SOE Proposed Rule Series - Post #3: Supply Chain Traceability & Organic Fraud Prevention

The purpose of this blog post is to briefly summarize one section of the Strengthening Organic Enforcement (SOE) proposed rule, provide a preliminary analysis of the provisions, and to identify areas that require further clarification. This is the third in a series of blog posts that the National Organic Coalition is publishing to provide information about the SOE proposed rule.

The SOE proposed rule will update and modernize the organic regulations to strengthen oversight and enforcement and reduce fraud in the organic marketplace. NOC has strongly advocated for these changes. The proposed rule is published in the Federal Register and USDA has created a SOE proposed rule webpage with details about the proposed rule and how to comment. Comments are due October 5, 2020.

This blog post will focus on Supply Chain Traceability & Organic Fraud Prevention, which is covered on pages 128 to 140 of the official version of the proposed rule (pgs. 74 to 81 of the draft proposed rule).

The first blog post in NOC’s SOE Proposed Rule series provides an overview of the proposed rule and summarizes the 13 provisions included in the rule. The second blog post summarizes and provides analysis for two parts of the proposed rule: 1) Exemptions from organic certification and; 2) Unannounced Inspections.

NOTE: NOC has not yet adopted formal positions on this complex proposed rule. What follows is our preliminary analysis. We continue to solicit input from our Members on these topics as we develop our written comments to the USDA. We also welcome input from other organic stakeholders and hope you will contact us if you have questions or would like to share your analysis with us.

Supply Chain Traceability & Organic Fraud Prevention

Summary of Provisions

On pages 128 to 140 of the official version of the proposed rule (pgs. 74 to 81 of the draft proposed rule), USDA’s Agricultural Marketing Service (AMS) proposes to add a new term to the regulations, organic fraud, which is defined as “deception for illicit economic gain, where nonorganic products are labeled, sold, or represented as organic.”

AMS also proposes additions to the regulations to impose new record keeping requirements for both certified operations and certifying agents to improve three components of traceability within the organic supply chain: (1) traceability within a single operation; (2) traceability one step forward and one step back from an operation in a supply chain; and (3) bidirectional traceability along an entire supply chain, source to consumer, by a third party. The proposed additions to the regulations require information sharing between certifying agents and reporting by certifying agents of “credible evidence of organic fraud to the Administrator.”

Under the proposed regulatory changes, certified operations would be required to:

(1) Identify products as organic on all records and labels;

(2) Maintain records to document a product’s source and chain of custody; and

(3) Implement a plan to detect and prevent organic fraud in any organic product that they produce, receive, and/or handle.

Certifying agents would be required to:

(1) Develop and document procedures to designate operations and/or products as high risk for organic fraud;

(2) Conduct supply chain audits on a sample of operations and products that they have determined to be high-risk; and

(3) Share information with other certifying agents for the purposes of certification and enforcement.

Improving supply chain traceability is a theme of the entire SOE proposed rule and several indirect methods have also been proposed in other parts of the rule that would enhance supply chain traceability, as described on page 131 of the proposed rule. Some other areas of the rule that will improve supply chain traceability include, for example, requiring additional operations to become certified, requiring import certificates, and requiring trace-back and mass-balance audits during on-site inspections.

Preliminary Analysis

NOC supports the new regulatory requirements for certified operations and certifying agents to improve supply chain traceability.

NOC suggests a revision to the proposed definition for organic fraud. The proposed definition is:

Organic fraud. Intentional deception for illicit economic gain, where nonorganic products are labeled, sold, or represented as “100 percent organic,” “organic,” or “made with organic (specified ingredients or food group(s)).”

NOC recommends that the words “for illicit economic gain” be removed to ensure that even when economic gains are not realized, any intentional deception is recognized as fraud. Any willful violation of organic regulations or misrepresentation qualifies as fraudulent activity regardless of the ability to achieve economic gain.

The proposed rule adds a requirement that certifiers must provide the following information to be accredited by the National Organic Program (NOP):

A copy of the criteria to identify high-risk operations and products; and procedures to conduct risk-based supply chain audits, as required in §205.501(a)(21); and procedures to report credible evidence of organic fraud to the Administrator.

NOC strongly supports this requirement that certifiers develop risk-assessment criteria to determine which operations, products, and supply chains are vulnerable to fraud or mishandling. While the text accompanying the proposed regulatory changes describes potential risk-assessment criteria certifiers can use (pages 137 to 138), it does not define the term “high risk.” NOC recommends that AMS include regulatory language in the proposed rule to more fully articulate the concept of “high risk”, ensure that all actors have a common understanding of what constitutes high risk, and to facilitate the development of criteria to guide certifiers in fulfilling requirements to perform both supply-chain audits (proposed addition at §205.501(a)(21)), as well as unannounced inspections (proposed addition at §205.403(b)(1)).

Finally, the proposed rule has introduced many new requirements for both certifiers and organic operations to facilitate detection and enforcement activities to deter organic fraud. The NOP, however, also plays a critically important role and must continue to improve its own oversight and enforcement processes. NOC recommends that the proposed rule more clearly define the NOP’s roles and responsibilities. For example, just as certifiers should share information to facilitate the detection of fraud, USDA should also be required to share and utilize information from other accreditors. If foreign governments with whom we have equivalency arrangements, such as the European Union and Canada, are detecting fraud in organic supply chains, the NOP should be using that information to flag and take actions against bad actors.

Requested Clarifications

The proposed rule references three different types of audits that can help ensure traceability and integrity in the organic supply chain:

1. Mass balance audits

2. Trace-back audits

3. Supply chain audits

AMS has proposed regulatory language at §205.403(d)(4) that adequately defines a mass balance audit as verifying “that sufficient quantities of organic product and ingredients are produced or purchased to account for organic product sold or transported.” The proposed regulations do not, however, adequately distinguish between trace-back audits and supply chain audits, though both are referenced. These terms need to be clearly defined in the regulations. The rule proposes that trace-back audits be performed during initial and annual on-site inspections of operations. Supply chain audits, on the other hand, are to be conducted by certifying agents “on a sample of operations and products which it determines to be high risk.” Furthermore, “the proposed rule does not establish a specific metric for the number of annual supply chain audits that a certifying agent needs to conduct, because the quantity and types of high-risk operations will vary by certifying agent.”

NOC understands supply chain audits to be far more extensive than trace-back audits. While trace-back audits use transaction and on -farm or processing records to identify and trace organic products and ingredients back to the time of production or purchase and forward to the time of sale or movement of product, supply chain audits often require communication and coordination across multiple certifiers to fully track products across the entire supply chain from farm to fork through all movements, transactions, processing activities, and changes in custody. The differences between trace-back audits and supply chain audits should be fully spelled out in the regulations, as well as the circumstances and requirements for certifiers to perform each type of audit.

NOC seeks two clarifications regarding the proposed definition for organic fraud:

1. NOC would like to ensure that the definition is inclusive of fraud that could be committed by, for example, a co-packer or an entity that may not be selling a product, but instead processing, trading, or brokering the product in some way. If an entity is not taking legal possession of a product, we believe this definition of organic fraud should still apply, and we would like AMS to make that clear in the final rule.

2. NOC believes that using the USDA organic label on fish should be considered organic fraud under the definition laid out by AMS. While Canada and the European Union have established standards for organic aquaculture products, USDA has not completed organic aquaculture standards and there are no equivalency agreements in place for aquaculture. Therefore, foreign “organic” fish and seafood products should not carry the USDA organic label, and the organic fraud definition in the proposed rule should make it possible to enforce against the use of the organic label on domestic and foreign seafood in the absence of USDA organic standards for aquaculture.

Abby YoungbloodAugust 18, 2020