By John Bobbe, Executive Director Organic Farmers’ Agency for Relationship Marketing, Inc. (OFARM)
Introduction
The Organic Farmers’ Agency for Relationship Marketing (OFARM) is a cooperative incorporated in the State of Minnesota as a marketing-agency-in-common and operates under the Capper-Volstead Act of 1922. OFARM has five member organic grain and livestock marketing cooperatives with organic producers in 19 states from Montana to Texas and Louisiana to Tennessee, Kentucky and Ohio and all states in between. USDA has cited OFARM as the largest organized block of farmer-controlled organic grain in the U.S. (Rural Cooperatives Magazine, January 2012)
The idea of farmers working together in the marketplace on contracts including terms of trade, specifications and price originated in Ames, Iowa in 1997 with OFARM beginning its operations in 2000.
I have been OFARM’s executive director since 2001. During our 17 years of existence we have observed and carefully monitored the U.S. organic marketplace with its trends and changes. During the last few years, I have become increasingly concerned at the role imports of organic grain, some of which are fraudulent, are playing in reducing farm profits and slowing growth in organic conversion.
The U.S. organic market
The U.S. organic market is quite large with annual sales at the retail end over $50 billion. Three retail giants, Walmart, Costco, and Whole Foods (now owned by Amazon) each have about $13 billion in sales. There are also others that have hundreds of millions of dollars in sales. The organic market is projected to grow at an annual rate of 14% per year for the next three years.
Currently on the organic grain production side of the equation, OFARM has organic producers ranging in size from 50 to 3500 hectares (100 to 7000 acres). Producers with good management are averaging close to 10 metric tonnes per hectare for corn (145 bushels per acre), 3 metric tonnes per hectare for soybeans(45 bushels per acre) and 2.5-2.7 (about 90 bushels) metric tonnes per hectare for wheat. However, the conversion to organic from conventional production has been only 2% per year.
Even with these production numbers, the demand for organic grain production is increasing much faster than conversion of acres to meet the demand. The market is also not signaling to producers in any significant way that more production is needed or wanted. This is where imports come into play, especially for corn and soybeans.
Estimates we have seen point to about 40% of our corn needs are met with imports, 70-90% of our soybean needs and about 14% for wheat. The reason for the low wheat import numbers is that wheat for milling purposes is much more specific as to milling requirements. Millers are less willing to chance imports that may or may not meet their specifications as opposed to domestic suppliers they have established relationships with.
I want to make perfectly clear that we are not opposed to organic imports of corn, soybeans or wheat but fraudulent imports which have been identified on a large scale and had disastrous consequences for U.S. organic grain producers.
U.S. Organic Grain Farmer Perspectives and Damages From International Organic Fraud
The 12 states Midwestern states of North Dakota, South Dakota, Nebraska, Kansas, Minnesota, Iowa, Missouri, Wisconsin, Illinois, Indiana, Michigan, and Ohio produce 77 percent of the organic corn for grain and almost 50 percent of the soybeans.
Market conditions are such that on a farm with 50 hectares of corn, the losses last year amounted to over $30,000 below production costs. This has been the case for the past 3 years.
Our farmers recognize the current necessity of imports of organic corn and soybeans for segments of the industry to meet growing demand.
What is problematic is that imports, some in large quantities are being used to relegate U.S. organic grain production as a residual source of supply instead of a primary source in many cases. This has resulted in lower U.S. producer prices, sending the opposite market signals that less domestic production is needed. We should be encouraging more domestic production and price is one of the factors that indicates what producers should do. This is compounded by what appears to be massive volumes of fraudulent import shipments.
The United States Department of Agriculture (USDA) Foreign Agricultural Service (FAS) has published reports on organic markets including an assessment of fraud potential in at least one country in the Black Sea region.
The most frequently cited countries of origin for exports to the U.S. for corn and soybeans includes countries in the Black Sea Region. The fraud exposed has also been from shipments originating from countries in this region.
Washington Post Investigative Reporter Peter Whoriskey published an article titled, “The labels said ‘organic’. But these massive imports of corn and soybeans weren’t,” (May 12, 2017). The article contained copies of actual manifests and their alterations from conventional to organic enroute to the U.S. This shipment plus documents from two others indicating they were fraudulent of over 16,363 metric tonnes each, some of which got into the U.S. domestic market supply chain.
We in OFARM have been tracking shipments and have actual pictures of ships, ports of origin, cargo, volumes and port of delivery.
Over this same two-year period OFARM has received direct testimony from numerous sources corroborating OFARM’s concerns about audit trail integrity.
# An organic trader recently lost a 1200 metric tonne consignment of sunflower seed which had a dodgy residue test in Europe. This consignment was diverted to the United States.
# A presenter at Expo West stated that the U.S. is a dumping ground for organic imports due to the lax paper work.
# OFARM keeps getting information and offers to provide information on organic fraud.
#OFARM representatives have had extensive conversations with people who have travelled to countries that export to the U.S. and they have reported highly questionable practices including, such things as wild birds flying around in processing facilities and questionable protocols regarding sanitation.
The problem of fraud has many aspects. First is fraud along the supply chain closer to the point of origin and secondly, current weaknesses in the U.S. regulatory oversight to detect and take actions regarding fraud.
U.S. Consumer Perspectives
Over 70% of U.S. consumers will buy at least some organic food products during the year. Their opinion weighs heavily on the future of organics. The most comprehensive data for the amount of imports is for corn, soybeans, and wheat. Other major imports relative to their size of the market include lentils and edible beans for which there is currently little or no data. They are buying organic because they perceive it as better, healthier food. Large segments of consumers are becoming aware of potential fraud in what they are buying. Here are some perspectives from major organizations whose membership is primarily organic consumers on organic fraud:
“So let’s keep policing the organic industry, exposing the fraud, working for stronger standards and better enforcement of those standards.” Katherine Paul and Ronnie Cummins, Organic Consumers Association. associate director and international director respectively
“Consumers support organic agriculture because of its promise to deliver not only safer and more nutritious food but also to protect the environment and the livelihoods of family-scale farmers. In general, imports that undercut domestic production challenge many of the foundational beliefs that lead consumers to willingly pay premium prices for organic food.” Will Fantle, Cornucopia Institute
“Consumers rely on the USDA organic label to show that the products they feed their families were produced according to rigorous standards that are backed up by a strong system of enforcement. In a crowded marketplace, where many labeling claims compete for consumer dollars, USDA organic has stood apart as a credible label with integrity. But if the USDA does not increase its oversight of organic imports, consumers will lose trust in organic and it will be hard to win them back.” Patty Lovera, Food and Water Watch assistant director
Collectively these organizations represent over 3 million U.S. consumers who are directly concerned about the organic products they buy and organic fraud and integrity.
On a global level, Consumers International with global membership of over 200 organizations in over 100 countries states “With our members, partners and consumers around the world, we're challenging unfair, unsafe and unethical practice to ensure all consumers are treated safely, fairly and honestly.”
Too often consumers are left at a disadvantage with the companies and governments they encounter, leaving them exposed to unsafe, unfair or unethical practice.
Market Transparency and Implications of Fraud
OFARM organic grain and livestock producers adhere to the following principles on prices the marketplace needs to reflect in order for them to continue to grow and be profitable:
- The full recovery of all actual production inputs including those unique to the production, handling, and marketing of organic livestock.
- A return to labor and management that provides family income at levels that allow for the full involvement and adequate compensation of all members of this partnership in the operation of an organic production unit. This compensation must extend to the education, training and transition to a future generation of organic farmers.
- Return to investment that provides for the acquisition and ownership of the land and related infrastructure required for organic food production.
- Income enhancement to provide for support for the social and economic viability of the community.
- Organic premium for production of healthy, wholesome food in an environmentally responsible manner.
These principles should apply anywhere in the world.
Supply chain integrity, steps to eliminating organic fraud
Supply chain transparency from farm and fields of origin through to the consumer purchasing the product is needed in every step. The U.S. domestic organic market is fully transparent. From my international experience, there is much that can and must be done to improve transparency which will in turn reduce the massive amounts of fraud we have seen assault our U.S. markets. As a cooperative representing organic producers, steps that should be taken in our opinion include:
1. We fully support adoption of and implementation of the European Commission Directorate-General for Agriculture and Rural Development Guidelines as put forth for 2016 and 2017 by USDA’s National Organic Program. They include:
(1) Methodologies and identification of all consignments of imported organic food and feed.
(2) Complete documentation check at the point of entry including implementation and use of electronic data and certified document transfer to facilitate inspection at the port of arrival in the U.S.
(3) Sampling and analysis for the presence of residues of each incoming shipment at the port of entry.
2. Technologies to monitor supplies using weather, model simulation, and data collection to accurately project production versus what is actually being supplied into the market chain.
3. Increased transparency by using electronic platforms such as outlined in the April 18, 2017 European Commission press release to be able to physically trace organic products, especially grains, through the system from field to final use.
4. Use of International Maritime Laws regarding cargos and documentation of shipments. This should include requiring proof of insurance that cargos that are organic are insured at organic rates.
5. More consistent oversight of USDA’s National Organic Program (NOP) - NOP should submit to on-going, third party oversight similar to certifiers and operators; complete with non-compliances and deadlines for corrective actions to better ensure consistent NOP enforcement and standards of interpretation by all of their accredited agents, operators and inspectors.
6. More focus where the problems are in the supply chain: - More risk-based inspection protocols are needed that require more unannounced visits, mass balancing, check-backs, and testing for certifiers with high levels of non-compliances or on-going complaints.
In conclusion:
The originators of the U.S. Organic Food Production Act never envisioned 20 years down the road, weaknesses in our system that would be exploited for financial gain through fraud.
Organic integrity and elimination of fraud will benefit everyone including those who wish to export to the U.S. organic markets. Continued fraud will be damaging in the long run to everyone.
U.S. producers do feel that the USDA’s National Organic Program and its rules and procedures regarding certification and use of the USDA organic label put them at the forefront in the U.S. and the world when it comes to high standards for organic production that our consumers can have confidence in.
There are some big weaknesses we in OFARM are working in cooperation with the NOP and Mr. McEvoy, USDA Deputy Administrator of the National Organic Program, as well as other segments of the U.S. industry including buyers and consumers to insure organic integrity throughout the entire supply chain.
We have our work to do in the U.S. and to work with international partners to clean up the fraud.
This will result in fairness to everyone through the entire supply chain. It will result in fairness to organic farmers in a marketplace that is fully transparent and reward them for the risks they take. Consumers will have confidence that when they make the decision to buy organic they are getting the value and integrity they are paying for with their dollars.
Finally, on behalf of the Organic Farmers’ Agency for Relationship Marketing (OFARM), I would like to extend a formal invitation to the Anti-Fraud Initiative and its sponsoring organizations to hold a future conference in the U.S. We, in OFARM would be happy with our partners and collaborators to facilitate such a conference including visits to some of our organic grain farms and cooperative facilities as well as the conference itself.
We look forward to continued collaboration.
Thank you for the invitation to be part of this conference.
