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Federal Register / Vol. 86, No. 90 / Wednesday, May 12, 2021 / Proposed Rules
not account for increased costs to operations that might maintain ownership of offspring that are born onfarm, subsequently removed from organic production, and then transitioned back into organic production. We understand that most certifiers do not interpret the current regulations to allow this practice. For this reason, AMS believes that applying the cost differential to replacement heifers that are both purchased and unpurchased i.e., owned would likely overstate the cost of the rule. However, AMS seeks data from industry regarding the extent to which unpurchased heifers are transitioned to inform our cost calculations.
As described in our consideration of regulatory alternatives, AMS expects that purchases of replacement heifers that are transitioned animals would increase if AMS allowed this practice Alternative A. Additionally, dairy operations utilizing heifer-raising operations while retaining ownership may switch to operations that use conventional practices and then transition the animals. Table 3 shows that only 11 percent of operations purchase replacement heifers. The uneven application of the current rule suggests that a smaller share of producers is benefiting from the cost advantage of transitioned heifers, at a level higher than that suggested by the average number of head purchased.

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Costs of Proposed Rule The proposed rule would likely increase production costs on organic livestock and dairy operations that currently continually transition nonorganic animals and/or operations that source transitioned dairy animals as replacements. Additionally, any dairy that purchases organic heifers may pay higher prices for organic animals due to increased demand, but organic operations selling replacement heifers would benefit from any higher prices.
We assume that farms that exclusively raise their own organic replacement heifers and manage those animals organically from birth would not incur additional costs under the proposed rule. Similarly, dairy farms that send organic heifer calves to other certified organic operations to have the animals continuously managed as organic for some period of time before returning to the farm would not incur additional costs. Finally, nonorganic dairy operations converting to organic
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production for the first time would not incur new costs during the 12-month transition period; they may transition animals on a one-time basis under the proposed rule.
Estimated Costs for Dairies The proposed rule creates two costs for organic dairy farms. First, dairy farms that regularly transition heifers or regularly purchase transitioned replacement heifers after their initial transition to organic would be required either to purchase higher-cost organic from last third of gestation replacement heifers or to raise their own replacement by raising organic calves to maturity. This analysis assumes that transitioned animals are currently sold at a discount compared to organic from the last third of gestation replacement animals.
Second, by raising the demand for organic replacement heifers, the proposed rule may raise the price of organic replacement heifers if operations currently selling organic transitioned replacement heifers cannot comply with the proposed requirements and operations that sell organic last third of gestation replacement heifers cannot easily increase offerings. While this price increase is likely to be small, it would raise costs to any organic dairy farm that is a net buyer of organic replacement heifers, regardless of whether it continually transitions animals or purchases transitioned replacement heifers. This same price effect, however, would create an offsetting benefit to any dairy farm that is a net seller of organic replacement heifers.
AMS estimates the costs of the proposed rule below by estimating the total number of replacement animals purchased by U.S. organic dairy cattle operations annually. We then estimate the percentage of all purchased animals that does not meet the requirements of the proposed rule i.e., the percentage of animals bought by organic operations that are not organic from the last third of gestation. Due to the unavailability of precise data, we estimated a range of possibilities 25 percent to 50 percent of all purchased animals. To calculate costs, we then multiply the number of animals by the price difference between organic from the last third of gestation and nonorganic heifers we use nonorganic heifer prices as a substitute for transitioned animals in the absence of that data. Finally, we considered a
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possible increase for the price of organic animals to calculate the maximum expected costs. Below we discuss the data and calculations in detail.
The ARMS survey includes farm-level data on purchases and sales of heifers weighing more than 500 pounds, a category that explicitly includes sales of springers.27 While the ARMS survey does not identify whether purchased heifers have been organic from birth or have transitioned to organic status, it does identify whether the farms themselves are certified or transitioning to organic status. Since all cattle sold by organic dairies are themselves organic and all cattle sold by non-organic dairies are conventional, this analysis assumes that the difference in the large heifer sales prices for organic or transitioning farms and other farms reflects the difference in costs for those animals. This analysis estimates costs under the alternative assumptions that either 25 or 50 percent of all purchased heifers are transitioned heifers.
We used 2016 ARMS data to estimate the number of replacement animals purchased by organic operations. Table 3 provides the average numbers and prices of large heifers bought and sold by organic or transitioning farms, divided into four different size categories, along with figures for all organic or transitioning farms and all other non-organic farms. Compared with their non-organic counterparts, organic and transitioning dairy farms are smaller in herd size, less likely to purchase large heifers as replacements, and more likely to sell large heifers. On average, organic dairies purchase replacement large heifers at a rate of 0.73 percent of their total herd size or 0.75 head and sold large replacement heifers at a rate of 1.2 percent of their total herd size or 1.27 head.
However, only 10.9 percent of dairy farms purchased large heifers so that the average farm purchasing heifers bought 6.9 head. Based on an average mid-point herd size of 267,523 milk cows,28 all organic dairies purchase 1,953 large heifers annually. Rounding the large heifer purchase figure to 1,950, these 27 A springer is a heifer i.e., a female cow that has not previously calved that is 7 to 9 months pregnant and will begin producing milk within 0
to 2 months.
28 The mid-point herd size is the average of the Jan 1 and Dec 31 herd size for 2016. NASS Organic Production Survey. It is slightly less than peak heard size of 279,021.

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