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Federal Register / Vol. 86, No. 90 / Wednesday, May 12, 2021 / Proposed Rules prices upward. This represents at least a $1,000 premium for organic last third of gestation animals over transitioned animals. The estimated difference seems to agree with comments that production costs for these animals are $600 to $1,300 higher. We recognize that this price estimate may be high and thus the result might be considered an upper bound of the estimated costs.

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Effect on Consumer Milk Price A commenter in 2015 estimated the rule would increase the cost of producing organic milk by 3.7 to 6.0
cents per half gallon 0.87 percent to 1.42 percent, respectively and that the increase would be passed to consumers and negatively affect consumer demand.
However, AMS also received comments in 2015 from organic milk consumers that supported the proposed rule even recognizing the price of milk could increase. Another comment in 2015
noted that if supply of organic milk were to become very restricted under the new requirements, retail prices could increase to a point where consumer demand would flatten or even decrease.
In 2019, stakeholders were more concerned with how consumer milk prices negatively affect organic dairy producers than how they affect consumers. Comments frequently discussed the idea that there is an oversupply of organic milk currently flooding the market that are driving consumer prices down.
AMS response: Table 1 figures indicate that the retail markup of organic milk products over conventional milk products is 47 percent. The AMS
organic dairy report for February 8th to 12th, 2021, indicated that the 2020
average farm-level organic milk pay price was $31.55 per hundredweight while the USDA World Agricultural Demand and Supply Estimates for April 2021 indicate that the 2020 farm-level all milk price was $18.32 per hundredweight. Together these values indicate that the farm-level organic markup is 72 percent. The ERS farm share of the retail price for the milk and dairy basket in 2018 was 28 percent.
Collectively, this implies that the farm share of the retail price for organic milk is 32 percent.
Table 4 shows that the total costs of this proposal to the organic milk producers net of transfers would be $1,462,500 under our 50 percent transitioning scenario and $731,000
under our 25 percent transitioning scenario discussed further below. The Census of Organic Agriculture indicates that farm-level organic milk revenue
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was $57.8 million in 2016.26 Based on these figures, AMS estimates that a final rule would increase producer costs by 1.3 to 2.5 percent and retail costs by 0.4
to 0.8 percent. Price effects will depend on the specific products being considered. AMS first-of-the-quarter price reports indicate that a half gallon of organic milk has an average retail price of $3.98. Based on our calculations, a final rule might raise this price by 2 to 3 cents. AMS does not believe that price effects of this magnitude are likely to limit industry growth or noticeably affect demand.
Number of Transitioning Animals One commenter in 2015 estimated there were 60,000 conventional animals transitioning to organic production on new dairy farms and established dairy farms. The commenter predicted this could lead to an oversupply of milk and decrease in milk price income for the dairy farm. Another commenter in 2019
believed that tens of thousands of animals had transitioned since 2015.
AMS response: AMS recognizes that we do not have precise data on how many animals are transitioned on an annual basis by certified organic operations. Our experience indicates that most organic dairy farms do not continually transition animals.
However, because of the lack of precise numbers available, we estimate that transitioned animals comprise 25
percent low end to 50 percent high end of all purchased replacement animals. AMS did not receive concrete data from comments to support alternative figures.
Changes in Dairy Market Since 2015
In 2019, many comments noted that the organic dairy industry had changed considerably since AMS published the proposed rule in 2015. Primarily, commenters noted a decline in consumer demand for organic milk and increased availability of organic milk and organic dairy cows. Some comments noted that fewer operations are transitioning to organic production due to limited opportunities to secure a contract with a milk handler or because the price premium for organic production is no longer an incentive to transition. Some 2019 comments noted that the cost of the rule would be less than AMS estimated in 2015 due to increased availability of organic from last third of gestation replacement 26 Given the recency of the data and the relatively low inflation rate throughout, we do not adjust for inflation in our estimates. We note that ARMS data and the Census of Agriculture Data both reflect 2016 data indicating no need to adjust for inflation in calculating markups.

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animals and a corresponding drop in prices for these animals.
AMS response: AMS recognizes that the organic dairy market in 2015
differed from the current organic dairy market. Our calculation of costs for this proposal is higher than those calculated in 2015 because the cost calculation is based, in part, on the number of organic dairy operations and total organic herd size. These numbers have both increased since 2015, so the estimated cost is higher.
Costs and Benefits General A commenter in 2019 disagreed with AMS cost analysis in the proposed rule.
It stated that the cost analysis fails to capture the cost inequities of not implementing the proposed rule, and specifically points to its failure to distinguish production costs between organic and transitioned heifers.
Without this information, the commenter argues neither the agency nor stakeholders can understand the true cost, and true harm, of implementing or not implementing the proposed rule. Furthermore, the commenter calculated the harm to operations that source only last-third-ofgestation organic animals using the difference in production costs for transitioned animals and last-third-ofgestation organic animals. The commenter estimated that 25 percent or 50 percent of all culled organic dairy animals are replaced with transitioned animals and calculated competitive harm of $9.29 million to $18.58 million annually $469 multiplied by 25 percent to 50 percent of all culled animals using a cull rate of 28.4 percent.
AMS response: The commenter estimates that the competitive harm from the current enforcement practice of allowing transitioned animals is $9.29
million under the 25 percent scenario and $18.58 million under the 50
percent scenario. These estimates are based on the commenters finding that a conventional heifer costs $462 less to raise and that organic farms require 79,242 replacement heifers annually based on a 28.4 percent cull rate on the 279,021 head total U.S. organic herd.
AMS agrees with the commenters general concern that organic dairy farms need to replace a substantial share of cows each year and that the uneven application of rules regarding transition of heifers creates artificial cost disparities. AMS uses the price difference for purchased replacement heifers transitioned vs. organic from last third of gestation as its estimate of the per animal increase in costs for dairy farms that have used transitioned animals. AMS recognizes that this does
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