in the format prescribed by the Secretary, if the State meets certain requirements. The Secretary proposes these changes to the regulations in 34 CFR part 76 to highlight that the U.S. Department of Education (Department) may require, through the PRA clearance process, that States report certain information electronically; and to establish that the Department may take administrative action against a State for failure to submit reports in the manner prescribed by the Secretary. The proposed changes will facilitate the use of the Department’s electronic EDFacts data management system (EDFacts) (Approved under OMB Control No. 1880–0541) for electronic submission of certain reports and provide the Department with more timely and accessible data for accountability and decision-making. The Department’s goal in requiring electronic submission of information is to reduce State reporting burden significantly and to streamline dozens of data collections currently required by the Department. DATES: We must receive your comments on or before May 30, 2006. ADDRESSES: Address all comments about these proposed regulations to Bonny E:\FR\FM\27APP1.SGM 27APP1

Agencies

[Federal Register Volume 71, Number 81 (Thursday, April 27, 2006)]
[Proposed Rules]
[Pages 24820-24824]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-4006]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 71, No. 81 / Thursday, April 27, 2006 / 
Proposed Rules

[[Page 24820]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 205

[Docket Number TM-06-06-PR]
RIN 0581-AC60


National Organic Program--Revisions to Livestock Standards Based 
on Court Order (Harvey v. Johanns) and 2005 Amendment to the Organic 
Foods Production Act of 1990 (OFPA)

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This proposed rule amends the National Organic Program (NOP) 
regulations to comply with the final judgment in the case of Harvey v. 
Johanns (Harvey) issued on June 9, 2005, by the U.S. District Court, 
District of Maine, and to address the November 10, 2005, amendment made 
to the Organic Foods Production Act of 1990 (7 U.S.C. 6501 et seq., the 
OFPA), concerning the transition of dairy livestock into organic 
production.
    Further, this proposed rule amends the NOP regulations to clarify 
that only nonorganically produced agricultural products listed in the 
NOP regulations may be used as ingredients in or on processed products 
labeled as ``organic'' or ``made with organic (specified ingredients or 
food group(s)).'' In accordance with the final judgment in Harvey, the 
revision emphasizes that only the nonorganically produced agricultural 
ingredients listed in the NOP regulations can be used in accordance 
with any specified restrictions and when the product is not 
commercially available in organic form.
    To comply with the court order in Harvey, USDA is required to 
publish final revisions to the NOP regulations within 360 days of the 
court order, or by June 4, 2006.
    Accordingly, this proposed rule amends the NOP regulations to 
eliminate the use of up to 20 percent nonorganically produced feed 
during the first 9 months of the conversion of a whole dairy herd from 
conventional to organic production. This proposed rule also addresses 
the amendment made to the OFPA concerning the transition of dairy 
livestock into organic production by allowing crops and forage from 
land included in the organic system plan of a dairy farm that is in the 
third year of organic management to be consumed by the dairy animals of 
the farm during the 12-month period immediately prior to the sale of 
organic milk and milk products.

DATES: Comments on this proposed rule must be submitted on or before 
May 12, 2006.

FOR FURTHER INFORMATION CONTACT: Mark Bradley, Associate Deputy 
Administrator, Transportation & Marketing Programs, National Organic 
Program, 1400 Independence Ave., SW., Room 4008--So., Ag Stop 0268, 
Washington, DC 20250. Telephone: (202) 720-3252; Fax: (202) 205-7808.

SUPPLEMENTARY INFORMATION:

I. Background

    In 1990, Congress passed the OFPA, which required the U.S. 
Department of Agriculture (USDA) to develop national standards for 
organically produced agricultural products to assure consumers that 
agricultural products marketed as organic meet consistent, uniform 
standards. Based on the requirements of the OFPA, USDA established the 
National Organic Program (NOP) to develop national organic standards, 
including a National List of substances approved for and prohibited 
from use in organic production and handling, that would require 
agricultural products labeled as organic to originate from farms or 
handling operations certified by a State or private entity that has 
been accredited by USDA. On December 21, 2000 USDA published the final 
rule for the NOP in the Federal Register (7 CFR part 205). On October 
21, 2002, the NOP regulations became fully implemented by USDA as the 
uniform standard of production and handling for organic agricultural 
products in the United States.
    In October 2003, Arthur Harvey filed a complaint under the 
Administrative Procedure Act in the U.S. District Court, District of 
Maine. Mr. Harvey alleged that several subsections of the NOP 
regulations violated OFPA, were arbitrary, and not in accordance with 
law.
    On January 26, 2005, the U.S. Court of Appeals for the First 
Circuit issued a decision in the case. The court upheld the NOP 
regulations in general, but remanded the case to the U.S. District 
Court, District of Maine, for, among other things, the entry of a 
declaratory judgment that stated 7 CFR 205.606 does not establish a 
blanket exemption to the National List requirements specified in 7 
U.S.C. 6517, permitting the use of nonorganic agricultural products in 
or on processed organic products when their organic form is not 
commercially available. The district court ordered the Secretary to 
make publicly known within 30 days--through notice in the Federal 
Register to all certifying agents and interested parties--that 7 CFR 
205.606 shall be interpreted to permit only the use of a nonorganically 
produced agricultural product that has been listed in 7 CFR 205.606 
pursuant to National List procedures, and when a certifying agent has 
determined that the organic form of the agricultural product is not 
commercially available. USDA complied with this order on July 1, 2005 
(70 FR 38090).
    The court also ruled in favor of Mr. Harvey with respect to 7 CFR 
205.605(b) of the NOP regulations, concerning the use of synthetic 
substances in or on processed products which contain a minimum of 95 
percent organic content and are eligible to bear the USDA seal (7 CFR 
205.605(b)). The court found Sec.  205.605(b) contrary to the OFPA and 
in excess of the Secretary's rulemaking authority.
    In addition, the court found in favor of Mr. Harvey with respect to 
7 CFR 205.236(a)(2)(i) of the NOP regulations. This section creates an 
exception to the general requirements for the conversion of whole dairy 
herds to organic production. The court found the provisions at 7 CFR 
205.236(a)(2)(i) contrary to the OFPA and in excess of the Secretary's 
rulemaking authority.
    On June 9, 2005, the district court issued its final judgment and 
order in the case. A copy of the final judgment and order may be found 
at https://www.ams.usda.gov/nop.

Congressional Amendment to the OFPA

    After the court issued its final judgment and order, Congress 
amended

[[Page 24821]]

the OFPA. On November 10, 2005, Congress amended the OFPA by permitting 
the addition of synthetic substances appearing on the National List for 
use in products labeled ``organic.'' The amendment restores the NOP 
regulation for organic processed products containing at least 95 
percent organic ingredients on the National List and their ability to 
carry the USDA seal. Therefore, USDA will not have to revise the NOP 
regulations to prohibit the use of synthetic ingredients in processed 
products labeled as organic nor restrict these products' eligibility to 
carry the USDA seal.
    Congress also amended the OFPA to allow a special provision for 
transitioning dairy livestock to organic production. The NOP 
regulations currently provide that when an entire, distinct herd is 
converted to organic production, the producer may, for the first 9 
months of the year, provide a minimum of 80-percent feed that is either 
organic or raised from land included in the organic system plan and 
managed in compliance with organic crop requirements. The circuit court 
found these provisions to be contrary to the OFPA and in excess of the 
Secretary's rulemaking authority.
    In the amendments to OFPA, Congress provided a new provision to 
allow crops and forage from land included in the organic system plan of 
a farm that is in the third year of organic management to be consumed 
by the dairy animals of the farm during the 12-month period immediately 
prior to the sale of organic milk and milk products. USDA is proposing 
to revise Sec.  205.236(a)(2) to reflect this amendment to the OFPA in 
this rulemaking.

II. Overview of Amendments

    The following provides an overview of the amendments to designated 
sections of the NOP regulations, based on the order of the U.S. 
District Court, District of Maine and a Congressional amendment to the 
OFPA: Origin of Livestock (section 205.236).
    The circuit court declared that 7 CFR 205.236(a)(2)(i) is contrary 
to the OFPA and in excess of the Secretary's rulemaking authority. 7 
CFR 205.236(a)(2)(i) and (ii) provide that ``When an entire, distinct 
herd is converted to organic production, the producer may: (i) For the 
first 9 months of the year, provide a minimum of 80-percent feed that 
is either organic or raised from land included in the organic system 
plan and managed in compliance with organic crop requirements; and (ii) 
Provide feed in compliance with Sec.  205.237 for the final 3 months.''
    The circuit court pointed to the OFPA requirement that dairy 
animals be fed 100 percent organic feed for twelve full months prior to 
the sale of their products as organic and stated that the OFPA does not 
authorize the Secretary to create an exception permitting a more 
lenient phased conversion process for dairy animals. On remand, the 
district court ordered the Secretary to revise the NOP regulations 
accordingly.
    On November 10, 2005, Congress amended the dairy livestock 
provisions in the OFPA to provide a more lenient conversion process for 
dairy animals. Specifically, the amended OFPA language regarding dairy 
livestock transition reads that ``Crops and forage from land included 
in the organic system plan of a dairy farm that is in the third year of 
organic management to be consumed by the dairy animals of the farm 
during the 12-month period immediately prior to the sale of organic 
milk and milk products'' (7 U.S.C. 6509(e)(2)(B)).
    Therefore, taking the court judgment and order in consideration 
with the OFPA amendment for dairy livestock transition, this proposed 
rule revises 7 CFR 205.236(a)(2) to read: ``Milk or milk products must 
be from animals that have been under continuous organic management 
beginning no later than 1 year prior to the production of the milk or 
milk products that are to be sold, labeled, or represented as organic, 
Except, That, crops and forage from land included in the organic system 
plan of a dairy farm that is in the third year of organic management 
may be consumed by the dairy animals of the farm during the 12-month 
period immediately prior to the sale of organic milk and milk 
products.'' Subparagraph Sec.  205.236(a)(2)(iii) is renumbered 
(a)(2)(i). This paragraph was not addressed by the Harvey final 
judgment and order or by the subsequent statutory amendments, and thus 
the application of this subparagraph to dairy herd conversion remains 
unchanged.
    Nonorganically produced agricultural products allowed as 
ingredients in or on processed products labeled as organic or made with 
organic ingredients (section 205.606).
    In the final judgment, the district court ordered the Secretary to 
declare that 7 CFR 205.606 shall not be interpreted to create a blanket 
exemption to the National List requirements specified in 7 U.S.C. 6517, 
permitting the use of nonorganic agricultural products in or on 
processed organic products when their organic form is not commercially 
available. The court further ordered the Secretary to declare that 7 
CFR 205.606 shall be interpreted to permit only the use of a 
nonorganically produced agricultural product that has been listed in 
Sec.  205.606 pursuant to National List procedures, and when a 
certifying agent has determined that the organic form of the 
agricultural product is not commercially available.
    Consistent with the court's final judgment, this proposed rule 
revises 7 CFR 205.606 to clarify that the section shall be interpreted 
to permit the use of a nonorganically produced agricultural product 
only when the product has been listed in Sec.  205.606 pursuant to 
National List procedures, and when an accredited certifying agent has 
determined that the organic form of the agricultural product is not 
commercially available. The revised section now reads: ``Only the 
following nonorganically produced agricultural products may be used as 
ingredients in or on processed products labeled as `organic' or `made 
with organic (specified ingredients or food group(s)),' only in 
accordance with any restrictions specified in this section, and only 
when the product is not commercially available in organic form: 
cornstarch (native); gums--water extracted only (arabic, guar, locust 
bean, carob bean); kelp--for use only as a thickener and dietary 
supplement; lecithin--unbleached; pectin (high-methoxy).''

III. Related Documents

    Documents related to this proposed rule include the OFPA, as 
amended, (7 U.S.C. 6501 et seq.), its implementing regulations (7 CFR 
part 205), and a Federal Register notice publishing the final judgment 
and order in the case of Harvey v. Johanns (70 FR 38090).

A. Executive Order 12866

    This action has been determined non significant for purposes of 
Executive Order 12866, and therefore, does not have to be reviewed by 
the Office of Management and Budget.

B. Executive Order 12988

    Executive Order 12988 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. This proposed rule 
is not intended to have a retroactive effect.
    States and local jurisdictions are preempted under section 2115 of 
the 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

[[Page 24822]]

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 are also preempted under section 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 
proposed rule 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 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 OFPA 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.

C. Regulatory Flexibility Act and Paperwork Reduction Act

    The Regulatory Flexibility Act (RFA) (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 of businesses 
subject to the action. Section 605 of the RFA allows an agency to 
certify a rule, in lieu of preparing an analysis, if the rulemaking is 
not expected to have a significant economic impact on a substantial 
number of small entities.
    Pursuant to the requirements set forth in the RFA, the Agricultural 
Marketing Service (AMS) performed an economic impact analysis on small 
entities in the final rule published in the Federal Register on 
December 21, 2000 (65 FR 80548). AMS has also considered the economic 
impact of this action on small entities and has determined that this 
proposed rule would have an impact on a substantial number of small 
entities.
    Small agricultural service firms, which include producers, 
handlers, and accredited certifying agents, have been defined by the 
Small Business Administration (SBA) (13 CFR 121.201) as those having 
annual receipts of less than $6,500,000 and small agricultural 
producers are defined as those having annual receipts of less than 
$750,000. This proposed rule would have an impact on a substantial 
number of small entities.
    The U.S. organic industry at the end of 2001 included nearly 6,949 
certified organic crop and livestock operations. These operations 
reported certified acreage totaling just over 2 million acres of 
organic farm production. Data on the numbers of certified organic 
handling operations (any operation that transforms raw product into 
processed products using organic ingredients) were not available at the 
time of survey in 2001; but they were estimated to be in the thousands. 
Based on 2003 data, certified organic acreage had increased to 2.2 
million acres. By the end of 2004, the number of certified organic 
crop, livestock, and handling operations totaled nearly 11,400 
operations, based on reports by certifying agents to NOP as part of 
their annual reporting requirements. AMS believes that most of these 
entities would be considered small entities under the criteria 
established by the SBA.
    U.S. sales of organic food and beverages have grown from $1 billion 
in 1990 to an estimated $12.2 billion in 2004. Organic food sales are 
projected to reach nearly $15 billion for 2005. The organic industry is 
viewed as the fastest growing sector of agriculture, representing 2 
percent of overall food and beverage sales. Since 1990, organic retail 
sales have historically demonstrated a growth rate between 20 to 24 
percent each year. This growth rate is projected to decline and fall to 
a rate of 5 to 10 percent in the future.
    In addition, USDA has accredited 96 certifying agents who have 
applied to USDA to be accredited in order to provide certification 
services to producers and handlers. A complete list of names and 
addresses of accredited certifying agents may be found on the AMS NOP 
Web site, at http://www.ams.usda.gov/nop. AMS believes that most of 
these entities would be considered small entities under the criteria 
established by the SBA.
Impact of Lawsuit and Congressional Amendment on Dairy
    The loss of the 80-20 feed exception can be measured depending on 
various feed costs, for average farm sizes, and for the sector as a 
whole using 2003 estimates of the number of certified dairy livestock 
in the United States--the latest year for which numbers are 
available.\1\ Generally, for organic dairy operations, feed and labor 
are the most significant cost components, comprising upwards of 50 
percent of the total variable costs of the operation.\2\ Organic feed 
is significantly more expensive than conventional feed, and various 
quotes for organic feed run as high as double the cost of conventional 
or nonorganic feed rations. According to one study, higher feed cost 
was the largest and most important difference between organic and 
nonorganic dairy production, with the additional expense of feeding 
organic dairy costs being 54 percent of the price differential received 
for organic milk.\3\ In this study, for a 48-cow organic herd, 
purchased feed cost $1,003 per cow, or $298 per cow more than for a 
conventional dairy operation. For the entire year, the average farm 
spent approximately $49,000 for purchased organic feed for the 48-cow 
herd in this study.
---------------------------------------------------------------------------

    \1\ Greene, Catherine. Certified organic livestock, 2003, 
numbers were obtained from the author on permission; forthcoming 
from the Economic Research Service (ERS), U.S. Department of 
Agriculture.
    \2\ Dalton, Timothy J., Lisa A. Bragg, Rick Kersbergen, Robert 
Parson, Glenn Rogers, Dennis Kauppila, Qingbin Wang. ``Cost and 
Returns to Organic Dairy Farming in Maine and Vermont for 2004,'' 
University of Maine Department of Resource Economics and Policy 
Staff Paper 555, November 23, 2005.
    \3\ Ibid.
---------------------------------------------------------------------------

    A rough estimate of the loss of the 80-20 feed exception can be 
determined using this study's farm cost numbers. Using the estimated 
per-cow feed numbers, if a dairy farmer had to switch

[[Page 24823]]

from using 80 percent organic feed to 100 percent organic feed, and 
purchased all of the organic feed, the additional cost to the dairy 
farmer is $27 per month, or about 2.7 percent higher than using the 80-
20 feed exception.
    For the sector, based on Economic Research Service's (ERS) latest 
estimate of approximately 74,435 certified dairy cows in 2003, the loss 
of the 80-20 feed provision using the above cost estimates would amount 
to around $2 million. But this assumes that: (1) All of the dairy cows 
in the sector are converted to organic in the same year; (2) all farm 
operators use the 80-20 feed provision in that same year; and (3) all 
organic feed was purchased. Because it is unlikely that all operations 
exercise these options, the $2 million estimated for the sector likely 
overstates the total cost of the loss of the 80-20 feed provision. This 
cost estimate more likely represents an upper bound estimate based on 
this farm study's feed cost estimate, as if all dairy cows were 
converted to organic at a single point in time under the above 
assumptions.

                                  Table 1.--Cost of Losing 80-20 Feed Provision
                               [Based on Vermont-Maine Dairy Study Cost Estimates]
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Organic feed per cow........................  $1,003 per year or $84 per month.
Nonorganic feed per cow.....................  $795 per year or $66 per month.
9 months: 20% nonorganic feed cost..........  (0.2)*($66)*(9) = $119.
    80% organic feed costs..................  (0.8)*($84)*(9) = $605.
3 months: 100% organic feed.................  (1.0)*($84)*(3) = $252.
                                             -------------------------------------------------------------------
    Total Feed Using 80-20..................  $976
12 months using organic feed only...........  12 months*$84/cow = $1,003.
Difference (loss) of 80-20, 48-cow herd.....  12 mo*$27/cow loss = $1,296.
----------------------------------------------------------------------------------------------------------------

    Instead, an alternative estimate could be derived for a growing 
industry that is adding new dairy cows to the industry. According to 
ERS, in 2000, there were just over 38,000 certified dairy livestock, 
increasing to nearly 49,000 by 2001, and 67,000 in 2002. With reports 
of rising milk prices and shortages in the U.S. organic dairy market in 
2005, continued growth in organic dairy livestock numbers could be 
expected.
    Therefore, an alternative estimate of the loss is to calculate the 
number of dairy cows added to the sector each year and assume they were 
all added to the sector by being converted using the 80-20 feed 
transition provision. Using the ERS numbers above, between 2000 and 
2001, 11,000 certified dairy cows were added. Another 18,000 cows were 
added by 2002, and 7,435 in 2003. On average, 12,145 dairy cows were 
added each year since 2000. Based on these numbers from ERS and the 
additional cost of $27 per cow from the study above, using the 80-20 
feed provision, the loss of the 80-20 provision would have cost dairy 
farmers approximately $327,915 per year, or nearly $1 million over the 
3-year period.
    Different estimates were obtained from discussions with Western 
state industry experts in dairy feed and nutrition, and budgets 
developed by certifying agents who work with certified dairy 
operations.\4\ These estimates resulted in higher costs due to the loss 
of the 80-20 feed provision, of as much as $416 per cow annually, or 
assuming an addition of approximately 12,000 cows per year to the 
sector, a loss of nearly $5 million per year to the sector.
---------------------------------------------------------------------------

    \4\ Information provided in conversations with Pacific 
Nutrition-Consulting (PNC) based on USDA-ACA budgets for estimating 
the cost of the transition year for dairy farmers using the 80-20 
feed provision.
---------------------------------------------------------------------------

    Depending on location, climate, size, and purchased feed, costs may 
vary considerably. The west, for example, tends to be a feed-deficit 
region where farmers purchase more feed and rely less on feed from on-
farm or nearby sources. The farther the distance a farmer has to go to 
obtain feed, the more costly the feed will be, all other things being 
equal, making it likely that costs would vary by region or climate.
    With higher milk prices, more farmers might be attracted to enter 
organic dairy farming. In the short run, this would add to pressure 
(due to more competition) on feed supplies. With the loss of the 80-20 
feed provision, this could drive up the cost of feed; in the short run, 
therefore, there could be additional upward pressure on these cost 
estimates.
    Regardless, these additional costs would have to be absorbed 
somewhere. They must either be passed forward to consumers in the form 
of higher fluid milk and dairy product prices--already at high premiums 
relative to conventional dairy product prices--or they would have to be 
absorbed by farmers.
    However, Congress did amend OFPA for transitioning dairy farmers, 
by permitting such dairy farmers to graze dairy livestock on land being 
converted to organic production during its 3rd year of transition. 
Thus, the loss of the 80-20 feed exception is mitigated in part by the 
action that Congress took. In effect, a farm transitioning its dairy 
cows to organic could put its cows on that farm's pasture being 
converted to organic and the milk from those cows would be organic at 
the same time as crops being harvested from that land--at the end of 
the third year that the land completed organic management.
    Contrary to many reports since Congress amended the OFPA, this does 
not mean that dairy cows can be fed prohibited substances or 
genetically modified organisms (GMOs). The land on which the dairy cows 
are being managed could not have any prohibited substances applied to 
it for 3 years prior to crops being harvested from that land; if the 
dairy cow grazes on that land, she is not consuming ``conventional'' 
feed. At the end of the 12 months of organic management on that land, 
the milk from that dairy cow is analogous to the crops harvested from 
that same field at the end of that third year--both are eligible to be 
sold as organic, provided all other requirements of the regulations are 
met.
    Congress leveled the playing field for dairy farmers when they 
amended OFPA in this area by removing any penalties that dairy farmers 
faced with the so-called ``4th year''--``i.e., the additional 
transition year that dairy cows underwent due to lactation cycles. And 
Congress did not change the basic requirement of OFPA. Dairy cows must 
be organically managed for at least 12 months; after these 12 months of 
organic management, only her milk and milk products may be represented 
as organic.
    The status of the dairy cow is a different story. The dairy cow is 
only organic if she was raised organically from the last third of the 
mother's gestation. When a dairy cow is slaughtered, she cannot be sold 
as

[[Page 24824]]

organic slaughter stock unless she was raised organically from the last 
third of the mother's gestation, the same as other slaughter livestock 
(except poultry, which must be raised organically beginning with the 
second day of life). That remains the same in the NOP regulation.
    In providing the transition language, entry in organic dairying may 
become easier, which could ease current milk shortages in the organic 
milk market at retail. Certainly it should help smaller dairy farmers 
entering the organic industry who may be faced with having to purchase 
higher priced organic feed, by allowing them to graze dairy livestock 
on their land that is being transitioned to organic certification.
    With respect to alternatives to this proposed rule, this proposed 
rule merely implements language which Congress has enacted and complies 
with the court's final judgment and order.
    AMS is committed to compliance with the Government Paperwork 
Elimination Act (GPEA), which requires Government agencies in general 
to provide the public the option of submitting information or 
transacting business electronically to the maximum extent possible.
    USDA has not identified any relevant Federal rules that duplicate, 
overlap, or conflict with this rule.
    No additional collection or recordkeeping requirements are imposed 
on the public by this proposed rule. Accordingly, OMB clearance is not 
required by Sec.  350(h) of the Paperwork Reduction Act of 1995, 44 
U.S.C. 3501, et seq., or OMB's implementing regulation at 5 CFR part 
1320.

D. General Notice of Public Rulemaking

    This proposed rule reflects amendments made by Congress to the OFPA 
that were passed on November 10, 2005 and a court final order that 
requires USDA to publish final revisions to the NOP regulations within 
360 days of the court order, by June 4, 2006. Accordingly, AMS believes 
that a 15-day period for interested persons to comment on this rule is 
appropriate.

List of Subjects in 7 CFR Part 205

    Administrative practice and procedure, Agriculture, Animals, 
Archives and records, Imports, Labeling, Organically produced products, 
Plants, Reporting and recordkeeping requirements, Seals and insignia, 
Soil conservation.
    For the reasons set forth in the preamble, 7 CFR part 205, is 
proposed to be amended as follows:

PART 205--NATIONAL ORGANIC PROGRAM

    The authority citation for 7 CFR part 205 continues to read as 
follows:

    1. Authority: 7 U.S.C. 6501-6522.

    2. Section 205.236(a)(2) is revised to read as follows:


Sec.  205.236  Origin of livestock.

    (a) * * *
    (2) Dairy animals. Milk or milk products must be from animals that 
have been under continuous organic management beginning no later than 1 
year prior to the production of the milk or milk products that are to 
be sold, labeled, or represented as organic, Except, That, crops and 
forage from land included in the organic system plan of a dairy farm 
that is in the third year of organic management may be consumed by the 
dairy animals of the farm during the 12-month period immediately prior 
to the sale of organic milk and milk products;
    (i) Once an entire, distinct herd has been converted to organic 
production, all dairy animals shall be under organic management from 
the last third of gestation.
    (ii) [Reserved]
* * * * *
    3. Section 205.606 is revised to read as follows:


Sec.  205.606  Nonorganically produced agricultural products allowed as 
ingredients in or on processed products labeled as organic or made with 
organic ingredients.

    Only the following nonorganically produced agricultural products 
may be used as ingredients in or on processed products labeled as 
``organic'' or ``made with organic (specified ingredients or food 
group(s)),'' only in accordance with any restrictions specified in this 
section, and only when the product is not commercially available in 
organic form.
    (a) Cornstarch (native)
    (b) Gums--water extracted only (arabic, guar, locust bean, carob 
bean)
    (c) Kelp--for use only as a thickener and dietary supplement
    (d) Lecithin--unbleached
    (e) Pectin (high-methoxy)

    Dated: April 24, 2006.
Lloyd C. Day,
Administrator, Agricultural Marketing Service.
[FR Doc. 06-4006 Filed 4-25-06; 10:52 am]
BILLING CODE 3410-02-P