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Federal Register / Vol. 86, No. 90 / Wednesday, May 12, 2021 / Proposed Rules be independently verified by consumers.
When producing goods with credence characteristics, producers face a moral hazard problem stemming from their incentive to forego taking costly actions or investments associated with the label claim if handlers or consumers have no way of verifying the production process i.e., asymmetric information. In providing guidance to Federal agencies undertaking rulemaking, OMB Circular A4 cites asymmetric information as a source of market failure and as a potential justification for regulation.
Lassoued and Hobbs 2015 further emphasize the role of trust in the institutions and brands that verify credence good attributes as being essential for developing the consumer confidence that drives brand loyalty.5
AMS developed the 2015 proposed rule in the context of maintaining trust in the NOP label, as it pertains specifically to organic dairy farms and to organic farms and organic handlers/
processors generally. AMS anticipates that rulemaking on this topic will support both producer and consumer confidence in the organic label by reducing major inconsistencies in production practices across organic dairies.
Baseline A final rule would specify the conditions under which operations can transition non-organic animals to organic for the purpose of milk production. Current dairy production and husbandry practices provide important context for the baseline and cost analysis. For a general description of replacement animal production, see Overview of Organic Dairy Production in the 2015 proposed rule 80 FR 23468.
The baseline presented below focuses on production practices of bovine dairy
farms maintaining cows and heifers and does not include quantitative estimates for non-bovine dairy farms that maintain sheep and goats. AMS does not expect the rule would have a substantial economic impact on those specific sub-sectors for the following reasons: Goat does and sheep ewes are able to produce milk earlier than cows, so the potential cost-savings for nonbovine dairy farms to continually source transitioned animals vs. animals under organic management from the last third of gestation is small compared to that for bovine dairy farms. For this reason, the practice of continually adding transitioned animals to organic nonbovine herds is likely less prevalent than with organic bovine herds. These operations also make up a relatively small portion of the organic dairy industry. The Organic Integrity Database 6 of certified organic operations includes 56 dairy goat operations and 5 dairy sheep operations.
AMS used multiple data sources to describe the baseline and build quantitative estimates. The first source is the Agricultural Resource Management Survey ARMS, which is maintained by USDAs Economic Research Service ERS and includes questions about dairy farm cattle purchases, restocking rates, and organic status.7 In 2016, ERS conducted a supplemental ARMS that focused on organic dairy operations. AMS worked with ERS to analyze recent ARMS data and develop an estimation of organic dairy production practices and costs for this rule.
Other sources of data are the National Agricultural Statistics Services NASS
2016 Certified Organic Production Survey and 2017 Census of Agriculture,8 which include State-level data on production, herd sizes, output, and sales for organic and non-organic
crops and livestock. Additionally, we used the Organic Trade Associations OTA 2019 Organic Industry Survey, conducted by the Nutrition Business Journal, to summarize market information and trends within the organic industry.9 Also, AMS requested an organic dairy farm special tabulation from the National Animal Health Monitoring System NAHMS Dairy 2014 report collected by USDAs Animal and Plant Health Inspection Service.10
A final source of data is the NOP list of all certified operations included in the Organic Integrity Database. In January of each calendar year, every USDA-accredited certifying agent is required to submit an annual list of the operations it certifies to NOP 7 CFR
205.501a15ii. NOP consolidates this information into a public, searchable online database.11 AMS used information from this database to crosscheck NASS data on the number of organic dairy operations.
The Organic Dairy MarketSales and Number of Operations According to the OTA Industry Survey, U.S. organic food, fiber, and agricultural product sales were over $55.0 billion in 2019, up 5 percent from 2019.12 Organic dairy and eggs is the third largest sector in organic retail food sales 13 percent, after fruits and vegetables 36 percent and beverages 14 percent. Sales of organic dairy products, including milk, cream, yogurt, cheese, butter, cottage cheese, sour cream, and ice cream, reached almost $5.8 billion in 2019. Table 1 shows the organic dairy market characteristics by subcategory. In 2019, organic dairy saw total sales growth of 2 percent, with the fluid milk growing 3 percent, yogurt growing 1 percent and cheese falling 1
percent.

TABLE 1ORGANIC DAIRY MARKETRETAIL SALES BY SUBCATEGORY
2019 Sales $ M

Subcategory
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Milk/Cream
Yogurt d
Cheese e
Butter/Cottage Cheese/Sour Cream d
5 Lassoued, R. and J.E. Hobbs 2015 Consumer Confidence in Credence Attributes: The Role of Brand Trust Food Policy 52:99107.
6 Certifying agents are required to send information on certified operations to AMS
annually. Current and historical data may be accessed through the Organic Integrity Database at the following link: https organic.ams.usda.gov/
Integrity/. Accessed 11/21/2019.
7 The ERS ARMS survey information may be found at the following link:

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2019 Growth
$3,394
1,260
572
425

2.9
0.5
1.4
0.3

http www.ers.usda.gov/data-products/armsfarm-financial-and-crop-production-practices.aspx.
8 The USDA NASS surveys may be found at the following link: https www.nass.usda.gov/Surveys/
Guide_to_NASS_Surveys/Organic_Production/.
9 OTA/Nutrition Business Journal, 2019 Organic Industry Survey. Nutrition Business Journal conducted a survey between January 1 and April 25, 2019, to obtain information for their estimates.
Over 200 organic firms responded to the survey.
Available online at https ota.com/resources.

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Percent of organic dairy sales a 58.8
21.8
9.9
7.4

Avg. markup b %
51
10
75
76

Organic markup c $ M
$1,146
115
245
184

10 The 2014 Dairy NAAHMS report may be found at the following link: http go.usa.gov/xKfEh.
11 Certifying agents are required to send information on certified operations yearly. Current and historical data may be accessed through the Organic Integrity Database at the following link:
https organic.ams.usda.gov/Integrity/.
12 Organic Trade Association OTA/Nutrition Business Journal, 2020 Organic Industry Survey pp. 4, 80.

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