National Organic Program (NOP); Final Decision on Organic Livestock and Poultry Practices Rule and Summary of Comments on the Economic Analysis Report, 57937-57944 [2020-19939]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 85, Number 181 (Thursday, September 17, 2020)]
[Rules and Regulations]
[Pages 57937-57944]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19939]



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Federal Register / Vol. 85 , No. 181 / Thursday, September 17, 2020 / 
Rules and Regulations

[[Page 57937]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 205

[Document Number AMS-NOP-20-0037; NOP-20-03]
RIN 0581-AD75


National Organic Program (NOP); Final Decision on Organic 
Livestock and Poultry Practices Rule and Summary of Comments on the 
Economic Analysis Report

AGENCY: Agricultural Marketing Service, Agriculture Department (USDA).

ACTION: Final decision.

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SUMMARY: On April 23, 2020, the United States Department of Agriculture 
Agricultural Marketing Service (AMS) published the Economic Analysis 
Report related to the Organic Livestock and Poultry Practices final 
rule (OLPP Rule), published on January 19, 2017, and the final rule 
withdrawing the OLPP Rule (Withdrawal Rule), published on March 13, 
2018. AMS sought comment to evaluate the analysis in the Economic 
Analysis Report and to decide whether additional action should be taken 
in regard to the OLPP Rule. The public comment process for the Economic 
Analysis Report is being conducted consistent with an Order of the 
United States District Court for the District of Columbia, which 
granted USDA's Motion to Remand a legal challenge to the Withdrawal 
Rule for purposes of clarifying and supplementing the record regarding 
the economic analysis underlying both the OLPP Rule and the Withdrawal 
Rule. (See Organic Trade Association v. USDA; Civil Action No. 17-1875 
(RMC) (March 12, 2020), ECF No. 112). After reviewing the Economic 
Analysis Report and the public comments on it, AMS is issuing this 
Final Decision concluding that no additional rulemaking action with 
respect to the OLPP Rule is necessary.

DATES: September 17, 2020.

FOR FURTHER INFORMATION CONTACT: Jennifer Tucker, Ph.D., Deputy 
Administrator, National Organic Program, Telephone: (202) 720-3252. 
Fax: (202) 205-7808.

SUPPLEMENTARY INFORMATION: The Final Decision may be accessed under the 
following docket number available via Regulations.gov: AMS-NOP-20-0037; 
NOP-20-03. Additional supporting documents and related materials may 
also be referenced under this docket number.
    Documents related to this Final Decision include: Organic Food 
Production Act (OFPA) (7 U.S.C. 6501-6524) and its implementing 
regulations (7 CFR part 205); the Organic Livestock and Poultry 
Practices (OLPP) proposed rule published in the Federal Register on 
April 13, 2016 (81 FR 21956); the OLPP Rule published in the Federal 
Register on January 19, 2017 (82 FR 7042); the final rule delaying the 
OLPP Rule's effective date until May 19, 2017, published in the Federal 
Register on February 9, 2017 (82 FR 9967); the final rule delaying the 
OLPP Rule's effective date until November 14, 2017, published in the 
Federal Register on May 10, 2017 (82 FR 21677); a second proposed rule 
presenting the four options for agency action listed in Section I, 
supra, published in the Federal Register on May 10, 2017 (82 FR 21742); 
a final rule further delaying the OLPP final rule's effective date 
until May 14, 2018, published in the Federal Register on November 14, 
2017 (82 FR 52643); a proposed rule explaining AMS' intent to withdraw 
the OLPP final rule, published in the Federal Register on December 18, 
2017 (82 FR 59988); the Withdrawal Rule, published in the Federal 
Register on March 13, 2018 (83 FR 10775); a request for comment on the 
OLPP Economic Analysis Report published in the Federal Register on 
April 23, 2020 (85 FR 22664).

Table of Contents

Background
Summary of and Responses to Comments Received
    1. Costs Were Inflated and Benefits Were Discounted
    2. Benefit Calculations Do Not Include Broiler Submarket
    3. Value of Prohibition on Forced Molting Not Included in 
Willingness to Pay Calculations
    4. Sample Bias
    5. Increase in Mortality Rates of Layers from 5% to 8%
    6. Correction to Lay Rates
    7. Assumptions on Future Growth of Production
Comments on General Policy or Beyond the Scope of the Request for 
Comments
AMS Final Decision and Rationale

Background

    The OFPA authorizes the United States Department of Agriculture 
(USDA or Department) to establish national standards governing the 
marketing of certain agricultural products as organically produced. The 
national standards are to assure consumers that organically produced 
products meet a consistent standard and to facilitate interstate 
commerce in fresh and processed food that is organically produced. 
USDA's Agricultural Marketing Service (AMS) administers the National 
Organic Program (NOP) under 7 CFR part 205.
    On January 19, 2017, AMS published the OLPP Rule. After delaying 
the effective date of the OLPP Rule until May 14, 2018, AMS published 
the Withdrawal Rule on March 13, 2018, which withdrew the OLPP Rule. In 
the Withdrawal Rule, AMS explained that it had discovered three 
mathematical and methodological errors in the Regulatory Impact 
Analysis for the OLPP Rule (Final RIA), and that the Final RIA was thus 
incorrect in its assessment of the costs and benefits of the OLPP Rule. 
In connection with promulgating the Withdrawal Rule, AMS published a 
modified Regulatory Impact Analysis (Withdrawal RIA) that sought to 
correct for the three identified errors in the Final RIA while 
otherwise holding that analysis constant. Based on the modified 
analysis in the Withdrawal RIA, AMS projected that the costs of the 
OLPP Rule likely exceeded its benefits, and that projection was one of 
the factors on which AMS based its withdrawal of the OLPP Rule. AMS 
also concluded in the Withdrawal Rule that there was no market failure 
in the organic industry sufficient to warrant the particular 
regulations established by the OLPP Rule. Separate and apart from these 
economic and market-based considerations, AMS determined in the 
Withdrawal Rule that the statutory authority under OFPA did not permit 
the agency to regulate the organic industry based solely on concerns 
regarding animal welfare, and that the

[[Page 57938]]

OLPP Rule thus exceeded the scope of AMS's authority under the 
statutory scheme.
    In the fall of 2017, the Organic Trade Association (OTA) filed a 
lawsuit in the U.S. District Court for the District of Columbia, 
challenging AMS's delay of the OLPP Rule's effective date; OTA 
subsequently amended its complaint to challenge the Withdrawal Rule. On 
October 31, 2019, OTA filed a motion for summary judgment accompanied 
by several extra-record attachments, including a privately commissioned 
analysis of the Withdrawal RIA performed by Dr. Thomas Vukina, a 
consultant and professor of economics at North Carolina State 
University. In the course of reviewing Dr. Vukina's analysis, AMS 
independently discovered that the Withdrawal RIA had failed to fully 
correct for one of the previously identified flaws and that the Final 
RIA contained additional flaws that had not previously been discerned 
or corrected.
    In light of that discovery, on January 3, 2020, USDA filed a motion 
to suspend the summary judgment proceedings and requested voluntary 
remand to determine how to address the additional methodological flaws 
discovered in the prior RIAs. On March 12, 2020, the District Court 
granted that request. See Organic Trade Association v. USDA; Civil 
Action No. 17-1875 (RMC) (March 12, 2020), ECF No. 112 (the Order). In 
the Order, the District Court set a deadline of 180 days for the USDA 
to complete the action(s) that it was going to take on remand. The 
District Court also set a September 8, 2020 deadline for AMS to report 
back to the Court on the outcome of these proceedings.
    Consistent with these developments, AMS directed a methodological 
review of the Final RIA and Withdrawal RIA, which was undertaken by an 
AMS economist that was not involved in the promulgation of the OLPP 
Rule or the Withdrawal Rule. That review resulted in the preparation of 
a report that summarized and explained its findings (Economic Analysis 
Report or Report). In the Economic Analysis Report, AMS first provided 
a backdrop by explaining the three errors that had been identified in 
the Withdrawal RIA: (1) The incorrect application of the discounting 
formula; (2) the use of an incorrect willingness to pay value for eggs 
produced under the new open access requirements; and (3) the incorrect 
application of a depreciation treatment to the benefit calculations. 
The Report explained that although the Withdrawal RIA correctly 
identified these errors and properly addressed the first two errors 
(incorrect discounting methodology and willingness-to-pay values), it 
had not fully removed the incorrect depreciation treatment from the 
cost and benefit calculations, which erroneously reduced the 
calculation of both costs and benefits.
    The Report went on to identify and discuss four categories of 
additional errors in the Final RIA that were previously undetected and 
therefore inadvertently carried forward to the Withdrawal RIA. These 
are: (1) Inconsistent or incorrect documentation of key calculation 
variables; (2) an error in the volume specification affecting benefits 
calculations in two of three scenarios considered; (3) the incorrect 
use of production values in the benefits calculations that do not 
account for projected increased mortality loss; and (4) aspects of the 
cost calculations that resulted in certain costs being ignored, 
underreported, or inconsistently applied. In addition, the Report 
described certain minor errors that did not have a material impact on 
the cost and benefit calculations. On April 23, 2020, AMS published the 
Economic Analysis Report, with a request for public comment, in the 
Federal Register (85 FR 22664). AMS sought public comment to evaluate 
the analysis in the Economic Analysis Report and to decide whether 
additional action should be taken in regard to the OLPP Rule in light 
of the issues identified. The public comment period ended on May 26, 
2020.
    After reviewing the public comments, AMS is affirming the findings 
in the Economic Analysis Report, modifying its economic analysis of the 
OLPP Rule to the extent discussed herein, and issuing this Final 
Decision concluding that no additional rulemaking action with respect 
to the OLPP Rule is necessary as a consequence of those findings. This 
Final Decision explains AMS' rationale for these determinations in 
light of the findings contained in the Economic Analysis Report and the 
public comments received.

Summary of and Responses to Comments Received

    AMS received 551 comments responding to the request for comment on 
the Economic Analysis Report. Several commenters provided substantive 
comments on the Economic Analysis Report and AMS addresses those 
comments in detail below. Many commenters addressed matters that were 
not related to the issues outlined in the Economic Analysis Report but 
rather pertained to policy considerations that, in the commenters' 
view, weighed in favor of the OLPP rule and against its withdrawal. 
These comments generally were beyond the scope of this proceeding.

1. Costs Were Inflated and Benefits Were Discounted

    One commenter stated that the Economic Analysis Report appeared to 
inflate the costs of the OLPP Rule by front-loading them so that they 
were discounted less, while also minimizing or disregarding the 
benefits by heavily discounting them in the future. The commenter did 
not provide additional detail as to why he believed the costs and 
benefits of the OLPP Rule were improperly allocated, and AMS is thus 
limited in its ability to provide a meaningful response to the comment. 
However, AMS believes that it is important to clarify that the purpose 
of the Economic Analysis Report was simply to identify errors in the 
previous RIAs, including as to methodological choices that appeared 
unreasonable or inadvertent, and assess the materiality of those 
errors. Importantly, the Report did not attempt to redo the cost-
benefit analysis in the prior RIAs or recalculate the costs and 
benefits of the OLPP Rule based on any assessment about the impact of 
those errors. It also did not evaluate any costs or benefits 
themselves, or independently assess when those costs and benefits would 
be realized. Therefore, the commenter's disagreement with the 
allocation of costs and benefits would appear to be a methodological 
critique of the Final RIA, rather than the Economic Analysis Report 
itself, or--in other words--a perceived additional flaw in the Final 
RIA not identified by the Economic Analysis Report.
    To the extent that is the commenter's intent, AMS disagrees with 
the critique. AMS believes that, after correcting for the improper 
depreciation methodology and the other flaws outlined in the Economic 
Analysis Report, the Final RIA's approach to allocating costs and 
benefits over the 15-year analysis period was methodologically 
reasonable. The costs were allocated to different years of the analysis 
period based on the dates on which regulatory reforms were required to 
be implemented, as well as an assessment of the steps necessary for 
producers to come into compliance by those dates. Those allocations 
reflect the age of various capital investments across the industry, and 
distinctions between one-time, up-front land acquisition costs (on the 
one hand) and recurring annual costs (on the other). The benefit 
allocations were similarly based upon the assumption that producers not 
already in compliance would not come into compliance until the date 
they were

[[Page 57939]]

required to do so, and the Final RIA assessed benefits flowing from 
that date forward based on the projected output of those producers. 
Beyond the errors already identified in the Withdrawal RIA and Economic 
Analysis Report, AMS believes that this approach to allocating costs 
and benefits was reasonable, and the commenter has not provided 
sufficient detail for AMS to conclude otherwise.
    The same commenter also stated that the Economic Analysis Report 
improperly corrected for any errors in the RIAs, skewing the results in 
the opposite direction. He also stated that AMS's explanation of the 
depreciation error schedule was not transparent and verifiable, and 
that AMS did not make available the workbooks showing the raw data and 
formulas used to calculate the costs and benefits. With regard to the 
assertion that the Report skewed results in the opposite direction, AMS 
reiterates that the intent of the Economic Analysis Report was not to 
undertake a correction of the errors in the prior RIAs but simply to 
identify them and discuss how they may have impacted the prior economic 
analyses. AMS acknowledges that such discussion, in some places, may 
have suggested that the errors could have been addressed in various 
ways and discussed how such corrections would change the analysis, and 
is subject to criticism in that regard. However, the commenter did not 
provide any information regarding why he believes that the Economic 
Analysis Report skewed the results in the opposite direction, or 
explain the method he thought AMS should have used instead or why, or 
even specify the methodological components that he believed were 
improperly corrected. AMS is therefore unable to respond to this 
comment further. With respect to the commenter's assertion that AMS did 
not made its underlying workbooks and analysis available, AMS 
disagrees. These documents were published in the Federal Register and 
posted on regulations.gov when AMS published the Economic Analysis 
Report.

2. Benefit Calculations Do Not Include Broiler Submarket

    Another commenter stated that AMS failed to consider benefits in 
the broiler sub-market arising from the OLPP Rule. As this comment 
reflects, the Final RIA quantified the costs to broiler producers to 
comply with the OLPP Rule but did not attempt to quantify or otherwise 
estimate any benefits that may have resulted from such compliance. AMS 
did not identify this as an error in either the Withdrawal RIA or the 
Economic Analysis Report. AMS notes that no reliable numbers for 
benefits attributable to the broiler sub-market existed in the 
literature that was available at the time that the OLPP Final Rule was 
published. The commenters cite to a 2006 McVittie, Moran and Nevison 
paper, a 2014 Vukina, Andersen, and Muth paper on broilers, and a 2017 
Mulder and Zomer paper for estimates of the welfare benefits of 
increased indoor space for broilers. However, these papers were based 
on working paper research that had not been peer reviewed and thus were 
not suitable for use as an official estimate in a regulatory 
analysis.\1\ Furthermore, the 2017 Mulder and Zomer paper was not 
published until after the Final RIA was published and was focused on 
the preferences of Dutch consumers generally, whose preferences might 
not be reflective of those of U.S. organic consumers.\2\ However, to 
the extent that existing research suggests that American consumers are 
willing to pay a price premium for organic broilers produced in 
compliance with the indoor stocking density requirements of the OLPP 
Rule, AMS acknowledges that the Final RIA may have underestimated the 
benefits of the OLPP Rule by assigning a $0 value to those benefits. If 
so, AMS agrees that this is another flaw in the Final RIA in addition 
to the errors described in the Economic Analysis Report.
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    \1\ One commenter cited the 2014 Vukina, Andersen, and Muth 
paper on broilers, which in turn referenced the 2012 ``Phase 2 
Report in USDA, Agricultural Marketing Service, National Organic 
Program'', that estimated a 30 percent increase in WTP for broiler 
indoor space. Both these papers ultimately rely primarily on the 
2006 McVittie, Moran and Nevison working paper to construct their 
WTP estimate for broiler indoor space.
    \2\ Similarly, the 2006 McVittie, Moran and Nevison paper 
studied the preferences of British consumers, not U.S. consumers. As 
noted by AMS, a 2012 Vukina, Anderson, Muth, and Ball paper on 
broilers stated, ``British consumers are probably somewhat different 
than U.S. consumers. They have different levels of real disposable 
income, and they are likely to have different sets of preferences. 
For example, there is ample casual evidence that European consumers 
are, on average, more concerned with animal welfare than their U.S. 
counterparts,'' Economic Impact Analysis of Proposed Regulations for 
Living Conditions for Organic Poultry--Revised Phase 2 Report at 2-
2, prepared for Agricultural Marketing Service (Aug. 2012).
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3. Value of Prohibition on Forced Molting Not Included in Willingness 
To Pay Calculations

    Some commenters stated that the Economic Analysis Report failed to 
explain why the reduced willingness to pay (WTP) values utilized in the 
Withdrawal RIA were justified. These commenters also claimed that the 
Economic Analysis Report failed to consider the benefits of the OLPP 
Rule's ban on forced molting. One commenter argued that the correct WTP 
value should be the sum of WTP values for outdoor access and the 
prohibition on forced molting that were found in the 2013 Heng, et al. 
study. The commenter further argued that because these two values are 
positive, the sum of both WTP values is greater than the outdoor access 
WTP value by itself.
    The value of the OLPP Rule's prohibition on forced molting was not 
separately considered in the WTP analysis in either the Final RIA or 
the Withdrawal RIA. In the Final RIA, AMS used an estimated WTP range 
from the 2013 Heng et al. study that attempted to assess consumers' 
willingness to pay for eggs produced in a cage-free environment, with 
outdoor access, and without induced molting, among consumers that were 
and were not given information about the environmental impacts of those 
practices. In the Withdrawal RIA, AMS explained that this range was 
overstated as a measure of benefits attributable to the OLPP Rule 
because a cage-free environment was already required for organic egg 
production under regulations pre-dating the OLPP Rule. Thus, in the 
Withdrawal RIA, AMS used the estimated value range for the consumer WTP 
for outdoor access alone, found in the 2013 Heng et al. study, to 
calculate the benefit of the rule (per dozen eggs produced). AMS 
acknowledges that the Withdrawal Rule incorrectly stated that the 
prohibition on induced molting was already included in existing 
regulations and did not attempt to measure or include the benefits that 
might flow from that prohibition. However, AMS does not believe that 
this error materially affected the benefits calculation. First, AMS 
notes that the molting prohibition was not considered on either side of 
the cost-benefits calculation; that is, just as AMS did not attribute 
any benefits to this provision, nor did it measure the provision's 
costs. If AMS were to separately consider the benefits of this 
provision, it would also need to consider its costs, which would likely 
include the higher cost of acquiring replacement pullets, lower 
production, and lost opportunities to take advantage of seasonal 
increases in egg demand.
    AMS believes, however, that it was methodologically appropriate to 
exclude the molting prohibition from both components of the analysis, 
because most organic producers were likely already complying with this 
prohibition prior to the promulgation of the OLPP Rule. Molting, which 
is synonymous

[[Page 57940]]

with forced molting \3\ in a production setting, is induced in a flock 
by restricting the birds' diet and daily light exposure for two to 
three weeks. In this period, the birds molt, or lose and replace their 
feathers. Several weeks after their regular diet and access to light 
exposure are restored, a second egg production cycle begins with a 
reduced peak and duration compared to the first cycle. In general, the 
tradeoffs between whether to molt existing flocks or replace them 
consider the cost of acquiring new hens and the timing of increased 
production of eggs (a product with very seasonal demand). However, this 
choice is severely constrained in the context of organic production, 
even without the prohibition contained in the OLPP Rule. Under the 
existing regulations (i.e., those that were in effect prior to the 
promulgation of the OLPP Rule and after its withdrawal), induced 
molting practices would be operationally difficult. Under these 
provisions, organic laying hens are required to have outdoor access, a 
condition that prevents the farmer from limiting light exposure through 
most of the year. Similarly, organic laying hens are required to be 
cage-free, a situation that allows layers to potentially acquire 
additional nutrition from the feed of other layers, the manure of other 
layers, and outdoor foraging. Because the farmer cannot entirely 
control the bird's light exposure or nutrient consumption, induced 
molting, under current organic rules, is economically impractical.\4\ 
Furthermore, AMS has no data indicating that induced molting is 
commonly used in organic farming. AMS thus believes that this practice 
is likely rare in organic flocks even absent an express prohibition,\5\ 
and that considering this prohibition in the economic analysis would do 
little to create new costs or benefits. AMS therefore concludes that 
independent consideration of the molting provision would not have 
materially changed the WTP value and that it was appropriate to exclude 
these costs and benefits from the assessment of costs and benefits in 
the Withdrawal RIA.\6\
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    \3\ Forced molting is an industry practice that restores the 
egg-laying productivity of egg-laying hens. Following their 
hatching, young egg-laying hens (pullets) are raised in specialized 
facilities that restrict the bird's exposure to light, which 
stimulates egg production. At 18 weeks of age, layers are moved to 
egg production facilities. At 20 weeks, hens begin laying small, 
undersized eggs. Eggs increase in size throughout the layer's life, 
but peak production (in terms of number of eggs produced) occurs at 
20 weeks and then gradually declines. Without molting, at 
approximately 80 to 85 weeks, the first cycle of production is 
complete and layers are replaced with new hens acquired from pullet-
raising operations. By molting birds for approximately 7 weeks when 
the layers are approximately 68 weeks old, the first cycle of 
production is shortened but allows for a second cycle of production 
that typically ends lasts 35 weeks or until the birds are 105 to 115 
weeks old.
    \4\ Jacquie Jacob and Tony Pescatore, ``Molting Small-scale 
Commercial Egg Flocks in Kentucky'', 2018 Univ. of Kentucky 
Cooperative Extension Service, ASC-236 (``A molt . . . probably 
cannot be done with small flocks that are exposed to natural 
daylength.'')
    \5\ In 2016, approximately 4.8 percent of all 7.4 billion table 
eggs produced in the United States were organically certified (NASS, 
Survey of Organic Agriculture, 2017, NASS, Monthly Chicken and Egg 
Report, February 28, 2017). In that year, the maximum share of 
laying flocks that had been molted was 21.3 percent (NASS, Monthly 
Chicken and Egg Report, February 28, 2017).
    \6\ However, AMS notes that even if it were appropriate to 
separately consider the costs and benefits of the molting 
prohibition, it would be inappropriate to adopt the commenter's 
suggestion that AMS simply sum the values of the WTP for outdoor 
access and the WTP for forced molting in the 2013 Heng et al. study. 
First, the 2013 Heng et al. study did not find a significant effect 
of a prohibition on forced molting on consumer WTP within its 
analysis. While the 2013 Heng et al. study reported positive WTP 
values for different subsets of the average consumer, it also stated 
that ``the means for welfare-related attributes Access, CageFree, 
and NoMolting were statistically not-different from zero.'' In 
general, the lack of significance for a parameter estimate for a 
variable in a statistical model indicates that the variation seen in 
the data capturing the effect of that variable cannot be 
distinguished from that which would occur from ordinary, random 
effects. Second, the consumer choice experiment of the Heng et al. 
(2013) article may have exhibited scope insensitivity. See Alaya 
Spencer-Cotton, Marit E. Kragt and Michael Burton ``Spatial and 
Scope Effects: Valuations of Coastal Management Practices'' Journal 
of Agricultural Economics 69(2018)3:833-851. Scope insensitivity 
occurs when a consumer's stated valuation of a product with 
different socially beneficial attributes does not increase as more 
socially beneficial attributes are added to the product. Notably, 
Heng et al. (2013) observed that ``few differences are seen in the 
WTP distributions because of perceived differences in product 
quality'' regarding induced molting and explained that WTP 
differences in this category generally flowed from assessments 
regarding social and animal welfare benefits.
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4. Sample Bias

    Another commenter argued that the Final RIA and the Withdrawal RIA 
introduced sample bias error in their estimation of organic consumers' 
WTP because the 2013 Heng study on which AMS based these estimations 
considered the entire consumer market for eggs rather than just the 
consumers in the existing market for organic eggs, which the commenter 
argued were the true beneficiaries of the OLPP Rule. Whether the 
relevant market consists solely of existing consumers of organic eggs 
or encompasses both existing and potential future consumers is not well 
established in the literature. The market growth rate assumed by the 
Final and Withdrawal RIAs was 12.7% per annum, which was based on 
growth rates in the years preceding the OLPP Rule. AMS notes that if 
this growth rate continued as projected, it would mean that the organic 
market would grow 81% in five years and 105% within six years, a value 
which substantially exceeds U.S. population growth. Such growth 
therefore assumes that either new organic consumers are entering the 
market from the non-organic market or, in a far less likely scenario, 
that existing organic egg consumers are dramatically increasing their 
egg consumption every year. It is inconsistent to assume that markets 
grow at extraordinarily high rates based on suggestions that some 
previously conventional egg consumers are now purchasing organic, while 
simultaneously assuming that only the preferences of consumers 
previously purchasing organic products should be considered in the 
calculation of WTP values. Moreover, the commenter did not provide any 
reason to differentiate between the WTP of existing organic consumers 
and organic consumers that might enter the market as a result of the 
OLPP Rule, or to assume that existing organic customers would have a 
higher WTP than the new organic customers for the characteristics 
considered in the RIAs. Indeed, the opposite could be true if the new 
customers are motivated to enter the market by the additional 
regulation encompassed by the OLPP Rule. Thus, AMS disagrees with this 
commenter's suggestion that the WTP values should have been based 
solely on literature studying existing organic consumers.\7\
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    \7\ However, to the extent WTP of existing consumers were to 
materially differ from those of future consumers, it would affect 
the benefits calculation in potentially complex ways, given that a 
core assumption underlying the benefits calculation was the 
projection that the market for organic eggs would more than 
quadruple over the analysis period.
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5. Increase in Mortality Rates of Layers From 5% to 8%

    Several commenters stated that the Final RIA t erroneously 
projected that mortality rates of organic layers would rise from 5% to 
8% as a result of the OLPP Rule, and thus erroneously lowered egg 
production rates in light of that projection. They argued that the 
Economic Analysis Report's finding that the projected increase in 
mortality was not fully incorporated into the benefits calculation and 
thus led to an overestimation of benefits by 1.4 percent was in error 
because the Economic Analysis Report did not examine the original 
projected increase. In support of this critique, some of these 
commenters opined that actual flock records show lower mortality rates 
and provide better data than the sources cited by the Economic Analysis 
Report. However,

[[Page 57941]]

they did not provide any flock records in support of this claim.
    In the Final RIA, AMS projected that mortality rates of organic 
layers would rise by three percentage points, from a mortality rate of 
5 percent to a mortality rate of 8 percent, as a result of the new 
outdoor access requirements that would expose layers to increased risks 
of disease and predation. This mortality allowance responded to public 
comments on the Final RIA and was guided by data from the Animal and 
Plant Health Inspection Service (APHIS) National Animal Health 
Monitoring and Surveillance (NAHMS) 2013 Layers study.\8\ The Economic 
Analysis Report made reference to this component of the Final RIA's 
analysis, but it did not itself make or modify any projections 
regarding increased mortality rates because doing so would disturb the 
baseline levels of production. Rather, the Economic Analysis Report 
simply noted that AMS failed to fully incorporate the projected 
mortality increase into the Final RIA. While the Final RIA's cost 
estimates did reflect the lower egg production level based on projected 
higher mortality, the benefits were calculated on the unadjusted 
production levels without considering the lower production levels 
resulting from the mortality adjustment.
---------------------------------------------------------------------------

    \8\ https://www.aphis.usda.gov/aphis/ourfocus/animalhealth/monitoring-and-surveillance/nahms/nahms_poultry_studies/.
---------------------------------------------------------------------------

    Regarding the accuracy of the mortality rate increase used by AMS, 
one commenter cited a survey by the Organic Trade Association conducted 
during the Economic Analysis Report's public comment period as showing 
that the mortality rate for laying hens was 6.07 percent. However, AMS 
does not have access to this data or the details of how it was 
collected, and the Agency thus cannot assess its methodological 
soundness or rely on it as being representative of the industry for the 
purposes of these proceedings. Furthermore, AMS finds support for its 
prior assumption of a 3 percent mortality increase in a 2020 study by 
Bestman and Bikker-Ouwejan,\9\ which finds that, ``on average, 3.7 
percent of hens in organic/free-range flocks were estimated to be 
killed by predators, while total mortality is 12.2 percent.'' This 
suggests that AMS's assumed 3 percentage point increase in mortality 
under the OLPP Rule accurately captures the likely increase in layer 
mortality from predation under the new open access requirement.
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    \9\ Monique Bestman and Judith Bikker-Ouwejan ``Predation in 
Organic and Free-Range Egg Production'' Animals 2020 10,177.
---------------------------------------------------------------------------

    The commenter also cites Leenstra et al. (2014) as showing 
different rates of hen mortality by farm types, including organic, 
free-range, barn, and caged, and argues from these trends for the ``use 
of a zero excess mortality attributable to outdoor access because even 
if, currently, there is some degree of excess mortality due to outdoor 
access, by the time [the OLPP Final Rule] is fully implemented, 
technological and management advances are likely to eliminate the 
existing differences'' OTA comment on the Economic Analysis Report at 
8. However, the commenter provided no data or information in supporting 
this argument and AMS finds it to be being highly speculative about the 
future direction of technology, as well as inconsistent with the 
Bestman study. More importantly, although AMS acknowledges that a range 
of viewpoints regarding the impact of the outdoor access provisions on 
the mortality levels of organic layers is supported by differing 
literature, for purposes of this Economic Analysis Report, AMS 
continues to believe that the loss rate projections in the Final RIA 
were methodologically sound and reasonable.

6. Correction to Lay Rates

    A commenter stated that the Economic Analysis Report erred by 
concluding that annual egg production rates should be reduced from 
24.7708 dozen eggs per layer to 23.0406 dozen eggs per layer because 
the lower figure relies on AMS Market News Report data rather than 
other data that the commenter believes to be more representative of the 
industry. AMS disagrees with this comment. Although the Final RIA 
assumed the average number of eggs laid per hen was 24.7708 dozen, that 
figure was used without citation and, based on AMS market data 
available, it overestimates the number of eggs produced by 7.51 percent 
compared to the estimates provided in the contemporaneous Market News 
Report. The 24.7708 dozen estimate in the Final RIA was also larger 
than the estimate used in the Preliminary RIA, which cited a rate of 
284 eggs/hen/year from pasture production, which is equivalent to 23.67 
dozen per year. The Economic Analysis Report noted that this error may 
be related to the fact that, although the Final RIA stated that AMS 
Market News data reported 14 million organic layers in production in 
2016 based on April data, that statement was incorrect. AMS Market News 
actually reported an estimated 11,350,500 organic layers in each of the 
four reporting weeks in April of 2016 in its ``Weekly USDA Certified 
Organic Poultry and Eggs'' report. It was not until the November 2016 
report that the estimated flock was increased to 14,087,500 layers. 
Additionally, the Economic Analysis Report explained that the highest 
level of organic egg production reported between April 2016 and January 
2017 was 207,497 multiplied by 30-dozen cases, or 6,224,910 dozen eggs 
per week. The Economic Analysis Report calculated the laying rate at 
this highest level of weekly production, based on 52.143 weeks per 
year, and a laying flock 14,087,500 birds, to equal 324,584,359 dozen 
eggs produced per year, which yields an average of 276.49 eggs, or 
23.0406 dozen, per laying hen per year. AMS believes that this 
methodology was appropriate.
    A commenter stated that the AMS Market News Weekly USDA Certified 
Organic Poultry and Eggs Report should not be considered representative 
of the industry because the USDA report includes the disclaimer ``does 
not reflect all organic production; estimates are based on data 
collected from industry cooperators and other sources.'' An alternative 
higher production rate 24.689 dozen was suggested by the commenter. 
That estimate, however, is based on a sample of 5.62 million layers and 
is not publicly available. Because the size of this sample is only 40 
percent of the size of the AMS data surveying 14.087 million layers, it 
is an even less robust sample of egg production than the AMS Market 
News Weekly Report and thus is likely to be less representative of the 
industry than the figures on which AMS relied.

7. Assumptions on Future Growth of Production

    Finally, multiple commenters disagreed with the Final RIA's 
assumption that organic egg production will grow at the 12.7 percent 
rate that is applied in two of the three scenarios considered in the 
Final RIA. These commenters stated that by failing to recognize growth 
opportunities presented by new OLPP compliant operations, the growth 
rate assumptions in the Final RIA are too low. They further argued 
that, under the three scenarios considered by the Department, there was 
no reason for the Final RIA to assume that some organic producers would 
exit the market rather than comply with the OLPP Rule, given the strong 
demand and a growing market. They further contended that, even if some 
producers did exit the market, other OLPP compliant producers would 
replace them and that the Final RIA underestimated these new entrants' 
effects on the assumed growth rate of 12.7% per annum.

[[Page 57942]]

    The Economic Analysis Report did not critique the soundness of 
either the Final RIA's assumption that the industry would continue to 
grow by 12.7 percent annually over the 15-year period or its assumption 
that some organic producers would exit the industry rather than comply 
with the rule. Based on comments to the preliminary RIA, AMS increased 
its assumed rate of industry growth when it issued the Final RIA and it 
maintained that rate unchanged in the Withdrawal RIA. AMS continues to 
believe that this assumed rate appropriately incorporated industry 
information and expectations that were available at the time of the 
Final RIA's publication, which suggested an average growth rate of 12.7 
percent across the preceding decade. The Economic Analysis Report 
addressed only the lack of consistency in the calculated production 
levels based on the assumed rate of growth and industry exit under the 
three scenarios considered in the Final RIA. For example, the Economic 
Analysis Report found that the Final RIA had multiple instances where 
the production levels used in the benefits and cost calculations of the 
RIA did not reflect the production levels implied by the assumed growth 
rates. AMS notes that even the 12.7 percent value assumed robust growth 
far exceeding annual growth in other sectors and was based on explosive 
growth in the organic industry that may have been due, in part, to 
independent factors not attributable to the organic label, such as lack 
of supply in the conventional markets. AMS believes that there is no 
reason to assume that growth would exceed that average rate 12.7 
percent per year across the entire 15-year period, especially in light 
of the increased costs expected to result from the OLPP Rule and 
considerations of market maturation.

Comments on General Policy or Beyond the Scope of the Request for 
Comments

    The limited purpose of this notice-and-comment proceeding was to 
assist AMS in forming a final assessment regarding the methodological 
soundness of the OLPP Final RIA and Withdrawal RIA and any policymaking 
conclusions that flow from that assessment. Most commenters provided 
their views on other aspects of the OLPP rulemaking, namely legal and 
policy arguments in favor of the OLPP Rule that do not relate to the 
methodology of the RIAs. Those views include opinions regarding AMS's 
legal authority to promulgate the OLPP Rule, the role of the NOSB in 
the rulemaking process, the support of stakeholders for the OLPP Rule, 
and the perceived benefits of the OLPP Rule. Although AMS appreciates 
these comments, they are beyond the scope of the request for comment 
and thus AMS is not providing responses to them in light of the limited 
scope of this proceeding. This proceeding was not intended to fully 
reopen the legal and policy discussion regarding the OLPP Rule. Those 
issues have already been the subject of three notice-and-comment 
proceedings in the last four years. To the extent the comments 
reiterate opinions already expressed during the rulemaking proceedings 
on the OLPP Rule, the delay of its effective date, and the Withdrawal 
Rule, AMS refers to the discussions of those rulemaking documents that 
provide its analysis and responses to those comments.
    Commenters also made assertions regarding benefits of the OLPP that 
did relate, in some respect, to the soundness of AMS's analysis of 
costs and benefits but were speculative and difficult, if not 
impossible, to validate and/or quantify. For example, commenters argued 
that the Economic Analysis Report underestimated the importance of 
animal welfare to organic consumers, how the OLPP Rule would increase 
consumer knowledge of animal welfare practices in organic production, 
and how such knowledge could, in turn, increase organic consumer's 
willingness to pay organic price premiums. However, these asserted 
benefits are highly speculative and their proponents proffered no data 
or studies supporting or quantifying the alleged relationships between 
animal welfare practices, consumer knowledge of the same, and the 
impact of such knowledge on organic consumers' WTP. Furthermore. AMS 
believes that the Final RIA and, by extension, the Withdrawal RIA, 
expressly considered this idea by relying on research that attempted to 
measure consumer WTP for animal welfare attributes. Thus, AMS does not 
agree that these critiques identify any additional errors in the Final 
RIA or the Withdrawal RIA. Moreover, AMS notes that the organic 
regulations existing prior to the OLPP Rule set standards for livestock 
and poultry healthcare, feed, and living conditions. The significant 
expansion of the organic egg laying flock, organic egg production, and 
reported sales under these regulations demonstrate consumer trust in 
current practices and requirements.
    Some commenters similarly argued that other alleged benefits of the 
OLPP Final Rule should have been considered in the Economic Analysis 
Report, including increased consumer confidence in the organic label; 
greater uniformity in organic practices; a more level playing field 
among producers; the promotion of soil fertility and nutrient 
recycling; a reduction or prevention of certain external costs 
generated by factory farms such as pollution; a reduction in import 
fraud; and a preservation of organic equivalency arrangements with 
foreign trading partners. However, the existence and scope of those 
benefits are speculative at best and the commenters proffered no data 
or studies quantifying or otherwise supporting the purported benefits. 
Thus, AMS believes that the opinions in these comments reflect policy 
disagreements regarding the possible consequences of the OLPP Rule, 
rather than methodological flaws in the economic analyses. AMS has 
already responded to the substance of these comments in the prior 
rulemaking proceedings.
    Some commenters disagreed with USDA's use of the cost benefit 
analysis generally, stating that such analyses should not apply to 
programs in which participation is entirely voluntary. However, as 
noted in the proposed rule explaining AMS's intent to withdraw the OLPP 
Final Rule, published in the Federal Register on December 18, 2017 (82 
FR 59988), the Office of Management and Budget designated withdrawal of 
the OLPP Final Rule an economically significant regulatory action, 
thereby necessitating a cost benefit analysis undertaken pursuant to 
Executive Orders 12866 and 13563, and these Executive Orders make no 
distinction between mandatory and voluntary programs. Other commenters 
said that AMS wrongly considered the costs and benefits to large 
factory farms,\10\ whose industrialized production models the 
commenters asserted were innately non-organic. However, AMS regulates 
organic processes and it permits a variety of organic production 
practices. It does not presume the compatibility of certain production 
practices and models with organic requirements, and if a factory farm 
is able to develop and adhere to an approved organic system plan that 
complies with existing regulations, then AMS will deem it organic, 
regardless of its size or structure.
---------------------------------------------------------------------------

    \10\ Another commenter said that AMS was incorrect to use the 
Small Business Administration's (SBA) threshold of $15 million in 
annual revenue as the cut-off for small organic farms in the Final 
RIA, given the size differences between the organic and non-organic 
submarkets. However, this comment falls well outside the scope of 
the request for comments on the Economic Analysis Report and AMS 
will not address it further.
---------------------------------------------------------------------------

    Some commenters stated that AMS should issue a corrected Regulatory 
Impact Analysis for the OLPP Withdrawal Rule instead of preparing a

[[Page 57943]]

report cataloguing and explaining the errors in both the Final RIA and 
the Withdrawal RIA. However, after AMS identified the additional errors 
in December 2019, it determined that the prudent course was to proceed 
incrementally by first identifying the errors and then deciding what to 
do about them. Had AMS decided that further policymaking was necessary, 
AMS agrees that preparation of a new RIA might have been appropriate, 
but AMS has decided against such further preparation for the reasons 
stated below. AMS disagrees that it should have attempted to correct 
the errors in the Final RIA. The errors in that RIA were so pervasive 
and intertwined with the rest of the analysis, and certain 
methodological choices so poorly documented, that it would be difficult 
to attempt to isolate and fully correct for each documented error. In 
light of the pervasive errors discovered to date and the failure to 
document certain methodological choices, AMS could not be confident 
that other errors may not later come to light, thus necessitating 
further corrections. Furthermore, even if the errors could be isolated 
from the rest of the analysis and fully corrected, the data underlying 
the cost benefit calculations date back to at least 2014 or earlier and 
thus may no longer be valid, especially in light of the economic 
changes occasioned by the COVID-19 pandemic. The only way that USDA 
could confidently address all of the errors and account for changing 
economic conditions would be to start the cost benefit analysis over 
from scratch. However, AMS believes that it would not have been 
possible to complete a new regulatory impact analysis, seek and address 
comments on that analysis, and finalize it within the time constraints 
imposed by the Court's order.
    Additionally, as explained in the Withdrawal Rule, USDA does not 
believe that the OFPA provides statutory authority for the OLPP Rule or 
(even if it did) that there has been a market failure that makes an 
intervention in the market necessary and thus warrants the use of 
limited agency resources to complete a new RIA. As noted in the 
discussion of market failure or the lack thereof in the Withdrawal Rule 
(83 FR 10775), a variety of organic production practices may be 
employed to meet organic production standards and the existence of such 
variety is not an indication of a significant market failure. Moreover, 
as shown by the Organic Trade Association's annual 2019 Organic 
Industry Survey, demand for organic eggs and poultry was strong in the 
years prior to the promulgation of the OLPP Rule and has remained so 
since its withdrawal.
    Finally, when USDA sought remand of the OLPP Withdrawal Rule from 
the District Court for the District of Columbia, it explained that it 
was doing so ``to address whether [the identified flaws] require 
changes to the economic analysis,'' and did not commit that it would 
necessarily undertake a new or corrected cost benefit analysis for the 
rule. As explained in this Final Decision, AMS has determined that it 
would not be feasible or prudent to attempt to correct the prior 
economic analyses and that preparation of a new analysis would not be 
an appropriate use of agency resources in light of AMS's other bases 
for withdrawing the OLPP Rule. Instead, USDA has produced the Economic 
Analysis Report and this final decision, which conclude that the RIAs 
for the OLPP Rule and Withdrawal Rule are seriously flawed and thus did 
not produce a reliable projection of costs and benefits, and AMS is 
withdrawing its prior conclusions regarding the economic impacts of the 
OLPP Rule to reflect these assessments without initiating further 
policy changes.
    Another commenter questioned the integrity of the Economic Analysis 
Report, stating that its author, Dr. Peyton Ferrier, did not conduct an 
independent peer review of the OLPP Rule and Withdrawal Rule RIA's 
because he is an AMS employee who was tasked with reaffirming the 
agency's withdrawal decision. It stated that the Economic Analysis 
Report should be more properly considered a Litigation Report. AMS 
acknowledges that Dr. Peyton Ferrier is currently an AMS economist, but 
he was not involved in, nor was he an AMS economist at the time of, the 
development, drafting, or review of the OLPP RIA, the OLPP Rule, the 
Withdrawal RIA, or the Withdrawal Rule. Therefore, he was able to 
provide an independent perspective on the integrity of the methodology 
and calculations used by other USDA economists and organic program who 
were involved in the preparation of the RIAs for the prior rulemakings, 
and he did in fact conduct an independent peer review of those RIAs. 
Furthermore, Dr. Ferrier was not asked to opine on what the USDA's 
final decision on the OLPP rulemaking should be, and he did not 
advocate for a particular outcome in the Economic Analysis Report. 
Rather, he supplied underlying data and his analysis of that data, 
which USDA has considered in making and explaining this Final Decision.
    Commenters also criticized Dr. Ferrier's reliance upon a 2013 
article by Yan Heng, Hikaru Hanawa Peterson, and Xianghong Li (Heng et 
al.) for its values of consumer WTP for outdoor access. AMS actually 
considered estimates of consumer WTP from several studies, but Heng et 
al. (2013) was specifically cited in the Economic Analysis Report 
because that study supplied the figures that AMS relied upon in 
projecting the anticipated benefits of the OLPP in the Final RIA and 
Withdrawal RIA. As previously noted, the narrow purpose of the Economic 
Analysis Report was to review and critique the two prior RIAs and the 
errors in those RIAs revolved around the 2013 Heng study. Thus, it was 
relevant to the discussion of certain identified flaws or weaknesses in 
those analyses and Dr. Ferrier appropriately made it his focus.
    Other comments challenged the Economic Analysis Report on the 
ground stated that the RIAs and Economic Analysis Report were not 
transparent and that the data and formulas that were used to prepare 
them had not been made publicly available or were inconsistent with the 
available private sector data, thus rendering them unreproducible and 
unverifiable. While the previous RIAs may not have been fully 
transparent in their modeling, AMS disagrees with commenter assertions 
that the Economic Analysis Report is not transparent in its modeling. 
The Economic Analysis Report comprehensively catalogues and explains 
errors presented in the previous RIAs, particularly those in the cost 
calculations and depreciation schedules. Furthermore, when AMS 
published the Economic Analysis Report, it also published several 
supporting documents and files explaining the report's data and 
formulations in the rulemaking docket on regulations.gov. AMS is 
unaware of the private sector data referenced in specific comments and 
the commenters did not provide those data.
    One commenter stated that USDA failed to give commenters sufficient 
time to review and comment on the Economic Analysis Report because USDA 
did not expand the comment period on the report from 30 days to 60 
days, as requested. However, a 60 day comment period would not have 
allowed AMS to complete the necessary steps to draft and publish the 
Economic Analysis Report, review and analyze the comments on the 
report, and complete this Final Decision by the deadline set by the 
District Court in the District of Columbia. Additionally, the 
Regulatory Impact Analysis for the OLPP Final Rule

[[Page 57944]]

has been available since January 2017, and the Regulatory Impact 
Analysis for the OLPP Withdrawal Rule has been publicly available since 
March 2018. Furthermore, USDA identified and described concerns 
regarding those RIAs in public litigation filings on January 3, January 
24, and February 21, 2020. Thus, although the Economic Analysis Report 
was not itself published until April 23, 2020, AMS believes that 
commenters had ample opportunity to familiarize themselves with the 
Final RIA and the Withdrawal RIA and that 30 days was sufficient to 
review a report analyzing specific flaws in those documents.

AMS Final Decision

    The purpose of the remand was to clarify and supplement the record 
regarding the OLPP and Withdrawal Rules in light of new facts and 
information that came to USDA's attention in December 2019, and for AMS 
to make a decision on whether further rulemaking action or economic 
analysis is warranted in light of that new information. USDA 
accomplished this goal by commissioning Dr. Peyton Ferrier to review 
the RIAs for the OLPP Final Rule and OLPP Withdrawal Rule and to 
articulate the impact of his findings on the existing regulatory 
framework under the Withdrawal Rule. Pursuant to this process, Dr. 
Peyton produced the Economic Analysis Report setting forth his 
conclusion that there were significant methodological flaws in both 
RIAs, and AMS solicited public comment on the findings in the Report. 
After careful consideration of the Economic Analysis Report and the 
comments received thereupon, USDA finds nothing in those comments that 
would cause it to reject or modify the findings of that report, and it 
affirms the findings of the report.
    The Economic Analysis Report discredits the Final RIA because that 
RIA contained multiple methodological errors that were carried forward 
to the Withdrawal RIA and conclusively demonstrate its 
untrustworthiness. The Final RIA incorrectly applied a discounting 
formula to future benefits, used an inappropriate WTP for the value of 
eggs produced under the OLPP Rule's outdoor access requirements, and 
applied depreciation to the benefits of the rule but not the costs. The 
Withdrawal RIA corrected the first two errors, but it only partially 
corrected the third because it attempted to remove the depreciation 
treatment from the benefits calculation but did not fully do so. The 
Economic Analysis Report also found four other significant errors in 
the Final RIA that went undiscovered until they were brought to light 
by a review that was prompted by Dr. Thomas Vukina's extra-record 
analysis, and which thus carried over into the Withdrawal RIA. These 
results indicate that the Final RIA was significantly flawed and caused 
the Withdrawal RIA to be flawed. To the extent the Withdrawal Rule 
formed an assessment of the likely costs and benefits of the OLPP Rule 
based on that flawed analysis, AMS hereby modifies that assessment and 
concludes simply that the Final RIA does not support promulgation of 
the OLPP Rule in light of its significant flaws. Implementing the OLPP 
Rule based on such a flawed economic analysis is not in the public 
interest. AMS makes no changes to the conclusions set forth in the 
Withdrawal Rule that did not rely on the flawed RIAs and leaves the 
remainder of the Withdrawal Rule intact. In light of these findings and 
conclusions, USDA sees no basis for, and thus has decided not to take, 
any further regulatory actions or to make any policy changes with 
respect to the OLPP Rule.

Bruce Summers,
Administrator, Agricultural Marketing Service.
[FR Doc. 2020-19939 Filed 9-16-20; 8:45 am]
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