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Federal Register / Vol. 86, No. 90 / Wednesday, May 12, 2021 / Proposed Rules
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demand, entrants to this industry bear those costs as well, but also face the significant additional costs of converting land for organic feed and pasture over a 3-year period. Under this alternative, in periods of industry growth i.e., high demand new entrants to the industry would face the additional cost of acquiring organic heifers and milking cows under periods of tight supply and this alternative could lengthen the time required for new entrants to begin production. While a subset of organic dairies would see higher returns on sales of heifers, incumbent farms seeking to grow would see higher costs of expanding herds through heifer purchases and the additional time required to certify additional land under the organic program. While some incumbent producers may benefit under this alternative in the short-term, the added costs to entry and expansion would likely foster price volatility for organic heifers and wholesale organic milk, as the supply has a limited ability to expand in response to demand fluctuations.
Organic heifers are an input to wholesale organic milk production, and wholesale milk is an input to retail organic milk products such as organic cheese, yogurt, butter, and retail-level milk. Bringing organic milk products to market requires complementary investments in retail marketing outlets and brand development. Bernanke 1983, Cabellero and Pindyck 1996, and Carruth et al. 2000 find that increasing input price volatility reduces investment since the value of the option to delay the investment rises with increased uncertainty about the investments return.36 37 38 Such volatility could limit long-term growth in organic milk demand if downstream milk processors for cheese and other milk products and retailers require an organic milk supply with stable prices to allow for planning of other investments such as equipment, brand promotion, and retail promotion, which in some cases constitutes building retail stores focused solely on the sale of organic products.
This alternative would simplify enforcement of the requirements by applying a single standard, without 36 Bernanke, Ben S. 1983 Irreversibility, Uncertainty and Cyclical Investment, Quarterly Journal of Economics 98 85106.
37 Caballero, Ricardo J. and Pindyck, Robert S.
Uncertainty, Investment, and Industry Evolution International Economic Review 199637:641663.
38 Carruth, A., Dickerson, A., and Henley, A.
2000 What do We Know About Investment Under Uncertainty? Journal of Economic Surveys 142: 119154.

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exceptions, to all organic dairy operations. It would also align the requirements for dairy animals with the requirements for organic slaughter stock. AMS does not believe this option is necessary for several reasons.
First, AMS believes that certifiers will be able to enforce a rule that allows for a limited and well-defined transition.
Second, AMS believes that allowing one-time transitions for organic dairy operations maintains market stability while simultaneously preserving the value of the organic label. Third, AMS
notes that other aspects of the USDA
organic regulations slow entry into this market and believes that eliminating its historic allowance of dairy animal transitions would unfairly burden downstream organic processors and retailers who have invested in the industry based on the expectation of the continuation of regulations that ensure a stable and responsive market supply.
Most comments objected to the presence of different requirements across the industry, depending on how a certifying agent interprets the regulations. Most commenters supported a one-time allowance.
Conclusions AMS is proposing a regulatory option that retains the opportunity for new operations to transition into organic dairy production once. We are reopening the comment period to solicit views on whether the final rule should prohibit certified organic dairy operations from acquiring transitioned animals to expand or replace animals to produce organic milk. We are also seeking comment on whether AMS
should use the term operation to describe the regulated entity, rather than producer.
A clear and consistent standard for transition of dairy animals into organic production is needed and anticipated by dairy producers, consumers, trade associations, certifying agents, and USDAs OIG. AMS seeks to provide a foundation for compliance and enforcement in support of fair competition among dairy operations through a well-defined and consistently implemented standard.
Regulatory Flexibility Analysis The Regulatory Flexibility Act RFA
5 U.S.C. 601612 requires agencies to consider the economic impact of each rule on small entities and evaluate alternatives that would accomplish the objectives of the rule without unduly burdening small entities or erecting barriers that would restrict their ability to compete in the market. The purpose is to fit regulatory actions to the scale of
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businesses subject to the action.
Pursuant to the requirements set forth in RFA, AMS performed an economic impact analysis on small entities. Small entities include producers and agricultural service firms, such as handlers and accredited certifying agents. AMS has determined that the proposed action would impact small entities but that it would not have a significant economic impact on them.
RFA permits agencies to prepare the regulatory flexibility analysis in conjunction with other analyses required by law, such as RIA. AMS
notes that several requirements of the regulatory flexibility analysis overlap with those of RIA. For example, RFA
requires a description of the reasons why the action by the agency is being considered and an analysis of the proposed rules costs to small entities.
RIA likewise describes the need for the proposed rule, the alternatives considered, and the potential costs and benefits of the proposed rule. In order to avoid duplication, we combine some analyses as allowed in 605b of RFA.
As explained below, AMS expects that the entities that could be impacted by the proposed rule would qualify as small businesses. In RIA, the discussion of alternatives and the potential costs and benefits pertains to impacts upon all entities, including small entities.
Therefore, the scope of those discussions in RIA is applicable to regulatory flexibility analysis under RFA. RIA should be referred to for more detail.
Potentially Affected Small Entities AMS has considered the economic impact of the proposed action on small entities. Small entities include producers transitioning into organic dairy production, existing organic dairy producers, producers that raise replacement animals for organic dairies, and certifying agents. AMS believes that the cost of implementing the proposed rule will fall primarily on organic dairies that currently purchase transitioned heifers, although any organic dairies that purchase organic heifers would be expected to pay higher prices in the short-term due to increased competition for these animals. Farms that sell their excess organic replacement heifers may see an increase in demand for their heifers, and farms that raise their own organic replacement heifers would not likely be affected by the proposal. AMS believes heifer development operations also could be impacted by this action. However, limited information on the number and size of heifer development operations prevents our estimation of the number
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