WSR 18-21-190
PROPOSED RULES
DEPARTMENT OF AGRICULTURE
[Filed October 24, 2018, 9:31 a.m.]
Original Notice.
Preproposal statement of inquiry was filed as WSR 18-15-100.
Title of Rule and Other Identifying Information: Chapter 16-157 WAC, Organic food standards and certification, the department is proposing to modify the existing fees for certification and the existing organic and transitional logos.
Hearing Location(s): On Wednesday, November 28, 2018, at 10:00 a.m., at the Washington State Department of Agriculture (WSDA), Natural Resources Building, 1111 Washington Street S.E., Room 259, Olympia, WA 98504-2560; and on Friday, November 30, 2018, at 1:00 p.m., at WSDA, 21 North 1st Avenue, #236, Room 238, Yakima, WA 98902.
Date of Intended Adoption: December 12, 2018.
Submit Written Comments to: Henri Gonzales, Agency Rules Coordinator, P.O. Box 42560, Olympia, WA 98504-2560, email wsdarulescomments@agr.wa.gov, fax 360-902-1809 [360-902-2902], by November 28, 2018.
Assistance for Persons with Disabilities: Contact Angela Starr, phone 360-902-1967, fax 360-902-2087, TTY 800-833-6388, email astarr@agr.wa.gov, by November 21, 2018.
Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: WSDA is required by statute to set fees at levels that recover the full cost of providing organic and transitional certification services. RCW
15.86.070 states
"The director may adopt rules establishing a program for certifying producers, processors, and handlers as meeting state, national, or international standards for organic or transitional products. The rules shall include a fee schedule that will provide for the recovery of the full cost of the program." The structure of the fee schedule has not changed since the start of the WSDA organic program over thirty years ago. Only minor changes to fee rates have taken place since the adoption of the United States (U.S.) Department of Agriculture (USDA) organic regulations in 2002.
An increased demand for services, the need for more rigorous inspections and evaluations, and a rise in operating costs has caused program expenses to exceed incoming fee revenue. After implementing numerous efficiencies and improvements within the certification process, WSDA is proposing to restructure the existing certification fees in chapter 16-157 WAC to ensure the cost of providing the certification services is recovered.
The proposal aims to simplify the fee reporting and evaluation process for businesses and ensure fees are charged based on the services provided and not based solely on the value of organic products sold.
1. The current fee structure relies on new applicants to estimate their income from organic products which is then reconciled at their second inspection. This complicated estimate/evaluation process has been removed and replaced with a simple flat rate fee.
2. Rather than having a separate renewal fee structure for each business type (producer, handler, processor), the renewal fees have been consolidated into a single unified fee structure. This will allow businesses more flexibility to expand their business models without being restricted by the current fee structure.
3. Under the current fee schedule handling businesses have a cap in place while producers and processors do not have a maximum fee. A maximum renewal fee has been set for all business types to ensure consistency across businesses and services.
4. A minimum fee has been set to ensure costs are recovered from complex businesses that are not actively selling organic products, but wish to remain certified and request WSDA services.
5. An inspection fee has been established at a flat rate based on scope rather than income. This fee is intended to spread out the cost of certification over the year and ensure a larger portion of core certification costs are recovered regardless of operation scale.
6. Additional fees for services beyond the annual core certification process have been restructured and flat rates established. These include fees for requesting the addition of new land, new facilities, or new products under an existing certification. Expedite[d] fees have also been better defined and established at a flat rate rather than an hourly charge.
To increase consumer awareness and improve the marketing of products, the proposed rule also updates the WSDA organic and transitional logos that may be displayed on products certified by the department. The use of the WSDA organic or transitional logos are optional and may be used with or instead of the optional USDA organic seal.
And finally, the proposed rule makes minor technical corrections to references to agricultural products to ensure alignment in terminology with 7 C.F.R. Part 205.
Reasons Supporting Proposal: The proposal will ensure WSDA organic program is compliant with chapter
15.86 RCW and is able to recover costs while offering high quality certification services to a variety of business types and scales. Without these changes in how fees are assessed, WSDA organic program will need to limit the services they are able to provide to organic farms and businesses.
Statute Being Implemented: Chapter
15.86 RCW.
Rule is not necessitated by federal law, federal or state court decision.
Name of Proponent: WSDA, governmental.
Name of Agency Personnel Responsible for Drafting, Implementation, and Enforcement: Brenda Book, 1111 Washington Street S.E., Olympia, WA, 360-902-2090.
A school district fiscal impact statement is not required under RCW
28A.305.135.
A cost-benefit analysis is not required under RCW
34.05.328. WSDA is not a listed agency under RCW
34.05.328 (5)(a)(i).
The proposed rule does impose more-than-minor costs on businesses.
Small Business Economic Impact Statement
SECTION 1:Describe the proposed rule, including: A brief history of the issue; an explanation of why the proposed rule is needed; and a brief description of the probable compliance requirements and the kinds of professional services that a small business is likely to need in order to comply with the proposed rule.
History: WSDA organic program provides access to the organic market and ensures the integrity of the organic label. WSDA offers voluntary certification for any business that wishes to market their products with an organic claim. The program is the seventh largest USDA accredited certification agency in the U.S., currently serving over one thousand three hundred certified organic operations and nearly four hundred businesses manufacturing or distributing input materials for use in organic production. Organic farms or handlers are found in all but six counties in the state and represent a diversity of crops, sizes, and marketing options. Forages, vegetables, and tree fruit are the leading organic crop and product categories followed by grains, dry beans, small fruit, grapes, and nuts. Processed products include frozen vegetables, juice, roasted coffee, livestock feed, and multiingredient products such as bread. Approximately ninety percent of the organic businesses in Washington are certified by WSDA organic program, with the remainder working with several out-of-state private certifiers.
WSDA began offering organic certification services after the enactment of chapter
15.86 RCW in 1985. This statute set the stage for WSDA to establish the first state organic certification agency in the country. By 1987 WSDA's new organic program began inspecting and certifying farms under the authority of chapter
15.86 RCW and under the rules outlined in chapter 16-157 WAC. In 2002, the organic program shifted from oversight of a state standard to enforcing 7 C.F.R. Part 205, the USDA organic regulation. Chapter 16-157 WAC adopts 7 C.F.R. Part 205 in addition to outlining the fees for certification and establishing the logos that may be used on products certified by WSDA.
WSDA is required by statute to set fees at levels that recover the full cost of providing organic and transitional certification services. RCW
15.86.070 states
"The director may adopt rules establishing a program for certifying producers, processors, and handlers as meeting state, national, or international standards for organic or transitional products. The rules shall include a fee schedule that will provide for the recovery of the full cost of the program." WSDA established a fee schedule based on the gross annual income received by a certified operation for the production or handling of the organic products. The structure of the fee schedule has not changed since the start of the WSDA organic program over thirty years ago. Only minor changes to fee rates have taken place since the adoption of the USDA organic regulations in 2002.
As the organic industry in Washington state has grown, so has the need for services from the WSDA organic program. In 1988 WSDA certified sixty-eight farms and in July 2018, the program was working with a record one thousand three hundred thirteen producers, handlers, and processors of organic products. Currently certified businesses farm on more than two thousand six hundred certified sites (or more than one hundred twenty-four thousand certified acres) and handle or process more than eight thousand two hundred certified products. The WSDA organic program receives an average of one hundred twenty-five new applications for certification annually and each year, thirty to forty percent of the certified farms require additional evaluations to increase their certified acreage. Organic farms report gross farm gate sales for the previous year when they renew certification each winter. Total 2017 farm gate value increased to $667 million from $355 million in 2012. During this same five years WSDA certified operations nearly doubled.
In addition to an increase in organic production, new markets have emerged requiring additional services by WSDA organic program. The USDA organic regulation has evolved in response to the increased market demand and new expectations in place for WSDA services. For example: Multiple international trade requirements must be evaluated to ensure compliance with U.S. equivalency agreements; a more comprehensive look at a farm's impact on natural resources and biological diversity is required at each inspection; and there is an increase in the number and types of audits that must be conducted annually at each on-site inspection, regardless of scale and type of market. Today, organic inspection requirements are more rigorous and the evaluation process more complex than fifteen years ago. USDA continues to establish important guidance and instruction for the certification and inspection processes, which WSDA organic program must quickly implement to ensure market access for WSDA certified products.
As new instruction and guidance is developed by USDA there is an increased need for more technical assistance services to the growing number of businesses interested in the organic label. Over the last ten years WSDA organic program has found a need to strengthen and expand the outreach and education component of the organic certification services. This focus has proven critical to ensure the certification process continues to be accessible and attainable to Washington businesses, in addition to ensuring the organic label is valued and understood by their customers. WSDA organic program has looked for creative ways to support organic businesses and actively seeks grant funding when possible to support the costs of outreach and education activities.
Since 2008 the WSDA organic program has been in dialog with the state's organic advisory board (OAB) about the need to restructure the fee schedule to manage the rise in operating costs. Over the last five years WSDA has increased staffing numbers in response to industry requests and the need for more rigorous inspections and evaluations. A rise in operating costs during this same time has caused expenses to exceed incoming fee revenue in fiscal years 2017 and 2018. After implementing numerous efficiencies and improvements within the certification process over the last ten years, WSDA is proposing to restructure the existing certification fees in chapter 16-157 WAC to ensure the cost of providing the certification services is recovered. To increase consumer awareness and improve the marketing of products, the proposed rule also updates the WSDA organic and transitional logos that may be displayed on products certified by the department.
Restructuring Certification Fees: The certification fees outlined in the proposed rule are not new fees. WSDA organic program is proposing to restructure the existing fee schedule to meet four goals:
1. Simple and Transparent: Both current and potential certified operations should be able to quickly and easily determine their certification costs.
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| º | Fees have been simplified and consolidated into one schedule instead of the four different schedules that currently exist. |
| º | Flat rates are used over hourly rates and calculations. |
| º | Gross annual income is always reported on the previous calendar year removing confusion caused by variable reporting periods. |
2. Balanced: The cost of providing certification must be recovered, while ensuring certification remains accessible and affordable for small or new organic businesses.
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| º | The certification process does not change based on the scale of an operation. The current fee schedule is set up so that a larger business pays a larger certification fee, in part subsidizing the expense of providing certification to a small business or a business that has limited gross annual income from organic products. |
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| ■ | Under the current fee schedule, one hundred seventy-six of the evaluated farms (twenty-four percent) report less than $15,000 in gross annual income. With limited exception, such as the inclusion of the $250.00 new application fee, these operations pay the minimum certification fee of $220. Their fees represent 3.3 percent of the total producer fees ($57,840.00). |
| ■ | Under the current fee schedule, thirty-seven of the evaluated handlers (twenty-seven percent) report less than $50,000 in gross annual income. With limited exception, these operations pay $200 in annual renewal fees, contributing less than 3.5 percent of the total handler fees ($9,740.00). |
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| º | The proposed rule seeks to raise the minimum certification fee so that the program's costs of providing services are better recovered per business. |
| º | For some businesses with less than fifty employees, the restructured fee schedule will result in a reduction of fees rather than an increase. |
3. Predictable: Fees should not be based solely on the success of the business, but on the services provided by the program.
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| º | Certification fees need to be predictable so program resources are secured proactively and services provided quickly. The proposed rule seeks to divide the cost of certification between a renewal fee based on the gross annual income received by a certified operation and an inspection fee based on a flat rate for the service provided. |
| º | By reducing the number of fee steps in the current schedules, and eliminating the calculated fee for processors, operations will be able to better predict their certification fee and will experience less variability from minor changes in income. |
4.
Effective: WSDA organic program is a fee for service program. The cost of operating the program must be recovered in full by the fees charged for the services provided per chapter
15.86 RCW.
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| º | The current fee structure does not accurately reflect the cost of providing certification services to several key groups: Exempt operations (defined as less than $5,000 in organic gross annual income) and very small operations (defined as less than $50,000 in organic gross annual income), handlers, and new tree fruit producers. |
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| ■ | Exempt and very small operations: There is a core cost of providing organic certification services to any operation regardless of scale. 7 C.F.R. Part 205 allows an exempt operation to make limited organic claims without going through the certification process and without paying any certification fees. Exempt operations may voluntarily choose to seek certification. The increase in the minimum renewal fee and the inclusion of an inspection fee based on scope will help to cover the cost of services without relying solely on an evaluation of income to assess fees. |
| ■ | Handlers: The current fee structure has significantly reduced rates for operations that handle but do not process organic products, yet there is not a difference in the workload and certification process between the two types of handling operations. By raising the maximum certification fee from $11,000 to $25,000 and by combining the fee schedule for all scopes the program is able to better recover the costs necessary for providing handling certification services. |
| ■ | New tree fruit producers: The current fee schedule allows operations to define a twelve month reporting period to report gross annual income, this is often reported as a July to July year. This can result in a situation where a tree fruit operation will report no gross annual income for up to the first three years of their organic certification. By proposing a higher minimum fee and an inspection fee that is not based off of gross annual income the program will better recover the expense for providing certification; by expressly stating that the reporting period is the previous calendar year, and adjusting the renewal deadline to accommodate this, we can ensure that the scale of an operation is represented in a more timely manner. |
Redesigning the Certification Logos: Chapter 16-157 WAC currently includes four different logos that may be used on products certified by the department. The use of the WSDA logos is optional and the USDA organic seal may be used instead of the WSDA logos. The WSDA logos have not changed in design since the establishment of the program and is not widely used on product labeling.
The proposed rule seeks to consolidate the producer, handler, and processor logos into one certified organic logo. The logos have been redesigned to provide both a black and white and a color version to aid in the marketing and branding of WSDA certified products. The proposed logos are also designed to meet the regulatory requirement that all packages include the name of the certification agency, eliminating the need for some operations to print this statement separately if the logo is used.
Summary: The proposed rule does not set new fees but restructures the existing thirty year old fee schedule to better recover the cost of providing the services as required in chapter
15.86 RCW. The proposed rule also redesigns the WSDA organic and transitional logos to encourage increased use on WSDA certified products. The department does not anticipate any business will need to obtain any professional services in order to comply with the proposed fee restructure or redesigned logos. Any operation producing and handling organic products will be making its own business decisions about acquiring the knowledge and expertise necessary to successfully conduct that enterprise.
SECTION 2:Identify which businesses are required to comply with the proposed rule using the North American Industry Classification System (NAICS) codes and what the minor cost thresholds are.
NAICS Code (4, 5 or 6 digit) | NAICS Business Description | # of businesses in WA | Minor Cost Threshold = 1% of Average Annual Payroll | Minor Cost Threshold = .3% of Average Annual Revenue |
1111 | ±Oilseed and grain farming | 1068 | $469.22 | Data not available |
1112 | ±Vegetable and melon farming | 380 | $4,310.84 | Data not available |
1113 | ±Fruit and tree nut farming | 2424 | $4,506.75 | Data not available |
1119 | ±Other crop farming | 629 | $3,398.57 | Data not available |
1121 | ±Cattle ranching and farming | 590 | $2,748.67 | Data not available |
1122 | ±Hog and pig farming | 3 | $1,351.91 | Data not available |
1123 | ±Poultry and egg production | 47 | $5,459.70 | Data not available |
1124 | ±Sheep and goat farming | 23 | $396.21 | Data not available |
3111 | *Animal food manufacturing | 38 | $6,396.05 | $41,270.05 |
3112 | *Grain and oilseed milling | 21 | $22,130.48 | $89,395.43 |
3113 | *Sugar and confectionery product manufacturing | 54 | $7,006.48 | Data not available |
3114 | *Fruit and vegetable preserving and specialty food manufacturing | 76 | $49,006.58 | $139,203.08 |
3115 | *Dairy product manufacturing | 29 | $21,667.59 | Data not available |
3116 | *Animal slaughtering and processing | 78 | $21,346.03 | $69,493.62 |
3118 | *Bakeries and tortilla manufacturing | 233 | $8,294.16 | $15,855.82 |
3119 | *Other food manufacturing | 133 | $9,549.47 | $41,089.35 |
3121 | *Beverage manufacturing | 347 | Data not available | Data not available |
4244 | *Grocery and related product merchant wholesalers | 1016 | $10,664.71 | $68,835.66 |
4245 | *Farm product raw material merchant wholesalers | 154 | $4,907.79 | $124,356.90 |
4451 | *Grocery stores | 2044 | $7,145.97 | $21,249.75 |
4452 | *Specialty food stores | 578 | $1,238.89 | $2,198.55 |
4931 | *Warehousing and storage | 352 | $18,185.80 | $5,832.98 |
7224 | *Drinking places (alcoholic beverages) | 836 | $1,361.04 | $1,568.24 |
7225 | *Restaurants and other eating places | 13047 | $2,244.87 | $2,193.64 |
*Data source: 2012 Economic Census of the United States.
±Data source: 2015 Quarterly Census of Employment and Wages (Bureau of Labor Statistics).
Organic certification is a voluntary certification program that is only required if operations wish to represent their crops and/or products as organic, typically at a premium over conventional prices. Certification services can be provided by any accredited certification agency, including both private and public institutions.
The types of businesses listed above represent the types of operations that have currently chosen to seek certification with WSDA. Most operations in these categories are not seeking organic certification and will not be impacted by the proposal.
SECTION 3:Analyze the probable cost of compliance. Identify the probable costs to comply with the proposed rule, including: Cost of equipment, supplies, labor, professional services and increased administrative costs; and whether compliance with the proposed rule will cause businesses to lose sales or revenue.
The proposed revisions to chapter 16-157 WAC do not result in an across the board increase in certification fees for certified businesses. An indepth analysis of the fees collected by the different types of operations allowed WSDA to develop a new structure that better recovers costs per operation. The result of the restructure is an increase in fees for some and a reduction in fees for others. Operations with fees that do not currently recover the cost of certification services requested include: Exempt and very small operations, handlers and processors of organic products, and new applicants for certification or existing operations wishing to expand their certification.
The probable cost of compliance will be dependent primarily on the scope and scale of the operation. The table below provides an overview of how certified operations will be impacted based on the proposed rule.
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| • | Data provided below is based off of income reported with 2017 organic certification renewals for operations that were certified organic in both 2017 and 2018. |
| • | The business scope correlates to the type of certifications provided by the program. Businesses below are classified based on the primary scope of their existing certification. |
| • | The business scale is based off of USDA's classification of farms: Very large (greater than $500,000.00 income annually); large (between $250,000.00 and $500,000.00 income annually) and small (less than $250,000.00 income annually). |
| • | To better assess the impact on the affected operations two additional scales were created: Very small (between $5,000.00 and $50,000.00 income annually) and exempt (less than $5,000.00 income annually). Small was revised to accommodate this change (between $50,000.00 and $250,000.00 income annually). |
| • | Operations identified as exempt, very small, or small likely have fifty employees or less and would meet the definition of a small business under chapter 19.85 RCW. |
| • | Operations identified as exempt in the table are reporting less than $5,000.00 in gross annual organic income and are typically exempt from organic certification pursuant to 7 C.F.R. 205.101(a). Exempt operations can make limited organic claims without going through the certification process and without paying any certification fees. An exempt operation may not have any cost associated with making organic claims if they choose not be certified. |
Business Scope | Business Scale | Number of Businesses | Average Reported Organic Income | Average Current Fee | Average Proposed Fee | Average Change as Percent of Reported Income |
Crop producer | Exempt | 118 | $1,038.85 | $325.85 | $688.18 | 34.88% |
Crop producer | Very small | 161 | $21,523.16 | $389.54 | $671.85 | 1.31% |
Crop producer | Small | 143 | $130,396.20 | $1,292.53 | $1,228.51 | -0.05% |
Crop producer | Large | 65 | $376,471.51 | $2,442.62 | $2,234.19 | -0.06% |
Crop producer | Very large | 187 | $2,872,957.73 | $5,559.43 | $5,705.88 | 0.01% |
Handler | Exempt | 26 | $476.23 | $703.08 | $927.88 | 47.20% |
Handler | Very small | 11 | $22,208.59 | $416.36 | $865.00 | 2.02% |
Handler | Small | 31 | $141,145.33 | $688.39 | $1,465.08 | 0.55% |
Handler | Large | 12 | $357,250.31 | $995.83 | $2,348.54 | 0.38% |
Handler | Very large | 60 | $9,701,256.33 | $4,176.50 | $7,959.69 | 0.04% |
Livestock producer | Exempt | 3 | $650.00 | $233.33 | $795.83 | 86.54% |
Livestock producer | Very small | 15 | $21,149.79 | $384.33 | $1,087.67 | 3.33% |
Livestock producer | Small | 13 | $110,580.35 | $1,194.23 | $1,498.08 | 0.27% |
Livestock producer | Large | 8 | $402,175.93 | $2,581.67 | $2,650.00 | 0.02% |
Livestock producer | Very large | 42 | $2,178,955.48 | $4,832.92 | $5,382.92 | 0.03% |
Processor | Exempt | 35 | $323.38 | $377.82 | $817.86 | 136.08% |
Processor | Very small | 24 | $20,541.01 | $422.27 | $827.60 | 1.97% |
Processor | Small | 28 | $117,982.22 | $702.20 | $1,356.52 | 0.55% |
Processor | Large | 26 | $383,129.87 | $1,576.61 | $2,481.83 | 0.24% |
Processor | Very large | 64 | $3,894,348.27 | $6,650.60 | $7,462.98 | 0.02% |
Producer-Processor (Crops) | Exempt | 1 | $4,535.00 | $320.00 | $935.00 | 13.56% |
Producer-Processor (Crops) | Very small | 8 | $20,803.64 | $393.75 | $1,065.63 | 3.23% |
Producer-Processor (Crops) | Small | 8 | $123,794.23 | $1,220.00 | $1,465.63 | 0.20% |
Producer-Processor (Crops) | Large | 4 | $381,837.77 | $2,740.00 | $2,941.25 | 0.05% |
Producer-Processor (Crops) | Very large | 3 | $5,418,927.26 | $8,500.82 | $10,345.02 | 0.03% |
Producer-Processor (Livestock) | Exempt | 2 | $3,240.61 | $1,345.00 | $2,028.75 | 21.10% |
Producer-Processor (Livestock) | Very small | 3 | $37,904.33 | $568.33 | $1,293.33 | 1.91% |
Producer-Processor (Livestock) | Small | 2 | $181,019.72 | $1,490.00 | $1,925.00 | 0.24% |
Producer-Processor (Livestock) | Large | 2 | $467,227.43 | $2,760.00 | $3,337.50 | 0.12% |
Producer-Processor (Livestock) | Very large | 3 | $1,455,134.24 | $4,264.13 | $5,321.25 | 0.07% |
Retailer | Very large | 14 | $4,885,847.24 | $2,142.14 | $2,014.29 | 0.00% |
The proposed revision to chapter 16-157 WAC, Organic food standards and certification, is not likely to have an appreciable impact on the cost of equipment, supplies, labor, professional services, or administrative costs. Compliance with the proposed rule will not likely cause businesses to lose sales or revenue and may result in a savings in certification fees for some small businesses with less than fifty employees.
While the proposed revision aims to restructure the existing fee schedule for organic certification, it does not rely on any additional recordkeeping or administrative actions beyond those currently present in the existing rule.
SECTION 4:Analyze whether the proposed rule may impose more-than-minor costs on businesses in the industry.
NAICS does not differentiate between organic and nonorganic production and handling activities. As such the values from the Economic Census of the U.S. and the U.S. Department of Labor's Quarterly Census of Employment and Wages (QCEW), identified in Section 2 above, are not an ideal comparison for evaluating the impact on businesses in the organic industry.
WSDA organic program compiled information from our database systems, including gross annual income from organic crops, and used this information to calculate the cost of fees under the current fee structure and as well as the theoretical cost under the proposed fee structure for each operation that was certified organic by WSDA in 2017 and remained in the program in 20181. WSDA organic program used comparisons between these two sets of data to analyze the impact of the proposed rule on currently certified operations. The analyses indicated a majority of the current WSDA certified operations will not be significantly impacted by the changes to the fees in the proposed rule. A significant impact is determined to be an increase in fees that exceeds 0.3 percent of reported gross annual income from organic crops or services.
1 Since some factors of the current and proposed fee structures are not readily available for previous years, only operations that were certified in 2017 and remain certified in 2018 were included in the evaluation.
When comparing organic production and handling as a single commodity the average reported gross annual income from the one thousand one hundred twenty-three evaluated operations was $1,449,301.28. The average current effective fee would have been $2,295.47 and the average effective proposed fee would have been $2,853.95. The resulting increase in fees from the proposal would represent 0.0385 percent of gross annual income from organic crops and products. Since many of the evaluated operations have income from both organic and nonorganic activities; this value should serve as a conservative analog to an organic industry wide minor cost threshold (0.3 percent average annual revenue).
In order to better analyze the impact of this proposed revision, the evaluation was extended to evaluate the impact of the proposal on each scope and scale of operation, see the table in Section 3, the proposal is projected to be more than a minor business expense for the following types of businesses:
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| • | Businesses reporting less than $5,000 in gross annual income |
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| º | While these businesses can expect a significant impact from the proposed fee restructuring, businesses that are reporting less than $5,000 in gross annual income are typically exempt from organic certification pursuant to 7 C.F.R. 205.101(a). Exempt operations can make limited organic claims without going through the certification process. |
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| • | Businesses reporting between $5,000 and $50,000 in gross annual income |
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| º | Businesses of this scale can expect an increase of around three percent of their reported organic income to their fees. The revenue from fees for businesses of this scale under the current fee structure has not been sufficient to cover the costs of providing organic certification services. The inclusion of the inspection fee, where this increase primarily comes from, was specifically proposed to help cover the core cost of providing certification services regardless of scale. |
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| • | Handlers reporting between $50,000 and $500,000 in gross annual income |
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| º | Handlers in this income range can expect an increase of around 0.5 percent of their reported organic income to their fees. While the increase exceeds the 0.3 percent minor cost threshold it is important to note that most handling operations handle both organic and conventional products, with organic handling typically being the minority. If data on the total average annual revenue for these operations was available, it is likely that this cost would fall under the minor cost threshold. Under the current fee structure handlers do not pay enough in fees to recover the program's costs of providing organic certification services. |
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| • | Processors reporting between $50,000 and $250,000 in gross annual income |
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| º | Processors that are reporting between $50,000 and $250,000 should expect an increase of around 0.5 percent of their reported organic income to their fees. While the increase exceeds the 0.3 percent minor cost threshold it is important to note that many organic processors process both organic and conventional products, which would result in a lower effective increase. |
WSDA organic program also evaluated the fee structures of six other organic certifiers that were similar to WSDA in either business structure, size, or location in order to ensure that any changes to our fee structure were consistent with the industry. The effective proposed fee was consistently lower than that of other certifiers, with the reduction in fees being most pronounced for smaller operations.
SECTION 5:Determine whether the proposed rule may have a disproportionate impact on small businesses as compared to the ten percent of businesses that are the largest businesses required to comply with the proposed rule.
Organic certification is a relatively unique service in that it is a voluntary certification program for businesses wanting to make an organic claim on agriculture based products. Businesses are not required to be certified organic in order to operate. Choosing organic certification and the use of the organic label benefits a business with increased market access and the ability to receive a higher premium for a certified product.
For those operations that choose to be certified by WSDA organic program the impact of this proposed rule will be more significant for the exempt or very small businesses when compared to the largest ten percent of businesses seeking certification. This is largely by design, as under the current fee structure the revenue generated from small businesses does not cover the cost of providing certification services. This cost is largely subsidized by the very large operations.
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| • | The inspection fee included in the proposed restructuring is a flat rate based on scope rather than income (ranging from $375 for crop producers to $500 for handlers or processors). This fee is intended to ensure a larger portion of core certification costs are recovered regardless of operation scale, without being overly burdensome. Since this is a flat rate it will have a larger relative effect on smaller operations than it will on larger operations. |
| • | The new application fee will have a disproportionate impact on small businesses within the industry because the fee is a flat rate regardless of the operation's scale. However, when renewing, the renewal fee is based on the gross annual income received by the operation. The larger the business the higher the renewal application fee assessment. |
The fees for services outside of the new, renewal, and inspection fee will impact a larger business more than a smaller operation. These flat rates replace the existing hourly rate that may be charged and are targeted at those operations that are expanding or seeking services outside of the annual core certification process.
SECTION 6:If the proposed rule has a disproportionate impact on small businesses, identify the steps taken to reduce the costs of the rule on small businesses. If the costs cannot be reduced provide a clear explanation of why.
RCW 19.85.030(2) requires consideration of the following methods of reducing the impact of the proposed amendment on small businesses: (a) Reducing, modifying, or eliminating substantive regulatory requirements – The proposal does not include any substantive regulatory requirements. The use of the WSDA organic or transitional logos is optional.
(b) Simplifying, reducing, or eliminating recordkeeping and reporting requirements – The proposal aims to simplify the fee reporting and evaluation process and consolidate the optional logos into one consistent design. Rather than having a separate fee structure for each business type, they have been consolidated into a single unified fee structure. This will allow small businesses more flexibility to expand their business models without being restricted by the current fee structure. Additionally the current fee structure relies on new applicants to estimate their income from organic products which is then reconciled at their second inspection. This causes a large number of invoices, credit statements, and general confusion since most new operations will not be able to accurately estimate their income. This complicated estimate/evaluation process has been removed and replaced with a simple flat rate fee ($375).
(c) Reducing the frequency of inspections – The inspection schedule is outlined in the USDA organic regulations, which are outside the scope of this rule change. While the number of inspections will remain consistent across all operations the simplifications that have been made to the rule should reduce the amount of time needed at inspection to verify or explain fees.
(d) Delaying compliance timetables – The use of the redesigned logos will be effective for new product labels with the effective date of the changes to chapter 16-157 WAC. However, WSDA organic program will allow the continued use of the existing logo on packages and marketing information while an operation's supplies last. No changes will be required until the time a business needs to reprint an existing label with a current WSDA organic or transitional logo.
(e) Reducing or modifying fine schedules for noncompliance – The current fee structure requires operations to pay for the cost of performing additional inspections if needed to evaluate compliance. This cost is outlined as $40 per hour plus associated travel costs. Under the proposed revision additional inspections are conducted at the same rate as annual inspections (a flat rate depending on scope). This will ensure businesses can expect consistent and predictable costs.
Additional Steps Taken to Reduce the Cost of Certification: The following additional measures exist or are being implemented to reduce the cost of certification, these changes have a more significant impact on smaller operations:
| |
| • | The proposal includes a discount for businesses with both the producer and handler or processor scope that have less than $250,000.00 in gross annual income. The intent of this discount is to offset the cost of evaluating a second scope for a small operation that is processing primarily their own crops. |
| • | The following fees are waived for new applicants to reduce reporting requirements and offset the cost of starting a business: New site application fee, land assessment fee, and new product fee. |
| • | USDA funds a cost share reimbursement program. This program reimburses organic operations seventy-five percent of their organic certification fees up to $750 per scope. WSDA organic program will continue to advertise and administer this program to ensure that it is available to all interested businesses. This reimbursement would have a significant impact on reducing the cost of certification for small operations. |
SECTION 7:Describe how small businesses were involved in the development of the proposed rule.
WSDA's OAB was established in 1987 to advise WSDA concerning the implementation of the organic program. OAB consists of organic farmers, processors, handlers and other interested parties that meet three to four times a year to discuss the organic program services and provide feedback on how the program can improve the certification process. A fee restructure has been discussed with the WSDA OAB several times over the last decade. This ongoing work with stakeholders helped inform the design of the new logos and established four goals for the revised fee structure outlined in Section 1.
From January to October 2018 WSDA organic program management worked on the development of the proposed rule. This effort included individual meetings with each OAB member as well as with other key stakeholder organizations that represent small businesses with less than fifty employees. The following businesses and organizations provided direct input and support for the proposed rules:
| |
| • | Washington State Tree Fruit Association* |
| • | Northwest Horticulture Council* |
| • | Tilth Alliance* |
| • | Washington Farmers Market Association* |
| • | Washington State University* |
| • | Zirkle Fruit Company |
| • | GS Long Company Inc.* |
| • | Challenger Farm |
| • | Skagit Flats Farm* |
| • | Empey Orchards |
| • | Wesen Dairy* |
| • | Oyster Bay Farm* |
| • | Middleton Orchards* |
| • | PCC Natural Markets |
| • | Skagit River Ranch* |
* Business with less than fifty employees or organizations that represent businesses with less than fifty employees.
SECTION 8:Identify the estimated number of jobs that will be created or lost as the result of compliance with the proposed rule.
The proposed fee structure is simpler and more succinct than the current rule; however it is unlikely that it will have any appreciable effect on the results of compliance and should not result in the loss or creation of any jobs.
A copy of the statement may be obtained by contacting Henri Gonzales, Agency Rules Coordinator, P.O. Box 42560, Olympia, WA 98504-2560, phone 360-902-1809, fax 360-902-1809 [360-902-2902], TTY 800-833-6388, email wsdarulescomments@agr.wa.gov.
October 24, 2018
Steve Fuller, Assistant Director
Food Safety Consumer Services
AMENDATORY SECTION(Amending WSR 06-23-108, filed 11/17/06, effective 12/18/06)
WAC 16-157-010Purpose.
This chapter is adopted under RCW
15.86.060 wherein the director is authorized to adopt rules for the proper administration of the Organic Food Products Act, and under RCW
15.86.070 wherein the director is authorized to adopt rules establishing a certification program for producers, processors, and handlers of organic and transitional ((
food))
products.
AMENDATORY SECTION(Amending WSR 18-03-154, filed 1/23/18, effective 2/23/18)
WAC 16-157-020Adoption of the National Organic Program.
The Washington state department of agriculture adopts the standards of the National Organic Program, 7 C.F.R. Part 205, effective August 7, 2017, for the production and handling of organic crops, livestock, and processed ((food))agricultural products. The National Organic Program rules may be obtained from the department by emailing the organic program at organic@agr.wa.gov, by phone at 360-902-1805 or accessing the National Organic Program's web site at https://www.ams.usda.gov/rules-regulations/organic.
AMENDATORY SECTION(Amending WSR 06-23-108, filed 11/17/06, effective 12/18/06)
WAC 16-157-030Definitions.
As used in this chapter:
"Department" means the Washington state department of agriculture.
"Director" means the director of the department of agriculture or his or her duly authorized representative.
"Facility" includes, but is not limited to, any premises, plant, establishment, facility and associated appurtenances where organic ((food is))products are prepared, handled, or processed in any manner for resale or distribution to retail outlets, restaurants, and any other such facility selling or distributing to consumers.
"Gross annual income" means the total monetary value received during ((a twelve-month period of time. The twelve-month period of time may be a fiscal year or a))the previous calendar year.
"Handler" means any person engaged in the business of handling agricultural products, including producers who handle crops or livestock of their own production.
"Handling operation" means any operation or portion of an operation that receives or otherwise acquires agricultural products and processes, packages, or stores such products.
"New applicant" means any person who applies for organic certification for the first time, or any person who has surrendered an organic certification or had an organic certification suspended or revoked.
"Person" means any individual, partnership, limited liability company, association, cooperative, or other entity.
"Processor" means any handler engaged in the canning, freezing, drying, dehydrating, cooking, pressing, powdering, packaging, baking, heating, mixing, grinding, churning, separating, extracting, cutting, fermenting, eviscerating, preserving, jarring, slaughtering or otherwise processing organic ((food))products.
"Producer" means a person who engages in the business of growing or producing food, fiber, feed, and other agricultural-based consumer products.
"Production operation" means a farm, ranch, or other business that grows, gathers, or raises crops, wild crops, or livestock.
"Renewal applicant" means any person that has received organic certification from the department in the previous year.
"Retailer" means any handler that sells organic food products directly to consumers.
"Sale" means selling, offering for sale, holding for sale, preparing for sale, trading, bartering, offering a gift as an inducement for sale of, and advertising for sale in any media.
"Site" means a contiguous defined field, orchard, block, pasture, paddock, garden, circle, plot or other designated area under the same management practices (e.g., organic, transitional).
"Transitional product" means any agricultural product that (a) is marketed using the term transitional in its labeling and advertising and (b) satisfies all of the requirements of organic except that it has had no applications of prohibited substances within one year prior to the harvest of the crop.
AMENDATORY SECTION(Amending WSR 06-23-108, filed 11/17/06, effective 12/18/06)
WAC 16-157-215General requirements for certification.
(1) Except for operations exempt or excluded in the National Organic Program (7 C.F.R. 205.101), each production or handling operation or specified portion of a production or handling operation must be certified if it produces or handles crops, livestock, livestock products, or other agricultural products intended to be sold, labeled, or represented as "one hundred percent organic," "organic," or "made with organic (specified ingredients or food group(s))."
(a) If you have an operation that meets the definition of "production operation," you must be certified as a producer.
(b) If you have an operation that meets the definition of "handling operation," you must be certified as a handler or processor unless you are a certified producer who cleans, washes, grades, dries, packages, transports, or does similar preparation of your own production.
(c) If you are a certified producer who changes crops, wild crops, or livestock products of your own production into new distinct products by physically, chemically, or otherwise changing the original product, you must also be certified as a processor.
(2) If you are seeking to receive or maintain organic certification, you must submit an application on forms approved by the department.
(a) Application forms must be ((signed))submitted by an authorized representative of the business operation and must be accompanied by the appropriate fees in order to be considered.
(b) Application forms are available upon request from the department.
(3) If you are a new applicant, you must include a complete organic system plan with your application.
(4) If you are a certified operation, you must submit an update to your organic system plan on an annual basis. Certified operations may be required by the department to submit a new complete organic system plan whenever there are significant changes to the operation.
(5) Applications for certification must include a list of all organic products produced and/or handled, including site information, sample labels, and complete product profiles for each distinctly labeled organic product.
(a) Certified operations must not use an organic label or make organic claims for any product not included in the operation's organic system plan.
(b) Certified operations may request the addition of new production sites to their organic or transitional certification by submitting maps and complete site applications to the department.
(c) Certified operations may ((add))request the addition of new products to their organic certification by submitting sample labels and complete product profiles to the department where applicable.
(((c)))(d) Product profiles must include a complete list of ingredients in the product and processing aids used in manufacturing the product.
(6) Certified operations that do not submit a renewal application and fees to continue certification or do not comply annually with 7 C.F.R. 205.406 may have their certification suspended.
(7)(a) The director shall make one or more inspections per year of each new and renewal applicant to determine compliance with this chapter and chapter 15.86 RCW. (b) Each separate primary location or facility must receive an annual on-site inspection. The annual on-site inspection includes an audit of required records, examination of production sites, facilities and storage areas, and inspection of any other information deemed necessary by the requirements of this chapter or the National Organic Program, 7 C.F.R. Part 205.
NEW SECTION
WAC 16-157-251Certification fee schedule.
(1) Producers and handlers of organic products must submit an application packet and fees to the department each year to receive or maintain certification.
(a) New applicant fee: A new application fee of three hundred seventy-five dollars must be submitted with each new application.
(b) Renewal fee: A renewal fee must be submitted annually by March 1st with each renewal application. Renewal fees for producers, handlers, and processors are assessed based on the gross annual income received by the operation for the production or handling of organically certified products. The renewal fee is based on the following fee schedule:
GROSS ANNUAL INCOME RECEIVED FROM ORGANIC PRODUCTS IN PREVIOUS CALENDAR YEAR | | RENEWAL FEE DUE ANNUALLY ON MARCH 1st |
$ 0 | - | $25,000 | | . . . . $137.50 |
$25,001 | - | $50,000 | | . . . . $275.00 |
$50,001 | - | $75,000 | | . . . . $412.50 |
$75,001 | - | $100,000 | | . . . . $550.00 |
$100,001 | - | $150,000 | | . . . . $825.00 |
$150,001 | - | $200,000 | | . . . . $1,100.00 |
$200,001 | - | $250,000 | | . . . . $1,375.00 |
$250,001 | - | $300,000 | | . . . . $1,512.50 |
$300,001 | - | $400,000 | | . . . . $1,787.50 |
$400,001 | - | $500,000 | | . . . . $2,062.50 |
$500,001 | - | $750,000 | | . . . . $2,406.25 |
$750,001 | - | $1,00,000 | | . . . . $2,750.00 |
$1,000,001 | - | $1,500,000 | | . . . . $3,437.50 |
$1,500,001 | - | $2,000,000 | | . . . . $4,125.00 |
$2,000,001 | - | $3,000,000 | | . . . . $5,500.00 |
$3,000,001 | - | $4,000,000 | | . . . . $6,875.00 |
$4,000,001 | - | $5,000,000 | | . . . . $8,250.00 |
$5,000,001 | - | and up | | . . . . $8,250 plus 0.1375% of income over $5,000,000 |
(i) The maximum renewal fee shall not exceed twenty-five thousand dollars per primary facility or location.
(ii) The minimum renewal fee is four hundred twelve dollars and fifty cents for operations with more than: Twenty-five acres in production (excluding fallow, pasture, hay, haylage, and silage), or more than five production sites, or more than fifteen products.
(iii) Operations certified to the retailer scope are exempt from the gross annual income assessment and are charged a one thousand five hundred dollar renewal fee per retail location or facility.
(iv) Renewal applications and fees submitted after March 1st must include a late fee in addition to the renewal fee.
If a renewal application is submitted after March 1st but before: | The late fee is: |
April 1st | $100.00 | |
May 1st | $200.00 | |
June 1st | $300.00 | |
July 1st | $400.00 | |
August 1st | $500.00 | |
September 1st | $600.00 | |
(c) Inspection fee: An inspection fee must be submitted after each annual and announced additional inspection conducted by the department. The inspection fee is the sum of the fees associated with the scopes of the inspection. Inspection fees are based on the following fee schedule:
INSPECTION SCOPE | | INSPECTION FEE |
Crop producer | - | $375 |
Livestock producer | - | $250 |
Wild crop producer | - | $100 |
Handler, processor, or retailer | - | $500 |
(i) Operations with a producer scope plus either the handler or processor scope and less than two hundred fifty thousand dollars in gross annual income qualify for a three hundred dollar reduction in their inspection fee.
(ii) Each primary location or facility must receive an annual on-site inspection. In the event more than one primary location or facility is included under one certification, the operation will be charged an inspection fee per primary location or facility.
(iii) Additional announced inspections, if necessary to determine compliance or requested by the operation, will be charged to the new applicant or certified operation per the inspection fee table. Unannounced inspections conducted by the department are not charged an inspection fee.
(iv) Out-of-state inspections, if necessary to determine compliance or requested by the operation, shall be charged five hundred dollars plus associated travel costs in addition to the inspection fee.
(2) New and renewal applicants may request additional evaluations throughout the year. A fee is charged to the operation based on the service requested.
(a) New scope: The request to add a new scope of certification will be charged to the certified operation at a rate of one hundred dollars per new organic system plan submitted.
(b) New site application: Each new site application submitted by a renewal applicant after March 1st will be charged forty dollars per application.
(c) Land assessment: A fee of one hundred dollars per inspection will be charged to a renewal applicant when an evaluation of one or more production sites is part of an inspection. The land assessment fee does not apply to the annual examination of a renewal applicant's existing certified sites.
(d) New product application: A rate of forty dollars per handled or single ingredient processed product and a rate of sixty dollars per multi-ingredient processed product is charged to evaluate a new handled or processed product for certification. Product fees are not required when products are submitted with a new application packet.
(e) New facility: Certified operations are charged a fee of one hundred dollars per request to evaluate an additional facility.
(f) Expedited services: New and renewing applicants may request expedited services. Expedited services are defined as inspections and reviews conducted outside of the normal timelines and may be provided by the department if sufficient staff is available to expedite the work.
(i) Expedited services that do not require an inspection are charged a rate of five hundred dollars to receive an evaluation and certification decision within five business days from the acceptance of the request.
(ii) Expedited services requiring an inspection prior to a certification decision are charged a rate of seven hundred fifty dollars to receive an inspection on an expedited and agreed upon timeline that takes the crop harvest or anticipated production or handling dates into consideration. The review of the inspection report will be completed within five business days from the date of the inspection. The expedite fee is in addition to the inspection fee outlined under the certification fee schedule.
(g) Mediation fee: A five hundred dollar fee plus the cost of a formal mediator, if applicable, will be charged to a new or renewal applicant when mediation is accepted by the department.
AMENDATORY SECTION(Amending WSR 06-23-108, filed 11/17/06, effective 12/18/06)
WAC 16-157-260Organic and transitional ((producer)) certification and the use of logos.
(1) The director must review the application, inspection report, and results of any samples collected to determine if a producer, handler, processor, or retailer has complied with the conditions for organic or transitional certification. A certificate will be issued when the director determines that the ((producer))operation has complied with the conditions for initial or continued organic or transitional ((producer)) certification.
(2) Organic producers, handlers, processors, and retailers certified under this chapter may use the organic ((producer)) logo, found in WAC 16-157-275, and the USDA organic seal as outlined in 7 C.F.R. Part 205 to identify ((organic))organically certified products.
(3) Transitional products certified under this chapter may use the transitional ((producer)) logo, found in WAC 16-157-275, to identify transitional products.
(4) The logos found in WAC 16-157-275 may be printed in black and white as displayed in this chapter. Alternatively, a color version with green leaves may be used. Electronic copies of the logos are available by request from the department.
AMENDATORY SECTION(Amending WSR 02-10-090, filed 4/29/02, effective 5/30/02)
WAC 16-157-275Organic and transitional certification logos.
AMENDATORY SECTION(Amending WSR 06-23-108, filed 11/17/06, effective 12/18/06)
WAC 16-157-290Export and transaction certificates.
(1) Organic export and transaction certificates are issued to verify that a specific shipment of organic ((food))agricultural products has been produced, processed, and handled in accordance with the National Organic Program, 7 C.F.R. Part 205, or a foreign organic standard.
(2) Applications for export and transaction certificates must be submitted on forms furnished by the department. The applicant must furnish all information requested on the application. A separate application must be made for each export and transaction certificate.
(3) The fee for export and transaction certificates is forty dollars per application.
REPEALER
The following sections of the Washington Administrative Code are repealed:
WAC 16-157-220 | Producer fee schedule. |
WAC 16-157-230 | Processor fee schedule. |
WAC 16-157-240 | Handler fee schedule. |
WAC 16-157-245 | Retailer fee schedule. |
WAC 16-157-250 | Inspections. |
WAC 16-157-270 | Organic food processor and handler certification and use of logos. |
