A Guide to Organic Certification around the Globe
By Erin Sawyer
Introduction
Many advocates for organic agriculture claim that international harmonization of certification programs is needed in order to advance the organic industry from its present state. They maintain that harmonization will enable greater gains from trade and will create a truly global organic industry. In order to verify the merit of these harmonization claims, some understanding of organic agriculture and the current state of certification systems around the world is necessary. This paper will provide background information on the need for certification and will summarize both government and international certification programs around the world.
The paper will begin with a brief discussion of organic agriculture and its evolution. This will be followed by an examination of organic standards and the role they play. The third section of the paper will explain why certification is required in order to avert market failure and will discuss both the negative and positive aspects of organic certification. The paper will end with an overview of certification systems around the world including the role of international organizations in organic certification.
What is Organic Farming?
Organic farming is an alternative production process whose goal is to enhance the structure and fertility of the soil by using a balanced choice of crops and implementing diversified crop rotation systems (Thode Jacobsen 2002). The concept of organic agriculture began in the United Kingdom in the 1930s but never really caught on until the environmental movement of the 1970s (Browne et al. 2000). After experiencing a bit of a boom, the organic market again dropped off until recently when consumer fears and concerns regarding food safety and pesticide use began increasing at a rapid rate.
The guiding principle of organic agriculture is deeply rooted in ecological ideals. Agricultural land is viewed as being part of an environmental system of interconnected, living organisms (Thode Jacobsen 2002). However, organic agriculture has also tried to progress beyond its environmental roots into the realm of socially just production[1] (see Browne et al. 2000 for a detailed examination of the links between organic farming and ethical trade). According to Thode Jacobsen (2002), the aim of the organic farmer is to “support and strengthen biological processes without using technical remedies”; in other words the use of synthetic chemicals is forbidden. In organic livestock production, the number of animals raised is directly correlated with the size of the farm and its ability to absorb waste (Thode Jacobsen 2002). This enables the nutrients to be recycled through the agricultural system, and avoids degradation of the environment.
The growth in organic agriculture is reflected in the rate of conversion to organic agricultural land. Between 1995 and 2000, the total area of organic land tripled in Western Europe and the United States (Food and Agriculture Organization 2003). In 1999, the United Kingdom alone experienced a 125% increase in their area of organic agricultural land (Food and Agriculture Organization 2003). However, despite these drastic increases of organic land in production, in 2000 the total sales of organic products in industrial countries was still less than 2% of total food sales (Food and Agriculture Organization 2003).
Organic Standards:
Organic agriculture is based on a foundation of strict standards with information pertaining to these standards being conveyed by labels. Why are standards necessary in organic farming and why are labels needed? This section will attempt to provide answers to these questions. Specifically, standards and labels will be discussed in terms of the role they play in instilling confidence in consumers, lending credibility, providing protection to the organic industry and lowering transaction costs.
Organic standards differ between nations and regions. Prior to the involvement of government bodies, private organizations or farmer-based groups would establish a set of standards with which to guide their production practices. Generally, these standards were updated as technology and consumer demands changed. With the involvement of governments, national standards are becoming more prevalent. These standards can be voluntary or mandatory and most regulations require producers to be registered with an approved, independent certification body in order to label their product as ‘organic’.
Labels are instruments that convey information to consumers regarding standards. In the case of organic foods, labels indicate to consumers that a product was produced using organic techniques. Organic products are credence goods. A credence good is one which even after purchase and consumption of the good, the consumer cannot tell how the product was produced. Labels are used to inform consumers of the organic qualities of a product and to justify the price premium that organic goods receive. Standards and labels can increase consumer confidence in the organic industry and can help protect and promote the industry.
It is easy to see that without labels there would be no market for organic products. Labelling allows organic goods to be segregated from their conventional counterparts. This segregation enables producers to charge a higher price for their organically produced goods. This price premium is necessary due to the higher costs of production associated with producing food organically. Despite labelling and standards requirements there is still a possibility of mislabelling of goods by conventional farmers, which creates a necessity for third party certification. Third party certification is required in order to correct the market failure that would occur if no labels were used.
Standardization can also help reduce transaction costs. Transaction costs are those costs that arise over the course of the transaction, they can be categorized into information costs, which occur ex ante to the transaction, negotiation costs, which occur during the transaction and monitoring and enforcement costs, which occur ex post. A common organic standard reduces the monitoring costs of consumers by clearly defining the term ‘organic’ (McCluskey 2002). If many standards prevail in a market, then consumers must spend time determining which standard is appropriate for them. A single standard reduces the confusion for consumers and may encourage increased participation in the organic market. These reductions in transaction costs also apply to importers.
As mentioned earlier, organic standards differ depending on the technical, philosophical and cost factors present in a country or region (Lohr and Krissoff 2002). Casella (1996) states that “organic standards reflect the needs of the groups that expressed them”, if the needs and groups differ then so will the standards. It is believed that organic standards should reflect the environmental conditions of the region, therefore what may be good for a Saskatchewan farmer may not be appropriate for a farmer in Sub-Saharan Africa. These differences are expected by the organic industry but can act so as to limit access to markets and inhibit international trade.
Standards and labels are necessary, if not sufficient, for the survival of the organic industry. While a unified or national standard helps protect the term ‘organic’ and provide information and reduce costs to consumers, the fact that standards differ across boundaries may make them difficult to harmonize. Currently, more emphasis is placed on conferring equivalency rather than harmonization. This allows goods from different countries to be treated equally even though standards may not be identical.
Organic Certification:
The following section of the paper will discuss the necessity of organic certification. Both the negative and positive aspects of certification will be examined along with the certification options available to producers. These options include private vs. public certification and individual vs. group certification. This will lead into a discussion of various certification programs around the world.
According to Giannakas (2002), a lack of third party certification will lead to supply-side failures in the markets for organic foods. These failures are due, in part, to the credence nature of organic goods. The production of organic food is more costly than the production of conventional products hence, if the industry is to survive it must be able to obtain higher prices in the market. This cost differential could entice non-organic producers to mislabel their conventional products as organic in order to cash in on the price premium. As well, consumers will be aware of the possibility of mislabelling and will refrain from purchasing organic products unless some guarantee is provided of the production methods used. Certification by an independent body enables consumers to verify that a product conforms to specific standards (Thode Jacobsen 2002).
There are both positive and negative issues surrounding certification. As mentioned, certification can add to the credibility of the industry and may help protect consumers from fraudulent claims. Certification can also lead to lower transaction costs, especially if a national accreditation body accredits certifiers. These lower transaction costs can lead to increased trade and greater opportunities for producers.
Certification is not always positive; there are also negative consequences for producers. In 1999, the need for certification was intensified, as the European Union insisted that trading nations adhere to the EU 2092/91 rules enacted in 1993 (Mutersbaugh 2002). This insistence caused a decrease in the ability of certifiers to accommodate producer interests and EU and ISO certification rules now dominate the industry (Mutersbaugh 2002).
Certification is costly. Organic farmers must incur increased costs due to complex monitoring systems (Mutersbaugh 2002). The organic price premium is now traded off against production, certification and organization costs and these are felt most strongly by smaller regional organizations (Mutersbaugh 2002).
As will be seen in the following section, certification programs have evolved differently around the world. In countries with no national regulatory program, producers can often choose from many different certifiers each with their own set of standards. In countries with a national program, producers must choose amongst certifiers that have been accredited through the national accreditation body, be it private or public. Firms can also choose to be certified through foreign entities (Lohr and Krissoff 2002). Foreign entities can include certification bodies within importing countries or international certification organizations. In order to increase market access for their producers, it is quite common for local certification bodies to have partnerships with international bodies (Thode Jacobsen 2002). This partnership allows products to flow smoothly across borders.
While most organic food is consumed domestically, international trade in organic products is growing rapidly. This rapid growth has led exporters to develop improved certification strategies to try and reduce transaction costs. According to Lohr and Krissoff (2002), these strategies include:
-using an independent local certifier accredited under the international certification process standards of ISO guide 65 (discussed more fully later in the paper)
-using a local branch of an accredited international certifier
-using local certifiers that have partnered with accredited international entities
-using an international certifier or an entity in the importing country approved for 3rd party certifications
-subcontracting to processors or distributors certified in the importing country
Certification systems are a necessary part of the organic agriculture industry. Certification gives credibility to the claims made by organic producers and in doing so increases consumer confidence in the organic industry. Without certification, it would be difficult to verify the production practices of organic producers and the market would collapse. There are both negative and positive aspects to organic certification. Due to the necessity of certification, the negative issues are often overlooked. Reducing certification costs will allow more organic producers to survive in the industry.
Certification around the World:
Certification programs, like standards, also differ around the world. This section of the paper will summarize the different government certification systems in Australia, Canada, Japan, the European Union and the United States. These countries were chosen due to their significance in the world organic market.
Australia[2]
The Australian Quarantine and Inspection Service (AQIS), which is a division of the department of Agriculture, Fisheries and Forestry Australia, oversees organic certification in Australia. AQIS operates its organic certification program under the legal framework provided by the Export Control Act of 1982 and the Export Control Orders of 1997. Australia was one of the first countries to publish national standards for organics. The National Standards for Organic and Biodynamic Produce were published in 1992 by the Organic Product Advisory Council (OPAC). These standards regulate the export market for organics, however, as of yet, no specific legislation has been proposed for domestic sales or imported organics. Australia has been granted equivalency status by the EU and is on the Article 11 list[3] .
The certification procedure in Australia proceeds as follows. AQIS approves and audits private inspection agencies. Each private inspection body submits its own private standards or “Quality Management Manual” to AQIS who then ensures that the standards meet the minimum requirements laid out by the National Standards. If the standards receive the approval of AQIS the inspection agency is registered as an “Approved Certifying Organization” and is issued a “Quality Management Certificate”. These certifying organizations are audited annually by AQIS; if the body is found lacking in some area AQIS will file “Corrective Action Requests” with the certification agent. In turn, certifying agents also inspect producers annually, usually around the same time each year and never unannounced.
Canada
The organic market is growing in Canada. Between 1989 and 1995, the number of organic producers increased by 300% and annual growth is estimated to be between 15-25% (Porter, Phillips and Henry 2001). As a result of the industry’s growth, in 1999, Canada implemented its own national organic standard. The National Standard of Canada for Organic Agriculture differs from most other government standards in that it is voluntary rather than mandatory. The Canadian standard is based on the guidelines developed by the Codex Alimentarius Commission for the “Production, Processing, Marketing and Labelling of Organically Produced Foods” and the Standards Council of Canada (SCC) uses ISO 65 as its basis for accreditation (Bradley 2002). It should be noted that the Canadian standards apply only to domestic production and there is no regulation of imported organics.
Due to the voluntary nature of Canada’s organic standards, there has been little movement by organic certifiers to become accredited under the national program. The accreditation costs are high, and there are currently few benefits from joining the national program. The initial application fee is $15,000 CDN, plus an additional $1,000 per person per day who works on documents related to the application. If certifying agencies apply prior to December 31, 2003, they are eligible to receive a 50% reimbursement up to $25,000. After a body has been approved there is an annual fee of $9,000 plus 0.0025 multiplied by the certification body’s gross annual revenue, with fees not to exceed $45,000 (Bradley 2002). There are approximately 45 organic certifying organizations practicing in Canada (Agriculture and Agri-Food Canada 2002). Two provinces, Quebec and British Columbia, have established provincial accreditation bodies. Certifiers in these provinces must be accredited with the Certified Organic Associations of British Columbia or the Conseil d’Accréditation du Québec. Therefore, most certifiers in these provinces were opposed to a national accreditation program due to the additional costs. (Weseen 2003).
Currently, to obtain certification in Canada[4], a farmer must complete an application form that includes all the details of the farm operation. An organic inspector then inspects the farm. The inspector’s report is passed on to a certification committee who reviews the file and makes a decision based on the findings. If approved, the producer is given a producer number to be used on all bills of landing and labels (Saskatchewan Organic Directorate 2002).
In order to become accredited by the Standards Council of Canada, the certification body must first make an informal inquiry about becoming accredited. The certifying body must then submit an application package. There is a pre-assessment, upon completion of the application the SCC notifies the applicant of any deficiencies. An on-site assessment is conducted in order to ensure compliance with the SCC standards. The SCC Director of Conformity Assessment then reviews the application and decides whether or not to recommend the applicant to the Board of Directors, with whom the final decision rests.
The European Union
The basic regulations for the European Union’s (EU) organic standards are laid out in Council Regulation No. 2092/91 which was adopted in June 1991 (Directorate-General for Agriculture 2001). These standards are fashioned after the International Federation of Organic Agriculture Movement’s Basic Standards. Within the EU, each member state must establish an inspection system which can be run by either private or public inspection or certification bodies or both (Thode Jacobsen 2002). The Regulation gives guidelines for the production of organic crops in the European Community (Directorate-General for Agriculture 2001). Regulation (EEC) No. 1804/1999 applies to organic livestock products (Directorate-General for Agriculture 2002). Upon implementation of these regulations it became illegal to sell non-certified organic products in the EU (Barrett et al. 2002).
There are several ways an exporter can sell its product in the EU. Its domestic government can establish an equivalency agreement with the EU. Once equivalency has been negotiated, the country will be placed on the Article 11 list (granted third country status). As of July 2002, there were only 7 countries on this list: Argentina, Australia, Czech Republic, Switzerland, Israel, New Zealand and Hungary (Thode Jacobsen 2002). Until December 31, 2005, organic goods from countries not on the article 11 list can still be imported into the EU using one of two methods. Article 11(6) states that individual member countries have the right to issue import permits for specific consignments from countries not on the article 11 list. Article 11(7) allows a member state to add a ‘third country inspection body’ to the Article 11 list. This has been interpreted differently by member states, while some claim that it implies that inspection agencies from countries not on the article 11 list can be approved, others claim that it means that individual inspection bodies from countries on the list can be approved (Barrett et al. 2002).