[Federal Register Volume 87, Number 65 (Tuesday, April 5, 2022)]
[Rules and Regulations]
[Pages 19740-19773]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06957]



[[Page 19739]]

Vol. 87

Tuesday,

No. 65

April 5, 2022

Part II





Department of Agriculture





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Agricultural Marketing Service





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7 CFR Part 205





National Organic Program; Origin of Livestock; Final Rule

Federal Register / Vol. 87 , No. 65 / Tuesday, April 5, 2022 / Rules 
and Regulations

[[Page 19740]]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 205

[Doc. No. AMS-NOP-11-0009; NOP-21-04]
RIN 0581-AD89


National Organic Program; Origin of Livestock

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: The U.S. Department of Agriculture's (USDA) Agricultural 
Marketing Service (AMS) amends the origin of livestock requirements for 
dairy animals under the USDA organic regulations with this final rule. 
AMS is taking this action to increase uniformity in origin of livestock 
production practice for organic dairy animals, and reduce variance 
between the approaches taken by certifying agents. The policy choices 
in this rule align with practices that many certifiers and most organic 
operations already follow, and align with the public comments on the 
rule. This rule specifies that organic milk and milk products must be 
from animals that have been under continuous organic management from 
the last third of gestation onward, with an exception for newly 
certified organic livestock operations.

DATES: 
    Effective date: This rule is effective June 6, 2022.
    Compliance date: Certified organic operations must comply with all 
provisions of this final rule by April 5, 2023. For more information, 
see the Compliance Date for These Regulations section of this document.

FOR FURTHER INFORMATION CONTACT: Erin Healy, Director, Standards 
Division; Phone: (202) 720-3252, email: <a href="/cdn-cgi/l/email-protection#6500170c0b4b0d0004091c25101601044b020a13"><span class="__cf_email__" data-cfemail="4623342f28682e23272a3f063335222768212930">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: 

Executive Summary

A. Purpose of Final Rule

    This final rule clarifies requirements related to organic dairy 
production under the USDA organic regulations, which dictate how and 
when nonorganic dairy animals may be transitioned, or converted, to 
organic production (7 CFR part 205). This action specifies that a 
nonorganic dairy may transition to organic production on a one-time 
basis, and once the transition is complete, the operation must not 
transition additional nonorganic animals to organic production or 
source transitioned animals. This action is intended to facilitate and 
improve compliance with and enforcement of the USDA organic 
regulations.
    The rule takes into account current practices and stakeholder input 
to ensure a policy option that minimizes disruptions, while protecting 
the value of the organic label. This final rule will improve AMS's 
ability to effectively administer the National Organic Program (NOP) 
and improve AMS's oversight of the USDA-accredited certifying agents 
that inspect and certify organic dairy operations. The final rule is 
also intended to maintain consumer trust in the organic seal by 
assuring consumers that organically produced products meet a consistent 
and uniform standard--a stated purpose of the Organic Foods Production 
Act of 1990 (OFPA) (7 U.S.C. 6501 et seq.).
    AMS is making these changes, following consultation with the 
National Organic Standards Board (NOSB) and following notice and public 
comment, to provide additional details for the USDA organic regulations 
governing the production of organic livestock products, and at the 
direction of Congress (Further Consolidated Appropriations Act, 2020; 
Pub. L. 116-94), and as authorized under OFPA (Sections 6509(e)(2) and 
6509(g)).

B. Summary of Provisions

    This final rule updates the origin of livestock regulations, first 
published in December 2000 in the Federal Register (65 FR 80547), by 
explicitly requiring that milk or milk products labeled, sold, or 
represented as organic be from dairy animals organically managed from 
the last third of gestation onward, with a one-time exception for newly 
certified organic livestock operations to convert (or ``transition'') 
nonorganic dairy animals to organic milk production. This exception 
allows an eligible operation to transition nonorganic dairy animals to 
organic milk production one time by managing animals organically for 
12-months rather than from the last third of gestation. The transition 
must occur over a single 12-month period and all transitioning animals 
must end the transition at the same time.
    After the transition to organic production is complete, an 
operation is not allowed to transition additional nonorganic animals to 
organic milk production, and the certified operation may not source 
animals transitioned by other operations. After the transition, an 
operation replacing culled dairy animals and/or expanding its number of 
dairy animals must add dairy animals that have been under continuous 
organic management from the last third of gestation.
    In this final rule, AMS clarifies that breeder stock must be 
managed organically during the period that breeder stock are nursing 
their organic offspring, from the last third of gestation through the 
end of the nursing period. Breeder stock that are not certified organic 
may not be sold, labeled, or represented as organic. The final rule 
reiterates that nonorganic breeder stock may be brought from a 
nonorganic operation onto an organic operation at any time, but they 
must be brought onto the organic operation no later than the last third 
of gestation if their offspring are to be raised as organic livestock.

C. Regulatory Analysis (Costs and Impacts)

    AMS is taking this action to set origin of livestock production 
practice standards for organic dairy animals, and reduce variance 
between the approaches taken by certifying agents. AMS updated the 
analysis from the proposed rule (84 FR 52041) using the most recent 
information about the dairy market, including the number of certified 
organic operations and the number of organic dairy animals. Updating 
the information with NASS 2019 data revises the estimated costs of the 
final rule to $615,000-$1,845,000.

D. Compliance Date for These Regulations

    AMS is establishing a compliance date for this final rule of April 
5, 2023, or ten months after the effective date of this final rule. 
This means that a certified operation may only add transitioned animals 
to their operation up to the compliance date of April 5, 2023. Any 
certified operation may source or sell transitioned animals in the 
period prior to the compliance date, but certified operations may not 
start new transitions that would not be completed by April 5, 2023. 
Starting on the compliance date of April 5, 2023, all certified 
operations (i.e., operations certified as of the compliance date) must 
fully comply with the provisions of this final rule.

I. General Information

Does this action apply to me?

    You may be affected by this action if you are engaged in the dairy 
industry. Affected entities may include, but are not limited to:
    <bullet> Individuals or business entities that are considering 
owning or operating a new dairy farm and that plan to seek organic 
certification for that farm;

[[Page 19741]]

    <bullet> Dairy farms that are currently certified organic under the 
USDA organic regulations;
    <bullet> Organic farms engaged in raising heifers for sale to 
certified organic operations;
    <bullet> Nonorganic dairy farms that are considering converting 
their dairy farm to certified organic production; and/or
    <bullet> Certifying agents accredited under the USDA organic 
regulations to certify organic livestock operations.
    This listing is not intended to be exhaustive but rather provides a 
guide for readers regarding entities likely to be affected by this 
action. Other types of entities not listed in this section could also 
be affected. To determine whether you or your business may be affected 
by this action, you should carefully examine the regulatory text. If 
you have questions regarding the applicability of this action to a 
particular entity, consult the person listed under FOR FURTHER 
INFORMATION CONTACT.

II. Background

    AMS's National Organic Program (NOP) is authorized by the Organic 
Foods Production Act of 1990 (OFPA) (7 U.S.C. 6501-6524). Through the 
NOP, AMS establishes and oversees the implementation of national 
standards for the production and handling of organically produced 
agricultural products. Below, background is provided on the topics of 
dairy transition and breeder stock, describe general dairy production 
practices, and summarize the history of this rulemaking.

A. Dairy Transition

    OFPA establishes that, in general, organic livestock must be 
organically managed from the last third of gestation onward (7 U.S.C. 
6509(b)). For dairy animals, OFPA requires a minimum period of one year 
of organic management before milk from dairy animals can be sold as 
organic (7 U.S.C. 6509(e)(2)). During the transition period, OFPA also 
allows dairy farms to feed dairy animals crops and forage from land on 
the dairy farm that is in its third year of organic management (Id.).
    The USDA organic regulations regarding the origin of livestock (7 
CFR 205.236) have required that all livestock products sold, labeled, 
or represented as organic must be from livestock under continuous 
organic management from the last third of gestation onward. For dairy 
animals, the USDA organic regulations have also provided an exception 
(Sec.  205.236(a)(2)) that allows for the transition of a dairy herd 
into organic production if animals are under continuous organic 
management for the one-year period prior to production of organic milk 
or milk products. During this one-year period, dairy animals may 
consume certified organic feeds and/or crops and forage from land that 
is in the third year of organic management and included in the organic 
system plan but has not yet been certified organic (Sec.  
205.236(a)(2)(i)). Section 205.236(a)(2)(iii) has required that once an 
``entire distinct herd'' has transitioned to organic production, all 
dairy animals in that herd shall be organically managed from the last 
third of gestation.
    As USDA noted when promulgating the regulations that first 
implemented the NOP, ``[t]he conversion provision . . . rewards 
producers for raising their own replacement animals while still 
allowing for the introduction of animals from off the farm that were 
organically raised from the last third of gestation.'' 65 FR 80570 
(Dec. 21, 2000). USDA explained that ``the conversion provision cannot 
be used routinely to bring nonorganically raised animals into an 
organic operation. It is a one-time opportunity for producers working 
with a certifying agent to implement a conversion strategy for an 
established, discrete dairy herd . . . .'' Id.
    These provisions have established two different classes of organic 
animals that operations and their certifiers track, because there are 
implications in terms of the fate of the animal: Last third organic 
animals may be eligible for organic slaughter (if also not treated with 
synthetic parasiticides that appear on the National List \1\), while 
transitioned animals (as well as last third animals that have received 
parasiticides) are ineligible for organic slaughter.
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    \1\ 7 CFR 205.238(c) and 7 CFR part 205 Subpart G. https://www.ecfr.gov/current/title-7/subtitle-B/chapter-I/subchapter-M/part-205/subpart-G.
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    The USDA organic regulations related to transition of dairy animals 
have been inconsistently applied, however, in part because while they 
have allowed for the transition of a nonorganic herd to organic milk 
production after one year of organic management, the regulations did 
not define an ``entire distinct herd.'' This has led to significant 
inconsistencies in the regulatory interpretation by certifying agents 
and farms. For example, some operations and certifying agents consider 
an entire distinct herd to include all the animals on the farm. In 
contrast, others have applied the rules differently, allowing smaller 
groups to be considered multiple distinct herds. Some certifying agents 
have allowed dairy farms to continually transition nonorganic dairy 
animals into organic production as new ``distinct'' herds, while other 
dairy operations have been allowed to use the transition exception only 
once (i.e., when they initially converted their farm's entire 
nonorganic ``herd'' to organic production). The inconsistent 
interpretation has led to unevenness in the marketplace. This final 
rule adopts the latter interpretation, and amends the regulations 
regarding dairy animals to clarify their requirements. As USDA first 
said more than twenty years ago, organic dairy operations may ``rais[e] 
their own replacement animals'' or ``introduce[e] . . . animals from 
off the farm that were organically raised from the last third of 
gestation.'' 65 FR 80570. But they may not ``routinely . . . bring 
nonorganically raised animals into an organic operation.'' Id. When 
Congress amended 7 U.S.C. 6509(e)(2) in 2005, it did not disturb this 
understanding.
    In a 2006 rulemaking, USDA noted that some ``commenters wanted the 
last third of gestation clause to apply to all dairy operations once 
the operation is certified as organic, regardless of the number of 
animals converted, or whether an entire, distinct herd is converted.'' 
71 FR 32804. USDA responded that those comments were beyond the scope 
of the present rulemaking, but recognized that its regulations left 
``two methods of replacement of dairy animals for organic dairy 
operations and that this is a matter of concern in the organic 
community.'' Id. USDA suggested that it would undertake further 
rulemaking ``[t]o address the issue of dairy replacement animals for 
all certified organic dairy operations.'' Id.
    Differences in how certifying agents have interpreted the 
regulations were detailed in a July 2013 audit report published by the 
USDA Office of Inspector General (OIG).\2\ According to the OIG report, 
three of the six certifying agents interviewed by OIG allowed producers 
to continuously transition additional herds to organic milk production, 
while the other three certifying agents did not permit this practice. 
OIG recommended that a proposed rule be issued to clarify the standard 
and ensure that all certifying agents consistently apply and enforce 
the origin of livestock requirements. The National Organic Standards 
Board (NOSB) has also issued several recommendations that AMS revise 
the transition exception to clarify that each operation is entitled to 
a one-time

[[Page 19742]]

transition per operation (see Development of Existing Standards below). 
This final rule responds to the OIG's findings and the NOSB's 
recommendations on this issue. It was also directed by Congress 
(Further Consolidated Appropriations Act, 2020).
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    \2\ The July 2013 OIG audit report on organic milk operations 
may be accessed at the following website: http://www.usda.gov/oig/webdocs/01601-0002-32.pdf.
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B. Breeder Stock

    OFPA states that breeder stock may be purchased from any source if 
such stock is not in the last third of gestation (7 U.S.C. 6509(b)). 
The USDA organic regulations define breeder stock as female livestock 
whose offspring may be incorporated into an organic operation at the 
time of their birth (7 CFR 205.2). Nonorganic breeder stock may be used 
to raise organic offspring if certain conditions are met. The 
regulations specify that such breeder stock may be brought from a 
nonorganic operation onto an organic operation at any time (7 CFR 
205.236(a)(3)). If breeder stock are gestating and their offspring are 
to be raised as organic, the regulations require that the breeder stock 
be brought onto the facility and organically managed no later than the 
last third of gestation (7 CFR 205.236(a)).
    Stakeholders, through public comment to the NOSB and comments to 
NOP, have expressed concern that some operations may bring breeder 
stock onto an organic operation, manage them organically for the last 
third of gestation so that the breeder stock can produce and nurse the 
organic offspring, and then return that breeder stock to nonorganic 
management. Some stakeholders, including the NOSB, have suggested that 
such a practice does not align with a regulatory provision that 
prohibits organic livestock removed from organic operations and 
subsequently managed on nonorganic operations to be sold, labeled, or 
represented as organically produced (7 CFR 205.236(b)).\3\ To clarify 
these potentially conflicting regulations, this final rule addresses 
the use and management of breeder stock on organic operations.
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    \3\ National Organic Standards Board April 2003 Recommendation 
on Breeder Stock: Clarification of Rule. Available online at: 
https://www.ams.usda.gov/rules-regulations/organic/nosb/recommendations.
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C. Overview of Organic Dairy Production

    This section provides a high-level overview of heifer (i.e., young 
female cows) raising practices. It also highlights the differences 
between organic and nonorganic practices for raising replacement dairy 
heifers (i.e., the animals brought onto a farm to replace the animals 
that die or that are removed from the farm for other reasons).
    Current dairy production and husbandry practices provide important 
context for this rulemaking. The practices described below are specific 
to raising dairy heifers but may be applied similarly to other species. 
However, the timing of events may differ depending on the animal. 
(e.g., a dairy goat may begin its first lactation at one year of age 
while a cow begins its first lactation at nearly two years of age).
Nonorganic Heifer Development
    When a heifer calf (i.e., a young female cow) is born on a dairy 
farm, the producer ensures that the calf receives colostrum, either 
from a bottle or by nursing her female parent (``dam'' or ``mother''). 
The heifer calf will often be separated from the dam and placed in 
single, pair, or group housing. Some dairy producers raise their own 
heifers from birth; others may contract with heifer growers to raise 
replacement heifers during different stages of their lives until they 
produce milk. Newborn calves are raised on a diet of milk or milk 
replacer, grains, and roughages. Once the calves reach a certain 
weight, they are weaned from milk to water and continue to eat grains 
and roughages.
    After weaning, the heifers are developed to grow at a moderate pace 
until they are ready to be bred. During this time, heifers may be fed 
pasture only; graze and be fed a supplemental feed ration; or be fed 
only a feed ration (depending on the operation's grazing season). Once 
the heifers weigh about 800 pounds (12-15 months old), they are bred, 
gestate for 9 months, and calve around 2 years of age. After calving, 
they begin producing milk (and are then referred to as cows).
Organic Heifer Development
    Organic producers follow similar timelines as nonorganic producers 
but may use different practices in the feeding, health care, and 
breeding of heifers. These differing practices may affect production 
costs in each stage of organic heifer development.
    Organic producers must provide a feed ration comprised of certified 
organic feeds. Currently, there is very little certified organic milk 
replacer produced in the United States. As a result, organically raised 
dairy calves primarily rely on feeding certified organic milk. This 
makes the practice of sending newborn calves to heifer growers less 
feasible for organic producers, as heifer growers may not have access 
to certified organic milk. Certified organic animals (and animals 
undergoing a one-time transition to organic) must be fed an organic 
feed ration. Additionally, organic regulations require that all 
ruminants greater than 6 months of age receive 30 percent of their dry 
matter intake from pasture during the grazing season. Nonorganic dairy 
heifers do not have a pasture requirement.
    Organic producers must also follow certain health care practices. 
For example, organic producers may not use antibiotics to prevent 
disease. Instead, organic producers must prevent the animals from 
getting sick using organically approved methods such as supportive 
therapy and vaccination programs. In the event an animal becomes sick, 
organic producers are required to use medication to restore the animal 
to health, even if the treatment will cause the animal to lose its 
organic status. Once an animal loses its organic status, the animal 
(and its products) cannot be represented as organic. This final rule 
clarifies that nonorganic animals--including animals that have lost 
organic status due to a veterinary treatment--may only be transitioned 
to organic by eligible operations as part of that operation's one-time 
transition.
    Nonorganic breeding practices are less expensive than organic 
breeding practices. Nonorganic producers may use hormonal products to 
both initiate estrus and synchronize estrus among heifers to aid in 
conception, essentially promoting an earlier lactation. Organic 
producers may not use hormonal methods to synchronize estrus.
    These differences in production practices cause many certifying 
agents to prohibit continual transition, and as such, many operations 
already comply with the final rule. The 2013 OIG audit of the National 
Organic Program and organic milk operations (Audit Report 01601-0002-
32) found that half of the six certifiers interviewed allowed 
continuous transition at the time, while the other three did not. Prior 
to this final rule, dairy farms and heifer raising operations that were 
permitted by their certifying agent to continually transition dairy 
animals could reduce production costs by not managing their heifer 
calves under the USDA organic regulations for the first year of life. 
Alternatively, they could source less expensive year-old nonorganic 
heifers on a continual basis. The pre-weaning phase of life is the time 
in which heifer calf mortality is the highest and the diet is the most 
expensive on a per-calorie basis. Nonorganic practices reduce mortality 
and expenses during this pre-weaning phase by feeding heifers milk 
replacer and nonorganic feeds, and by using antibiotics to maintain 
health. By the time the dairy heifer reaches one year of

[[Page 19743]]

age, most health threats have passed and the animal is consuming a less 
expensive diet.

D. Development of Existing Standards

    OFPA required the USDA to establish the NOSB to advise the USDA on 
the implementation of OFPA (7 U.S.C. 6518). The NOSB held its first 
formal meetings in 1992. Between 1994 and 2006, the NOSB made six 
recommendations regarding origin of dairy animals, including several 
recommendations on the management of breeder stock.\4\ Between 1997 and 
2000, AMS issued two proposed rules (62 FR 65850; 65 FR 13511) and a 
final rule (65 FR 80547) regarding national standards for production 
and handling of organic products, including livestock and their 
products. AMS also issued a proposed rule and final rule in 2006 
implementing congressional amendments to OFPA regarding feed for 
transitioning dairy animals (71 FR 24820; 71 FR 32803). The NOSB, as 
well as the public, commented on these rulemakings with regard to the 
origin of livestock and the exception for transition. Key points from 
these actions that led to the development of the existing standards on 
origin of livestock are summarized below.
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    \4\ A complete listing of related documents and NOSB 
recommendations is found in Sections III and IV below.
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    (1) In June 1994, the NOSB recommended a series of provisions to 
address the source of livestock on organic farms. Within this 
recommendation, the NOSB stated that dairy stock should be fed 
certified organic feeds and raised under organic management practices 
for no less than 12 months prior to the sale of their milk as 
organic.\5\
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    \5\ NOSB Final Recommendation, June 2, 1994. Available online 
at: https://www.ams.usda.gov/rules-regulations/organic/nosb/meetings.
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    (2) On December 16, 1997, AMS responded to the June 1994 NOSB 
recommendation through publication of a proposed rule (62 FR 65850). 
The language contained in that proposed rule echoed the NOSB's 1994 
recommendation. The proposal would have required that dairy animals 
must be on a certified organic facility beginning no later than 12 
months prior to the production of milk or milk products sold, labeled, 
or represented as organic. The 1997 proposed rule also proposed that 
all feed provided to organic dairy livestock consist of organically 
produced and handled agricultural products, including pasture and 
forage. However, the proposed rule included a provision to allow 
nonorganic feed up to a maximum of 20 percent of the animal's diet. The 
20-percent level was roughly representative of the nutrients provided 
from supplemental grain feeding, in addition to nutrients provided by 
pasture and forage. The proposed language also contained a provision 
that, if necessary, a herd of dairy livestock converting to organic 
management for the first time could be provided with nonorganic feed 
until 90 days prior to the production of organic milk or milk products. 
This proposed rule was never finalized.\6\
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    \6\ Due to the volume and content of public comments submitted 
in response to the 1997 proposed rule, AMS withdrew the proposal and 
issued a second proposed rule prior to the final rule that 
established the National Organic Program (NOP) (published December 
21, 2000).
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    (3) In March 1998, the NOSB provided a second recommendation 
reaffirming its 1994 recommendation on the source of livestock.\7\ The 
March 1998 NOSB recommendation also recommended that livestock 
comprising part of a mixed crop/livestock operation should qualify to 
be certified organic at the end of the transition period.
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    \7\ NOSB Committee Report and Adopted Recommendations, 16 March 
1998. Available online at: https://www.ams.usda.gov/rules-regulations/organic/nosb/meetings.
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    (4) On March 13, 2000, AMS published a proposed rule (65 FR 13511) 
that would establish the USDA organic regulations. Within this proposed 
rule, AMS responded to the NOSB's March 1998 recommendation on the 
source of livestock. AMS proposed to require that livestock be under 
continuous organic management beginning no later than one year prior to 
the production of organic milk or milk products. Unlike AMS's 1997 
proposal, the 2000 proposed rule did not include a provision for the 
allowance of nonorganic feed during the 12-month transition period.
    (5) On June 12, 2000, the NOSB commented on the second proposed 
rule with respect to the origin of dairy livestock. The NOSB stated 
that livestock should be under organic management for one full year 
prior to the sale of organic milk with an exception for conversion of 
an entire, distinct herd into organic production. The NOSB laid out the 
following three conditions for conversion of a herd into organic 
production:
    <bullet> For the first 9 months of the final 12-month dairy herd 
transition period, animals must be fed at least 80 percent feed that is 
either organic or self-raised transitional feed. The remaining 20 
percent could be nonorganic during those 9 months.
    <bullet> For the final 3 months, animals must be fed 100 percent 
organic feed.
    <bullet> Once a dairy operation has been converted to organic 
production, all dairy animals shall be under organic management from 
the last third of gestation, except that transitional feed raised on 
the farm may be fed to young stock up to 12 months prior to milk 
production.
    (6) On December 21, 2000, AMS published a final rule establishing 
the USDA organic regulations (65 FR 80547). Through this action, AMS 
finalized the origin of livestock provision, including a requirement 
that organic milk be produced from animals under organic management 
beginning no later than one year prior to the production of milk or 
milk products sold, labeled, or represented as organic. The rule 
further incorporated the exceptions recommended by the NOSB by allowing 
80 percent organic feed and 20 percent nonorganic feed (i.e., the ``80/
20'' rule) for transitioned animals. AMS did not include NOSB's 
recommendation allowing young stock to be fed transitional feeds. This 
rule went into effect on February 20, 2001, and was fully implemented 
on October 21, 2002.
    (7) In October 2002, the NOSB recommended that all replacement and 
expansion dairy animals be raised as organic from the last third of 
gestation onward. The NOSB believed that this would ensure consistency 
with the current regulations at Sec.  205.236(a)(2)(iii). Its 
recommendation also included a provision requiring that breeder stock 
remain under organic management indefinitely after their introduction 
onto an organic farm; that is to say, the recommendation was to 
prohibit breeder stock from rotating in and out of organic management.
    (8) In May 2003, the NOSB recommended that following a transition, 
all dairy livestock, including replacement stock, remain under organic 
management from the last third of gestation onward.\8\ Concurrently, 
the NOSB made a separate recommendation regarding breeder stock.\9\ It 
recommended a requirement that operations continuously manage all 
breeder stock as organic if they were brought onto an organic farm to 
produce organic offspring. The NOSB further

[[Page 19744]]

advocated that the NOP issue guidance in the form of questions and 
answers to clarify the management of breeder stock to the industry. The 
NOSB reiterated its recommendations in October 2004.\10\
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    \8\ National Organic Standards Board May 2003 Recommendation on 
Origin of Livestock: Recommendation for Rule Change (document dated 
April 2003). Available online at: https://www.ams.usda.gov/rules-regulations/organic/nosb/recommendations.
    \9\ National Organic Standards Board May 2003 Recommendation on 
Breeder Stock: Recommendation for Clarification of Rule (document 
dated April 2003). Available online at: https://www.ams.usda.gov/rules-regulations/organic/nosb/recommendations.
    \10\ National Organic Standards Board (October 2004) Directive 
for Origin of Dairy Livestock. Available online at: https://www.ams.usda.gov/rules-regulations/organic/nosb/recommendations.
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    (9) In October 2003, a legal challenge was filed against USDA 
stating that, among other things, OFPA required organic dairy animals 
be fed 100 percent organic feeds during the 12-month transition, and 
thus, the 80/20 rule for the transition of dairy animals was in 
violation of the statute.\11\
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    \11\ Harvey v. Veneman, 297 F. Supp. 2d 334 (D. Maine 2004).
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    (10) On January 26, 2005, the U.S. Court of Appeals for the First 
Circuit issued a decision in the case.\12\ The court upheld the USDA 
organic regulations in general, but remanded the case to the lower 
court, for, among other things, the entry of a declaratory judgment 
with respect to the 80/20 dairy transition allowance, then codified in 
Sec.  205.236(a)(2)(i) of the regulations. The lower court found the 
80/20 dairy transition provisions at Sec.  205.236(a)(2)(i) to be 
contrary to OFPA and in excess of the Secretary's rulemaking 
authority.\13\
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    \12\ Harvey v. Veneman, 396 F. 3d 28 (1st Cir. 2005).
    \13\ Harvey v. Johanns. Civil No. 02-216-P-H. Consent Final 
Judgment and Order, 9 June 2005.
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    (11) On November 10, 2005, Congress amended OFPA to allow a special 
provision for transitioning dairy livestock to organic production (7 
U.S.C. 6509(e)(2)(B)). This amendment provided a new provision to allow 
crops and forage from land included in the organic system plan of a 
farm that was in the third year of organic management to be consumed by 
the dairy animals on the farm during the 12-month period immediately 
prior to the sale of organic milk and milk products.
    (12) On April 27, 2006, AMS published a proposed rule (71 FR 24820) 
entitled ``Revisions to Livestock Standards Based on Court Order'' to 
address the November 2005 amendments to OFPA. AMS received nearly 
12,400 comments on the issue of dairy animal replacement during the 
comment period for this proposed rule. Additionally, in response to the 
April 13, 2006, advanced notice of proposed rulemaking on access to 
pasture (71 FR 19131), AMS received over 325 comments on the issue of 
dairy animal replacement. Neither of these actions intended to address 
the dairy replacement or transition issue as an objective. Accordingly, 
the comments were not a part of subsequent rulemaking for either 
action, as they were beyond the scope of these rules. They are, 
however, acknowledged and discussed in this final rule.
    (13) On May 12, 2006, the NOSB provided a comment on the April 2006 
proposed rule (71 FR 24820).\14\ In its comment, the NOSB offered 
modifications to its May 2003 dairy replacement recommendation \15\ for 
the regulatory text to read: ``Once a dairy operation has been 
converted to organic production, all dairy animals, including all young 
stock whether born on or brought onto the operation, shall be under 
organic management from the last third of the mother's gestation.'' The 
modification was intended to clarify that any animal brought onto an 
organic operation, after conversion, should be under organic management 
from the last third of gestation (i.e., purchase of animals 
transitioned by other operations should not be permitted). The revised 
text also intended to clarify that an operation (as opposed to herd) is 
entitled to the one-time opportunity to convert to organic production.
---------------------------------------------------------------------------

    \14\ NOSB's comment on the proposed rule is available from the 
NOP by request.
    \15\ National Organic Standards Board May 2003 Recommendation on 
Origin of Livestock: Recommendation for Rule Change (document dated 
April 2003). Available online at: https://www.ams.usda.gov/rules-regulations/organic/nosb/recommendations.
---------------------------------------------------------------------------

    (14) On June 7, 2006, AMS published a final rule entitled 
``Revisions to Livestock Standards Based on Court Order'' (71 FR 32803) 
to implement the November 2005 statutory change. The amendments 
reflected the new OFPA allowance permitting transitioning dairy animals 
to be fed feedstuffs from transitioning lands in the last year of the 
3-year transition period (7 CFR 205.236(a)(2)(i)), as well as setting a 
termination date of June 9, 2007, for the existing 80/20 feed 
conversion rule (7 CFR 205.236(a)(2)(ii)). In the preamble to the 2006 
final rule, AMS noted that additional clarity could be provided 
regarding the transition of dairy animals into organic production.
    (15) In October 2006, NOP published guidelines meant to clarify the 
existing origin of livestock rule.\16\ The guidelines allowed organic 
milk operations that were certified organic prior to October 21, 2002, 
or that transitioned their cattle by feeding them 100 percent organic 
feed during conversion, to acquire additional conventional (or 
``nonorganic'') cattle and transition them to an organic status. The 
guidelines prohibited organic milk operations that transitioned their 
cattle using the 80/20 exemption from transitioning additional cattle. 
This guidance document was archived by AMS on January 31, 2011, in 
anticipation of rulemaking to clarify the origin of livestock rule.
---------------------------------------------------------------------------

    \16\ NOP 5003 Dairy Animal Acquisition under the NOP Regulations 
(dated October 3, 2006). Available from NOP by request.
---------------------------------------------------------------------------

    (16) On April 28, 2015, AMS published a proposed rule titled 
``Origin of Livestock'' (80 FR 23455) to propose changes to the 
exception allowing nonorganic dairy animals to transition to organic 
milk production after one year of organic management. This action 
proposed that each producer (e.g., individual or business entity) would 
be allowed to transition nonorganic dairy animals to organic milk 
production only one time. After the transition is completed, a producer 
could transition dairy animals in the future only if the producer, 
through its certifying agent, requests an exemption due to a natural 
disaster or damage caused by drought, wind, flood, excessive moisture, 
hail, tornado, earthquake, fire, or other business interruption, in 
accordance with 7 CFR 205.290. The comment period for the proposed rule 
was opened on April 28, 2015, for 60 days, during which time AMS 
received 1,371 public comments.
    (17) On October 1, 2019, AMS reopened the comment period on the 
April 28, 2015, proposed rule (84 FR 52041). The comment period was 
reopened for 60 days during which time AMS received 746 public 
comments.
    (18) On December 20, 2019, Congress instructed AMS to finalize 
rulemaking within 180 days in the Further Consolidated Appropriations 
Act, 2020 (Pub. L. 116-94, div. B, title VII, section 756, Dec. 20, 
2019, 133 Stat. 2654), stating ``the Secretary of Agriculture shall 
issue a final rule based on the proposed rule entitled `National 
Organic Program; Origin of Livestock,' . . . Provided, That the final 
rule shall incorporate public comments submitted in response to the 
proposed rule.''
    (19) On May 12, 2021, AMS reopened the comment period (86 FR 25961) 
on the 2015 proposed rule. AMS requested comments on specific topics, 
including whether AMS should prohibit the movement of transitioned 
cows, and whether AMS should use the term ``operation'' or ``producer'' 
to describe the regulated entity. The 2021 comment period was reopened 
for 60 days, during which time AMS received 486 public comments.

III. Overview of Comments

    This section provides a summary of the comments AMS received on 
issues related to this final rule. First, comments received on this 
topic prior to

[[Page 19745]]

2015 are discussed, as they informed the development of the 2015 
proposed rule and this final rule. AMS then summarizes comments 
received since the publication of the 2015 proposed rule over the 
course of three comment periods in 2015, 2019, and 2021. Finally, AMS 
responds to specific comments in the description of this rule and in 
the Regulatory Impact Analysis.

A. Discussion of Comments Received Prior to 2015

    In general, the approximately 12,725 combined comments received on 
the April 2006 proposed rule addressing the court order and the April 
2006 advanced notice of proposed rulemaking on access to pasture 
requested greater clarity on the parameters for transitioning dairy 
animals into organic production and called for elimination of the 
``two-track'' system. The ``two-track'' system refers to an April 2003 
NOP statement that once an entire, distinct herd transitioned using the 
80/20 provision (20 percent nonorganic feed in the 12 months before 
milking), all offspring then had to be managed organically and no 
transitioned replacements could be purchased.\17\ The NOP also stated 
that, for those producers that did not use the 80/20 provision, the 
dairy animals only needed to be under continuous organic management 
starting no later than 12 months prior to production (i.e., producers 
could continue to transition animals into organic over time).
---------------------------------------------------------------------------

    \17\ Summarized in the National Organic Standards Board 
Recommendation on Origin of Livestock: Recommendation for Rule 
Change (document dated April 29, 2003). Available online at: https://www.ams.usda.gov/rules-regulations/organic/nosb/recommendations.
---------------------------------------------------------------------------

    The majority of commenters stated that the ``two-track'' system 
could be addressed by conveying that, once a dairy operation is 
certified organic, regardless of how that operation transitioned into 
organic, all new dairy animals added to that operation should be 
managed organically from the last third of gestation. Commenters stated 
that this principle should apply to those animals born on the farm and 
those purchased as replacement and expansion animals to increase herd 
size.
    Commenters stated that allowing organic dairy operations to add 
only animals who have been managed organically since the last third of 
gestation supports consumer confidence in the organic milk sector. They 
reiterated that consumers expect that organic milk is produced without 
the use of excluded methods and substances prohibited under the 
regulations (i.e., hormones, antibiotics, and certain animal 
medications), and believe that greater clarity on how animals can 
transition into organic production is needed. Some commenters stressed 
that organic dairy products were keystone products for consumer 
confidence and a major stepping-stone to additional organic purchases.
    Commenters stated that continued transition of nonorganic animals 
increases the supply of animals able to produce organic milk, depresses 
the value of organic heifers, and limits the incentives to produce 
organic replacement animals. They also stated that the allowance to 
transition a large number of animals, rather than purchasing or raising 
animals as organic from last third of gestation, results in surplus 
organic heifer calves being sold into the conventional market. Some 
commenters stated that the practice of allowing some operations to 
transition nonorganic animals on a regular basis encouraged 
transitional heifer development farms (an operation that raises heifers 
before they reach production age). They stated that it is easier and 
less expensive to purchase transitioned animals from heifer development 
farms than it is to raise animals that are organic from birth.
    Commenters estimated that raising organic dairy animals is twice as 
expensive as raising nonorganic dairy animals during their first year 
of life. They contended that producers who sell organic calves and 
replace them with transitioned nonorganically raised heifers have an 
economic advantage over those who raise animals organically from birth, 
due to the lower cost of nonorganic feed and nonorganic management. 
Commenters believed that for the organic heifer market to develop, and 
for there to be more organic stock available at an appropriate market 
value, greater clarity is needed in the regulations to convey that 
organic heifers are required in every case, except for the one-time 
initial transition of a dairy operation.
    Commenters stated that at least nine U.S.-based certifying agents 
were requiring the dairy operations they certified (approximately 1,100 
certified and 150 transitioning operations) to manage all replacement 
dairy animals organically from the last third of gestation. This 
accounted for roughly 50 percent of the organic dairy operations at 
that time. Other certifying agents were allowing the other 
approximately 50 percent of dairy operations to transition nonorganic 
animals to organic on a continual basis. Commenters stressed that a 
main purpose of OFPA is consumer assurance that organically produced 
products meet a consistent standard and that the current origin of 
livestock standard needs further specificity to meet that purpose.

B. Discussion of Comments Received on 2015 Proposed Rule

    AMS received 1,371 comments during the first comment period for the 
2015 proposed rule on Origin of Livestock (April 28, 2015, to July 27, 
2015). Commenters included private citizens and consumers, producers, 
consumer groups, organic certifying agents, producer groups, trade 
organizations, milk handlers, and foreign and state governments. The 
majority of comments (1,305 comments) were submitted by private 
citizens and consumers. AMS identified approximately 1,110 form letter 
submissions out of the 1,371 submissions. During the second comment 
period (October 1, 2019 to December 2, 2019), AMS received 746 
comments, which included 198 comments identified as form letters. 
During the third comment period (May 12, 2021 to July 12, 2021), AMS 
received 486 comments, which included 374 comments identified as form 
letters.
    A general summary of comments follows. Detailed discussion of 
specific comments follows in the description of the final rule. All 
comments on the 2015 proposed rule can be accessed at https://www.regulations.gov via Docket ID AMS-NOP-11-0009.
    Of the comments received in 2015, most commenters supported the 
proposed rule because they felt the proposed regulatory text was 
intended to close loopholes that allowed operations to continuously 
bring nonorganic animals into organic milk production. Comments that 
expressed general support for the rule included private citizens and 
consumers; dairy farmers; certifying agents; producer groups; consumer 
groups; a trade organization; handlers and academics/specialists.
    Other comments received in 2015 expressed general opposition to the 
proposed rule. These commenters were mostly concerned that the proposed 
rule would, for example: Weaken organic standards by creating 
loopholes, make organic milk or food less healthy, or favor large 
corporations and ``factory'' farms over small farms and consumers. Some 
commenters were not aware USDA regulations allow for transitioning 
nonorganic animals to organic production and were opposed to this 
practice altogether. A commenter who supported continuous transition 
questioned whether AMS had the authority to restrict the origin of 
livestock as proposed. AMS responds to these comments below.

[[Page 19746]]

    In 2019, AMS received comments in support of the rule, as well as a 
few comments in opposition to the proposed rule. These commenters 
outlined arguments similar to those submitted in 2015, and specifically 
emphasized that changing the rule to allow only one transition to 
organic per producer would be restrictive and beyond the scope of AMS's 
legal authority, among other concerns.
    In 2021, AMS reopened the proposed rule's comment period to seek 
comment on several specific topics, including whether AMS should 
prohibit the movement of transitioned dairy animals in organic dairy 
production as part of the final rule, and whether AMS should regulate 
``producers'' or ``operations.'' Commenters urged AMS to finalize the 
rule without further delay, believing it would ensure dairy farms 
operate on a level playing field and that animals are consistently 
raised using organic practices. Commenters also responded to AMS's 
specific requests, and those are discussed by topic below. A comment 
asserted that USDA did not have the statutory authority to prohibit 
certified operations that have completed their one-time transition from 
acquiring transitioned animals for organic production.

IV. Overview of Amendments and Responses to Comments

    The requirements of the final rule are discussed below. For each 
section of the final rule, we describe comments that AMS received and 
revisions from the proposed to final rule. AMS then discusses the 
comments we received but did not incorporate into the final rule. 
Comments received on the costs and benefits of the rule are discussed 
in the Regulatory Impact Analysis. The final regulatory text is 
available, in its entirety, at the bottom of this document.
    This final rule clarifies a regulation that has been in effect for 
twenty years. AMS considers the requirements for organic livestock in 7 
U.S.C. 6509(b), (c), and (d) to be applicable to all organic livestock. 
Section 6509(e)(2) requires organic management of dairy animals ``for 
not less than the 12-month period immediately prior'' to the sale of 
organic milk or milk products. AMS has interpreted this provision to be 
the minimum 12-month period of organic management and that the 
Secretary may establish a longer period for dairy operations. AMS had 
determined that the appropriate period under which dairy animals must 
be under organic management is from last third of gestation except 
during the one-time transition when a new organic dairy operation is 
being certified or when a nonorganic dairy operation is transitioning 
to organic production. This final rule elaborates on the original 7 CFR 
205.236(a)(2)(iii), under which organic dairy operations may ``rais[e] 
their own replacement animals'' or ``introduce[e] . . . animals from 
off the farm that were organically raised from the last third of 
gestation,'' but may not ``routinely . . . bring nonorganically raised 
animals into an organic operation.'' 65 FR 80570. AMS allowed the 
minimum period of 12 months for new operation or transitioning 
operations to assist new entrants into the organic market as a one-time 
event.
    In 2005, Congress amended section 6509(e)(2) to add subsection (B). 
It left undisturbed subsection (A), which USDA had implemented in 7 CFR 
205.236(a)(2)(iii). Additionally, in the further Consolidated 
Appropriations Act of 2020, Congress instructed the Secretary to 
``issue a final rule based on the proposed rule entitled `National 
Organic Program; Origin of Livestock,' published in the Federal 
Register on April 28, 2015 (80 FR 23455): Provided, That the final rule 
shall incorporate public comments submitted in response to the proposed 
rule.'' 7 U.S.C. 6509 note. Having incorporated the public comments on 
the proposed rule and considered the need for consistency between 
certifying agents, the need to consider the expectations of consumers 
and organic producers, the need to be able to implement and enforce the 
rule effectively, and the statutory provisions included in OFPA, the 
Secretary now issues that final rule.
    The proposed rule in 2015 stated that it would not prohibit the 
movement of transitioned animals, a practice in which some operations 
are currently engaged. In 2021, AMS reopened the comment period to seek 
comment on whether the final rule should do so. With this final rule, 
AMS is limiting the movement of transitioned animals. AMS views the 
different parts of this final rule as working together: The one-time 
transition allowance at the operation level will more effectively work 
in the real world if we also limit the movement of transitioned 
animals. The second part of the rule will facilitate the first part of 
the rule.

A. Definitions (Sec.  205.2)

    This section of the final rule defines terms that appear in the 
final rule and/or existing USDA organic regulations. The final rule 
adds three terms to organic regulations. ``Organic management'' is 
defined as: ``management of a production or handling operation in 
compliance with all applicable provisions under this part.'' The term 
``third-year transitional crop,'' is defined as, ``crops and forage 
from land included in the organic system plan of a producer's operation 
that is not certified organic but is in the third year of organic 
management and is eligible for organic certification in one year or 
less.'' Finally, the term ``transitioned animal'' is defined as, ``A 
dairy animal converted to organic milk production in accordance with 
Sec.  205.236(a)(2) that has not been under continuous organic 
management from the last third of gestation; offspring born to a 
transitioned animal that, during its last third of gestation, consumes 
third-year transitional crops; and offspring born during the one-time 
transition exception that themselves consume third-year transitional 
crops.'' Below we describe the final rule and respond to comments 
received on the proposed definitions.
i. Definitions--Comments and Revisions
    This section (Sec.  205.2) differs from the 2015 proposed rule as 
follows:
    ``Dairy farm'': AMS received many comments on AMS's proposed 
definition of a dairy farm. That proposal would have defined a dairy 
farm as, ``A premises with a milking parlor where at least one 
lactating animal is milked.'' Commenters were concerned that the 
proposed definition of ``dairy farm'' required an operation to milk 
only one animal to meet the definition of a dairy farm. Since any new 
dairy farm could transition animals on a one-time basis, some 
commenters were concerned that a producer would continuously create new 
dairy farms for the purpose of producing transitioned animals, 
defeating the purpose of the rule. Public comments argued this 
interpretation would be relatively easy to make, because the dairy farm 
definition requires that only one animal be milked. These transitioned 
animals would then presumably be sold to other organic dairies, thereby 
allowing operations to continuously add transitioned animals to their 
operations and failing to establish consistency across operations.
    These commenters suggested that AMS modify the definition of a 
``dairy farm'' to close the potential loophole by requiring that a 
dairy farm be a functioning `commercial dairy' that is inspected and 
permitted by the state in which it operates, has a relationship with a 
licensed milk handler, and has operated for no less than 180 days. 
Other comments were concerned that legitimate dairies would be excluded 
by our proposed definition, as AMS defined a dairy farm as a premise 
with a milking parlor. They noted that dairy farms do not always have a 
milking

[[Page 19747]]

parlor, for example, when dairies are starting transition with non-
milking animals (e.g., heifers). Another commenter pointed out that 
some dairies use portable or mobile equipment for collecting milk and 
that it was unclear if these operations would be considered dairy farms 
under the rule. Another commenter stated that a ``dairy farm'' 
definition was not necessary and recommended that AMS delete the 
definition in the final rule.
    AMS has not included a definition for ``dairy farm'' in the final 
rule. AMS concluded that the proposed term would not have included 
certain legitimate dairy operations (i.e., dairy operations that do not 
have a milking parlor) and would have included operations that should 
not be considered dairy operations for the purposes of the rule (i.e., 
non-commercial dairy operations).
    The final regulatory text does not include this term, as AMS 
determined it is not necessary and is an ordinary term that does not 
require definition. The proposed rule articulated the definition of 
``dairy farm'' as a way to establish the eligibility requirements to 
transition animals. AMS concluded an alternative approach was preferred 
in the final rule to limit continual transition by organic operations, 
as suggested by commenters. This decision was a logical outgrowth of 
the proposed rule, based on the rule's articulated purpose. In the 
final rule, the definition of a dairy farm is not necessary to 
implement the final rule or achieve our regulatory objective. For 
additional discussion, see the section on Dairy Transition (Sec.  
205.236(a)(2)) below.
    ``Organic management'': In the proposed rule, AMS defined organic 
management as, ``Management of a production or handling operation in 
compliance with all applicable production and handling provisions under 
this part.'' AMS is revising the proposed definition of ``organic 
management'' in this final rule to simplify the wording and improve 
readability. The change is not intended to alter the meaning of the 
term. The final rule defines organic management more simply as, 
``Management of a production or handling operation in compliance with 
all applicable provisions under this part.'' This does not broaden, nor 
does it intend to broaden the rule, as the only applicable provisions 
are the production and handling provisions.
    ``Third-year transitional crop'': AMS received a comment that AMS's 
proposed definition for ``third-year transitional crop'' referred only 
to prohibited materials as the determining factor for evaluating 
whether crops produced on the land could be considered transitional. 
The commenter noted ``there is more to land transition than not 
applying prohibited materials.''
    AMS agrees that organic land management includes a range of 
practices and requirements, only one of which is the absence of 
prohibited materials. AMS has revised the definition to clarify that 
third-year transitional crops are crops and forage harvested from land 
that is in its third year of organic management and thus is eligible 
for organic certification in one year or less.
    ``Transitional crop'': AMS received comments that the definition of 
``transitional crop'' was unnecessary, as neither the current 
regulations nor the proposed rule refer to ``transitional crop'' and 
this term would not be needed to enforce the regulations. The commenter 
argued that land is transitioning for three years and that it could be 
considered ``transitional'' at any time during the three-year period, 
including the time during the first year of transition.
    AMS agrees that a definition for ``transitional crop'' is 
unnecessary, and we have removed the definition from the final rule. 
The term is not used in the regulations outside of the term ``third-
year transitional crop,'' and that term is separately defined in the 
final rule. Furthermore, AMS does not establish requirements for 
certification of transitional crops and does not intend to do so 
through this rulemaking.
    ``Transitioned animal'': AMS received a comment on the definition 
of a transitioned animal. This comment recommended removing the 
language ``sold, labeled, or represented as organic slaughter stock or 
for the purpose of organic fiber'' from the definition of a 
transitioned animal and incorporating it into Sec.  205.236(a)(2)(vii).
    AMS revised this definition to remove language that transitioned 
animals cannot be sold, labeled, or represented as organic slaughter 
stock or for the purpose of organic fiber. AMS is removing this 
language, which was a requirement within the definition. The final rule 
clearly states transitioned animals must not be used for organic 
livestock products other than organic milk and milk products (Sec.  
205.236(a)(2)(vii)). Additionally, AMS added language to the definition 
to reiterate that transitioned animals are animals that have not been 
under continuous organic management from the last third of gestation, 
and we revised the spelling of ``borne'' to ``born''.
ii. Definitions--Changes Requested But Not Made
    ``Transitioned animal'': A commenter was opposed to AMS's inclusion 
of ``offspring'' in this definition. It argued that the OFPA provision 
that allows transitioning animals to be fed third-year transitional 
crops ``applies to the animals of the farm that are being transitioned. 
It does not apply to offspring born to the transitioning animals.'' AMS 
disagrees that OFPA limits use of third-year transitional crops to any 
specific class, or age, of livestock during the transition.
    AMS also received comments requesting we include fiber-bearing 
animals in the definition of a transitioned animal to allow nonorganic 
fiber animals to transition to organic. AMS has not adopted this 
suggestion, as OFPA does not include an allowance for fiber animals to 
transition. For a discussion of this topic, please see the section 
below titled ``J. Other Amendments Considered.''
    ``Person'' and ``Producer'': AMS did not propose to change the 
definition of ``person'' or ``producer'' in the proposed rule, but 
these two terms are defined in the current regulations at Sec.  205.2, 
and AMS received comments about how those definitions could affect the 
implementation of our rule. Comments primarily expressed concern that a 
producer could continuously transition by repeatedly creating new or 
separate legal entities or that eligibility requirements would be 
difficult to verify. Another comment stated that an operation may have 
numerous individuals conducting business on the premises, and the 
proposed rule language does not explicitly define which of these 
individuals should be considered the producer for purposes of the one-
time transition allowance.
    AMS has not revised the definitions for either term, as the final 
rule does not rely on these terms to establish who may transition 
animals. For a discussion of changes made by AMS to address comments 
about who is eligible to transition, see the discussion below on Dairy 
Transition.

B. Dairy Transition (Sec.  205.236(a)(2))

    This section of the final rule specifies who is eligible to 
transition nonorganic animals to organic production and the 
requirements and conditions of the transition period. The section also 
prohibits organic livestock operations from sourcing transitioned 
animals, except in specific and limited cases where the Administrator 
may grant a variance. Table 1 outlines the restrictions by dairy animal 
type.

[[Page 19748]]



   Table 1--Restrictions for Transitioned and Last Third Organic Dairy
                                 Animals
------------------------------------------------------------------------
       Last third organic animals              Transitioned animals
------------------------------------------------------------------------
May move between organic operations....  May not move between organic
                                          operations, except in case of
                                          Administrator-approved
                                          variance at 205.236(d).
May be eligible for organic slaughter    Not eligible for organic
 (if also not treated with synthetic      slaughter.
 parasiticides that appear on the
 National List).
------------------------------------------------------------------------

    Below we describe the final rule, including the variance request 
procedures and criteria, and respond to comments received on the 
proposed rule.
i. Dairy Transition--Comments and Revisions
Section 205.236(a)(2)--
    AMS made two important revisions to this section in response to 
comments. First, AMS revised the regulated entity from ``producer'' to 
``operation,'' to be consistent with the current regulations. Second, 
AMS prohibited certified organic operations from sourcing transitioned 
animals from other organic operations. These two changes work in tandem 
to result in a rule that meets AMS policy goals, best responds to 
public comment, and can be clearly implemented and enforced by 
certifying agents and AMS. Based on public comments, AMS is confident 
that the policy choices in this rule align with practices that many 
certifiers and most organic operations already follow, and align with 
public comments on the rule.
    The revisions and final requirements are discussed in more detail 
below.
    Operation as regulated entity (Sec.  205.236(a)(2)): AMS received 
many comments on the appropriate regulated entity (e.g., producer, 
operation, owner, etc.) that should be eligible for the one-time 
transition. In 2021, AMS specifically requested comments on this topic. 
Comments were received from producers, certifying agents, consumers/
citizens, producer groups, consumer groups, trade associations, 
handlers, and a foreign government.
    The regulated entity establishes who is eligible to transition 
dairy animals to organic production. The USDA organic regulations 
consider the certified operation to be the regulatory unit. In the 
proposed rule, however, AMS selected ``producer'' as the regulatory 
unit. Few commenters supported that option. Most comments recommended 
changing the regulatory unit to ``operation'' or a variation such as 
``certified operation'' or ``dairy operation.''
    Others recommended AMS prohibit ``persons responsibly connected'' 
to a transitioned dairy from ever transitioning animals in the future. 
The term ``responsibly connected'' is currently defined in the 
regulations (Sec.  205.2) as ``any person who is a partner, officer, 
director, holder, manager or owner of 10 percent or more of the voting 
stock of an applicant or a recipient of certification or 
accreditation.'' A subset of the comments that recommended the 
aforementioned prohibition on ``persons responsibly connected'' also 
recommended revising the definition of that term to include persons 
with at least a 20 percent ownership share in the operation, rather 
than 10 percent. Finally, several commenters wanted a less stringent 
regulatory unit to allow organic operations to continually transition 
dairy animals, as needed, into organic production.
    AMS revised the language for this final rule in response to 
comments and to clarify the existing USDA organic regulations. The 
final rule specifies that an operation (rather than a producer in the 
proposed rule) has one opportunity to transition animals. This 
definition of ``operation'' best captures the more expansive 
understanding of an ``entire, distinct herd'' in the current 
regulations, under which dairy operations have been allowed to use the 
transition exception only once (i.e., when they initially converted 
their farm's entire nonorganic ``herd'' to organic production). AMS 
adopted ``operation'' as the regulated unit for the following 
additional reasons:
    1. As noted, the term ``operation'' is consistent with how the 
organic regulations are currently administered by AMS and certifying 
agents. For example, certifying agents issue adverse actions (notices 
of noncompliance, etc.) to certified operations. The term ``operation'' 
aligns with the term used in NOSB's most recent 2006 recommendation and 
it reflects common usage by industry.
    2. Comments received indicate that the term ``producer'' can be 
interpreted in different ways. For example, the definition of 
``producer'' in Sec.  205.2 includes the word ``person.'' Commenters 
took this to mean different things, with some understanding it to mean 
an individual human (i.e., a natural person) while others understood it 
to mean a ``person'' as separately defined at Sec.  205.2. The 
definition of ``person'' at Sec.  205.2 is not limited to individuals 
and includes various types of business entities. AMS determined that 
different interpretations of the term ``producer'' would lead to 
differences in how certifying agents enforce the requirements, and this 
would be an unacceptable outcome of the rulemaking.
    3. Certifying agents argued that it would be simpler to verify an 
operation's eligibility (as opposed to a producer's eligibility) to 
transition animals. Certifying agents are responsible for verifying 
eligibility during the application process. AMS has revised the 
regulated entity to ensure the certification process remains 
straightforward and that the requirements are enforceable.
    4. Many comments noted that regulating ``producers,'' as proposed, 
could restrict people associated with a dairy from starting their own 
dairies. This could include business partners, managers, and family 
members. AMS determined that ``operation'' as the regulated entity most 
simply allows people who might be associated with a certified dairy to 
go out and start their own organic dairy operation by allowing them to 
transition nonorganic animals to organic production.
    5. AMS recognizes there are multiple scenarios where producers that 
previously operated an organic dairy may wish to start a new dairy 
operation. For example, dairies may go out of business or be sold 
entirely, and the same people may later wish to start new operations. 
The final rule permits only operations that are both (1) not certified 
for livestock production and (2) have never transitioned animals to use 
the one-time exception for transitioning animals.
    6. AMS did not select a stricter regulatory unit, such as ``persons 
responsibly connected,'' that is stricter than an organic dairy that 
has transitioned, for several reasons. AMS was concerned the 
requirement could not be easily verified by certifying agents and/or 
that it could create delays and/or unnecessary obstacles in the 
certification process. AMS was also concerned that it could prevent 
people

[[Page 19749]]

from using the exception in cases where it would be reasonable.
    Another overarching reason for selecting ``operation'' as the 
regulated entity is that this final rule prohibits the movement of 
transitioned animals between organic operations. This revision supports 
our intent to prohibit any certified organic operation from continually 
sourcing transitioned animals. For implementation and oversight 
purposes, this aligns well with the policy choice to select a simpler 
regulatory unit (``operation'') that aligns with the rest of the USDA 
organic regulations and the existing framework for certification and 
oversight. New operations may transition animals into organic 
management; existing organic operations may not. These revisions are 
discussed further below.
    Prohibition on sourcing transitioned animals (Sec.  205.236(a)(2)): 
AMS specifies in this section that organic operations may not source 
transitioned animals, except in the case of variances granted by the 
Administrator. Prohibiting the sourcing of transitioned animals is 
intended to prevent new heifer replacement operations from being 
repeatedly established to provide an ongoing source of transitioned 
animals. Otherwise, the movement of transitioned animals could allow 
operations to use just transitioned dairy animals to bypass the 
restrictions and purpose of the one-time transition period.
    This policy choice is consistent with public comments on this rule. 
The demand induced by allowing certified farms to continually source 
transitioned animals would produce a corresponding incentive for other 
businesses to continually open new organic operations to provide 
transitioned cows into the market. This is not the original intent of 
our regulations, nor the desired policy outcome. As such, AMS is making 
the policy choice to achieve the policy goal of having more organic 
animals under organic management for their full lives.
    Without preventing the sourcing of transitioned animals, AMS would 
expect an influx of transitioned animals, as some organic dairies would 
pursue the practice of purchasing transitioned animals from newly 
created heifer replacement operations. Given the policy choice to limit 
transitions in the market to new operations only, with a limited 
variance process, AMS believes that limiting the transition between 
operations to better manage supply and demand dynamics, and removing 
incentives for continuous transition practices to continue would better 
support that policy.
    AMS received many comments on this topic over the three comment 
periods, starting in 2015. In 2021, AMS specifically requested comments 
on whether the final rule should prohibit organic dairy operations from 
acquiring transitioned animals. AMS received many comments supporting 
this choice, as well as comments opposing it. Ultimately, AMS agrees 
with comments that a prohibition on the movement of transitioned 
animals between organic operations facilitates achieving our regulatory 
objective to increase the number of livestock that are managed as 
organic throughout their lives. In the final rule, AMS included this 
provision in Sec.  205.236(a)(2) and removed the two proposed sections 
205.236(viii) and (ix) that would have allowed transitioned animals to 
move between organic operations. Certified operations may request a 
variance from the prohibition on the movement of transitioned animals 
for specific circumstances, as described in Sec.  205.236(d).
    The rule is not intended to restrict entry of legitimate new 
participants into the organic market, and transitions continue to be 
allowed for new operations after not less than a 12-month period of 
organic management. Transitions would also be allowed if a variance is 
granted (explained further below). These transition allowances reduce 
the costs of converting to organic production, and will continue to be 
an important incentive for eligible nonorganic dairy farms to convert 
to organic. However, once established, the certified organic farm would 
then need to use organic dairy animals that have been organically 
managed from the last third of gestation.
    Examples of Rule Implementation. Several examples are provided 
below to clarify the final rule's requirements at Sec.  205.236(a)(2), 
and to explain how cows may be transferred between operations:
    <bullet> Organic dairy animals (organically managed from the last 
third of gestation) may be transferred between new and existing organic 
operations at any time. A certified dairy operation that cannot raise 
enough organic animals (organically managed from the last third of 
gestation) on-farm to maintain its herd may source animals managed 
organically from the last third of gestation from other organic 
operations.
    <bullet> A new farmer or conventional operation may apply for both 
crops and livestock certification and use the transition allowance to 
start a dairy. Further, a certified crop operation that has never 
transitioned animals may add a dairy to its certification and use the 
transition allowance to start the dairy.
    <bullet> For example, if a certified dairy farmer wants to pass 
transitioned animals to a family member, that family member could apply 
for organic certification as a new certified operation, and bring the 
transitioned animals into that operation under the one-time transition 
allowance.
    <bullet> Another option for facilitating intergenerational 
transfers of transitioned animals would be for a family member to join 
an existing certified organic dairy with transitioned animals. The 
establishment of the regulatory unit as the ``operation'' allows family 
members to join in the ownership and operation of an existing organic 
operation, allowing the receiving generation to receive the cows that 
were transitioned by the giving generation, because they are part of 
the operation that transitioned the animals.
    <bullet> Two (or more) operations will not generally produce 
organic milk on the same premises (i.e., use the same land and milking 
parlor). More than one operation owned by the same person(s) and 
producing milk at the same location (with each transitioning a group of 
animals) goes against the intent of this final rule. However, multiple 
people (like parent/child family members) can be responsible parties 
for a single operation and new responsible parties to an operation can 
be added over time.
    <bullet> Nothing in the rule prevents transitioned animals from 
being sold to other farms as conventional animals; a transitioned 
animal started life as a conventional animal and can return to 
conventional production if an organic farm with transitioned animals 
wishes to sell its herd. Organic dairy animals (organically managed 
from the last third of gestation) may be transferred as organic to 
other organic farms (new or established). This reflects the difference 
in economic investment in the transitioned animal compared with the 
``organic for life'' animal.
    <bullet> The term ``source'' at Sec.  205.236(a)(2) is intended to 
have a meaning that is broader than ``purchase.'' For example, the term 
``source'' would include acquisition of animals when the transaction 
does do not include a financial exchange (e.g., transfers).
    <bullet> Additionally, an organic livestock operation could not 
source transitioned animals under a scheme where transitioned animals 
are milked but not owned by that organic operation, as a means of 
continually bringing transitioned animals into milk production. For 
example, Operation A could not source transitioned animals from 
Operation B, Operation C, Operation D (etc.), even if Operation A does 
not own the transitioned animals

[[Page 19750]]

from Operation B, Operation C, (etc.). Certifying agents must review an 
applicant's organic system plan (and annually thereafter) to ensure 
that no operation, once certified, sources transitioned animals.
    <bullet> A heifer-raising operation, like a dairy, may not 
continually transition nonorganic animals. Once an eligible (e.g., 
nonorganic) heifer-raising operation transitions animals under the one-
time exception, it may source only organic animals (organically managed 
from the last third of gestation). Heifer-raising operations may not 
provide transitioned animals to an already certified organic operation 
that has completed its one-time transition.
Administrator Variances for Movement of Transitioned Animals (Sec.  
205.236(d))
    In the final rule, AMS is providing for a variance request process 
that is specific to the prohibition on the movement of transitioned 
animals. In the proposed rule, AMS asked whether any exceptions or 
variances should be granted. Many comments noted existing sections of 
the organic regulations that already provide for temporary variances in 
the case of extreme weather events or disease, for example (Sec. Sec.  
205.290 and 205.672).
    However, a few commenters noted some movement of transitioned 
animals between farms would be appropriate and could happen without 
undermining the intent of the rule to limit operations from continually 
transitioning animals. These comments either noted that a transitioned 
animal producing organic milk on one farm should be allowed to produce 
on any organic farm, or noted that there were ``common sense'' 
situations where movement of transitioned animals would not run counter 
to the intent of the rule.
    One comment noted that prohibiting sale of transitioned animals 
could hurt family farmers, and as noted above, another argued that 
while there should be strict requirements on herd conversions, there 
should also be flexibility for ``reasonable'' or ``common sense'' 
movement of transitioned animals to allow an operation to capture the 
value of the animal and/or to allow an organic (transitioned) animal to 
continue to produce organic milk on a different organic farm.
    AMS believes that a prohibition on the movement of transitioned 
animals is necessary to prevent ongoing creation of organic operations 
(e.g., heifer replacement operations) that would supply organic dairies 
with transitioned animals in an ongoing manner. AMS has discussed the 
reasons for this prohibition throughout this final rule. However, AMS 
also recognizes that there are certain limited, legitimate, and 
reasonable situations where movement of transitioned animals between 
operations is warranted. Sections 205.290 and 205.672 of the existing 
regulations allow all operations to use variances in extreme or 
unexpected conditions. Section 205.272 allows for the re-transitioning 
of dairy animals (over 12 months) in cases of Federal or State 
emergency disease treatments. Section 205.290 allows variances from 
portions of the regulations (but would not permit the use of prohibited 
substances or nonorganic feed) in the case of natural disasters, damage 
from weather, fires, or other business interruptions.
    However, these sections do not sufficiently meet the needs of the 
situations pointed out in public comments, like bankruptcy, insolvency, 
and intergenerational transfer. Small dairy farmers who are more 
vulnerable to financial stress may need relief in these situations.\18\ 
The Organic Integrity Database listings that include data at the dairy 
animal level indicate that, since 2016, operations that have 
surrendered their organic dairy certification have been small organic 
dairies as defined by the Small Business Administration (SBA) in 13 CFR 
part 121.\19\ AMS seeks to ensure operations are not unduly impacted by 
the prohibition on the movement of transitioned animals, especially in 
times of financial hardship or intergenerational transfer.
---------------------------------------------------------------------------

    \18\ McDonald, J.M., Law, J., & Mosheim, R. (2020). 
Consolidation in US dairy farming (USDA ERS. No. 1473-2020-607).
    \19\ Using the Organic Integrity Database, AMS identified dairy 
cattle operations with listed organic animals that were surrendered 
their organic dairy certification between 2016-2021 that would have 
been labeled a small business under 13 CFR part 121.
---------------------------------------------------------------------------

    In the final rule, AMS has included provisions that allow the 
Administrator \20\ to issue a variance and allow the movement of 
transitioned animals between operations. This variance request process 
is specific to the Origin of Livestock provisions, but mirrors the 
existing temporary variance provisions in the regulations at Sec.  
205.290. Under the process described in the NOP Program Handbook,\21\ 
the operation must submit their request for a temporary variance in 
writing to their certifying agent and include supporting documentation 
justifying the need for the temporary variance. The certifying agent 
reviews the request to determine whether the request comports with the 
reasons listed at Sec.  205.290(a), and whether the documentation 
provided by the operation justifies the need for the temporary 
variance. The certifying agent submits the request to AMS, including 
the original request and supporting documentation, and recommends 
either granting or denying the temporary variance along with the 
reasons for their recommendation, and includes any additional 
documentation that supports their recommendation. A list of temporary 
variances that are in effect and that were denied are available to the 
public at https://www.ams.usda.gov/rules-regulations/organic. Temporary 
variance denial decisions are not appealable; however, an operation can 
appeal a proposed adverse action if they are not able to meet the 
regulatory requirements because a temporary variance has been denied.
---------------------------------------------------------------------------

    \20\ The Administrator includes a ``representative to whom 
authority has been delegated to act in the stead of the 
Administrator'' which could be the NOP Program Manager, i.e. the NOP 
Deputy Administrator.
    \21\ NOP Program Handbook, NOP 2606 Instruction: Temporary 
Variances. Available at: https://www.ams.usda.gov/sites/default/files/media/Program%20Handbk_TOC.pdf.
---------------------------------------------------------------------------

    AMS considered allowing certifying agents to decide variance 
requests but decided to retain those decisions at the Administrator 
level similar to the existing temporary variance process at Sec.  
205.290. By requiring operations to seek approval from the 
Administrator rather than individual certifying agents, AMS believes 
that the process will result in more consistent decision-making. AMS is 
best positioned to make these decisions (vs. certifiers) because it can 
most easily request information from any accredited certifier. AMS 
anticipates that it may need to obtain or verify information from more 
than one certifier to assess the variance request. AMS is also best 
positioned to track whether any one operation is making multiple 
variance requests as a means to continually source transitioned 
animals.
    The new Origin of Livestock paragraph describing this type of 
variance identifies the scenarios for which a variance could be granted 
and describes the process for requesting a variance. The limited 
circumstances in which a variance may be granted will prevent this 
process from being used as a mechanism for an operation to continually 
source transitioned animals. The variance must be submitted to NOP 
through a certifier and will be considered by the Administrator against 
the limited circumstances listed in the regulation in Sec.  
205.236(d)(1).
    Variances will be made only for businesses that are ``small,'' as 
determined by the Small Business Administration (SBA) in the small 
business size regulations (13 CFR part 121). Those regulations 
currently establish that a dairy cattle operation is

[[Page 19751]]

a small business if it takes in less than one million dollars in annual 
receipts. AMS is limiting variances to small businesses only to 
minimize adverse economic impact on small entities, as directed by the 
Regulatory Flexibility Act.
    The variance requestor must provide documentation to support the 
request (e.g., contracts, evidence of forced/sale closure, family 
records, wills or trusts, bankruptcy filings, tax documentation, 
records to support size standard). This variance is specifically 
crafted to address concerns about intergenerational transfers, forced 
sale or bankruptcy proceedings, and liquidity needs of dairy operations 
ceasing operations that may be hampered by the restriction on the 
sourcing of transitioned animals. AMS does not intend for these 
variances to become an avenue for operations to use out of convenience 
or to create a market for transitioned animals.
Section 205.236(a)(2)(i)--
    In the final rule, this paragraph specifies that the transition 
period must be continuous and must last at least 12 months. AMS moved a 
portion of the language included at Sec.  205.236(a)(2) and combined it 
with similar text in Sec.  205.236(a)(2)(i) to reduce regulatory 
language and increase clarity. AMS also added language to clarify that 
an operation using the one-time transition must be certified before it 
may represent or sell products as organic.
Section 205.236(a)(2)(ii)--
    In this section of the final rule, AMS added requirements for an 
operation to describe its transition plan in its organic system plan, 
including the actual or anticipated start date of the 12-month 
transition period and the identity (e.g., ear tag numbers) of animals 
to transition. The means of identifying animals may vary by operation 
but must be reviewed and approved by the certifying agent. AMS believes 
this information is necessary for certifying agents to determine 
compliance and to provide for traceability of transitioned animals. 
Certifying agents may also require any additional information about the 
transition that they deem necessary to determine compliance.
    AMS also revised this paragraph to reflect the timing for when an 
operation must apply for certification. An operation must submit an 
application to begin the certification process, and an operation must 
be certified before it can legally sell, label, or represent product as 
organic. This means that the transition period may exceed 12 months if 
the operation has applied for certification but is not yet certified 
after 12 months has passed. In this case, the animals would continue to 
be transitioning under continuous organic management until 
certification is complete. See below for further discussion of changes 
requested but not made by AMS (``Applying for Certification--
Timeline'').
Section 205.236(a)(2)(iii)--
    Some commenters requested that AMS clarify that third-year 
transitional crops may be consumed by dairy animals during their 
transition only if those third-year transitional crops are produced by 
the operation transitioning to organic.
    AMS agrees that the OFPA transition requirements (7 U.S.C. 
6509(e)(2)(B)) limit transitioning operations' use of third-year 
transitional crops to their own operation. AMS has revised the final 
rule, Sec.  205.236(a)(2)(iii), to more clearly align with OFPA by 
clarifying transitioning dairy animals may consume third-year 
transitional crops grown by the operation only. Allowed third-year 
transitional crops include those grown by the operation on land that is 
leased or rented and included in the organic system plan of the 
transitioning operation. AMS has also clarified that certified organic 
feed is to be fed during the 12-month transition, in addition to third-
year transitional crops.
Section 205.236(a)(2)(iv)
    AMS made a minor change to this section between the proposed 
regulations and the final rule to clarify our meaning. See discussion 
below of Dairy Transition--Changes Requested but Not Made.
Section 205.236(a)(2)(v)--
    In the final rule, AMS made minor revisions to this paragraph in 
response to a comment that transitioned animals are a class of 
``organic'' animal. In the proposed rule, AMS had used the term 
``organic'' to mean animals that are under organic management from the 
last third of gestation. The final rule revises the language to clarify 
that these animals are the same as any animal managed organically from 
the last third of gestation.
Section 205.236(a)(2)(vi)--
    This paragraph sets the requirement that all dairy animals must end 
the transition at the same time. This reiterates that the transition 
exception is a distinct opportunity with a definitive end. Once the 
transition is complete, an operation may not add additional 
transitioned animals to its operation. The requirement that all animals 
end the transition at the same time prevents operations from sourcing 
additional nonorganic animals after they have begun their one-time 12-
month transition period (unless they wish to restart the 12-month 
transition period for the entire group).
    This requirement is not intended to limit animals born during the 
transition period to transitioning animals (dams) from joining the 
organic herd. In some scenarios (e.g., operations that transition 
animals using third-year transitional feeds), animals born during the 
12-month transition period may not complete 12 months of organic 
management by the end of the transition period. For example, 
transitioning animals bred after the start of the transition may birth 
animals toward the end of the 12-month transition period. These animals 
still may be added to the operation's herd. Animals born during the 
transition must be under continuous organic management from birth and 
for no less than 12 months immediately prior to the production of 
organic milk to qualify for organic certification.
    Certifying agents will need to ensure that operations correctly 
classify animals as transitioned animals (as opposed to organically 
managed from the last third of gestation), as these animals do not meet 
the requirements for organic slaughter stock and may not be sourced by 
organic dairies (Sec.  205.236(a)(2)). An example is provided below to 
clarify how to classify animals born to transitioning animals during 
the transition period.
    For example (this example assumes the operation does not feed 
third-year transitional crops during transition but, rather, feeds 
certified organic feed and pasture): The offspring of a pregnant cow 
that calves within the first three months of the transition cannot be 
considered organic from the last third of gestation (assume a gestation 
time of 9 months for this discussion). In this case, the heifer calf is 
considered a transitioned animal. Its transition will be completed 
after 12-months, at the same time its mother completes transition 
(i.e., the organic management of the pregnant mother during the last 
third of gestation also counts toward the 12-month transition of the 
offspring). In contrast, offspring born after the first three months of 
the transition period will be considered organically managed from the 
last third of gestation (i.e., the mother is under organic management 
during the entire last third of gestation). This aligns with the 
requirement for nonorganic breeder stock (i.e., the requirements are no 
stricter).

[[Page 19752]]

Section 205.236(a)(vii)--
    One commenter suggested that AMS include ``milk products'' in 
addition to ``milk'' in Sec.  205.236(a)(2)(vii) to clarify that 
products other than milk can be produced by transitioned animals. AMS 
agrees and we have revised this section in the final rule to refer to 
both milk and milk products and to clarify our meaning.
Sections 205.236(a)(2)(viii) and (ix)--
    The final rule prohibits certified operations from sourcing 
transitioned animals after completing the one-time transition (Sec.  
205.236(a)(2)), except in the case of variances granted by the 
Administrator (Sec.  205.236(d)).
    The proposed rule would have allowed transitioned animals to 
produce organic milk on any organic farm. In effect, this would have 
allowed certified operations to purchase transitioned animals for 
organic milk production. In 2015, AMS received 989 comments in support 
of changing the final rule to ban the sale of transitioned animals 
between organic operations. Commenters included consumers, producers, 
certifying agents, producer groups, consumer groups, and trade 
associations. In 2019, AMS received additional comments that 
transitioned animals should not be sold to organic operations for 
organic milk production. AMS specifically sought comments on this topic 
in 2021, with most commenters in support of transitioned animals losing 
organic status if sold, transferred, given, or otherwise moved to 
another operation, or if included as part of a merger of organic 
operations in which ownership remains with the original certified 
operation but there is common management. A few commenters were opposed 
to limiting the movement or sale of transitioned animals under the one-
time allowance, citing a potential burden on family farms, a lack of 
rationale for the prohibition, and a lack of oversight necessary to 
enforce this prohibition.
    Other commenters were concerned that by allowing sales of 
transitioned animals between operations, AMS's rule would not 
effectively stop operations from continually acquiring transitioned 
animals. If organic operations could find loopholes to continue to 
produce transitioned animals, there would be a market for those 
transitioned animals. To prevent this activity, many commenters 
suggested that AMS prohibit the sale of transitioned animals between 
operations altogether.
    AMS considered different options to ensure the final rule is clear 
and enforceable. AMS determined that prohibiting certified operations 
from sourcing transitioned animals (with limited exceptions at Sec.  
205.236(d)) best supports the policy goal. This policy choice is 
consistent with public comments advocating for this rule.
    For example, based on public comments, academic literature, and the 
existing regulations, AMS believes that consumers expect that organic 
animals have not been treated with antibiotics; however, a transitioned 
cow producing organic milk may have been treated with antibiotics early 
in life, before the transition began.<SUP>22 23</SUP> Beef labeled as 
organic must have been produced from an animal that had been organic 
for its whole life. It is reasonable to conclude that a consumer would 
prefer milk from cows (or goats, etc.) that had never been treated with 
antibiotics given that prohibition with other forms of livestock; while 
still allowing for the one-time transition allowed under OFPA. Another 
example is outdoor access; AMS believes that consumers generally prefer 
that organic animals have access to outdoors throughout their lives, as 
per the existing regulations; however, transitioned animals do not 
manifest a full life of these benefits.\24\ Constraining the movement 
of transitioned cows between operations is expected to decrease the 
overall number of transitioned animals industry-wide over time
---------------------------------------------------------------------------

    \22\ Hughner, R.S., McDonagh, P., Prothero, A., Shultz, C.J., & 
Stanton, J. (2007) Who are organic food consumers? A compilation and 
review of why people purchase organic food. Journal of Consumer 
Behaviour: An International Research Review, 6(2-3), 94-110.
    \23\ Wemette, M., Safi, A.G., Wolverton, A.K., Beauvais, W., 
Shapiro, M., Moroni, P., . . . & Ivanek, R. (2021). Public 
perceptions of antibiotic use on dairy farms in the United States. 
Journal of Dairy Science, 104(3), 2807-2821.
    \24\ Dangi, N., Gupta, S.K., & Narula, S.A. (2020). Consumer 
buying behaviour and purchase intention of organic food: a 
conceptual framework. Management of Environmental Quality: An 
International Journal.
---------------------------------------------------------------------------

    AMS removed Sec.  205.236(a)(2)(viii) and (ix) and included the 
revised requirement at Sec.  205.236(a)(2). Section 205.236(a)(2) of 
this final rule specifies that once an eligible, newly-certified 
organic livestock operation completes the one-time minimum 12-month 
transition to organic, it may not source any transitioned animals. For 
additional discussion about sourcing animals, see OPERATION AS 
REGULATED ENTITY (Sec.  205.236(a)(2)).
    Certified organic dairy operations that purchase animals, 
individually or as an entire herd, may not purchase any transitioned 
animals for organic milk production beginning on the compliance date. 
Livestock must be under continuous organic management from the last 
third of gestation (Sec. Sec.  205.236(a) and 205.236(a)(2)). The final 
rule does not limit certified organic dairy operations from purchasing 
animals that have been organically managed from the last third of 
gestation. Nor does the final rule prohibit operations from raising and 
selling organic replacement animals to certified dairy operations. Such 
animals must be organically managed from the last third of gestation to 
be sourced by organic operations (Sec. Sec.  205.236(a) and 
205.236(a)(2)).
    AMS received a comment that some nonorganic dairies convert to 
organic production by purchasing certified organic dairy cows while 
transitioning nonorganic animals. A dairy may wish to do this to keep 
some of its own nonorganic animals (to transition) while generating 
income from the organic cows. The final rule requires that all 
transitioning animals complete the transition at the same time (i.e., 
at the end of a single 12-month period) at Sec.  205.236(a)(2)(vi). It 
also prohibits the sourcing of transitioned animals after the one-time 
transition is complete (Sec.  205.236(a)(2)), but it does not 
explicitly discuss sourcing of organic animals during the transition. 
AMS will allow certifiers to determine if a transitioning operation may 
source organic animals during the transition, as site-specific and 
other conditions will need to be evaluated to determine if an operation 
could comply with all requirements. For example, if an operation 
purchases lactating organic dairy animals during the transition period 
but also manages lactating transitioning animals, very specific 
practices would be required to keep nonorganic milk (from transitioning 
animals) segregated from organic milk until the transition period is 
complete.
ii. Dairy Transition--Changes Requested But Not Made
(1) Prohibit Transition Entirely (Sec.  205.236)
    AMS received many comments opposed to allowing any transition of 
nonorganic animals to organic production. Generally, the commenters 
thought any products labeled as organic should be organically managed 
from birth or from the last third of gestation and that any allowance 
for transitioning nonorganic animals is unwarranted.
    AMS has not prohibited transition altogether in the final rule. AMS 
believes that the one-time transition allowance provides an important 
and reasonable incentive for new dairies and existing nonorganic 
dairies to seek organic certification. Many currently

[[Page 19753]]

certified organic dairy operations transitioned their operations to 
enter the organic market, and this final rule preserves the same 
opportunity for new and nonorganic operations pursuing organic 
certification. For additional analysis of alternatives, see the 
Regulatory Impact Analysis (RIA) below.
(2) Allow Continuous Transition--Do Not Restrict to One-Time Event 
(Sec.  205.236)
    For additional discussion of this alternative regulatory approach, 
see the ALTERNATIVES CONSIDERED section of the Regulatory Impact 
Analysis (RIA) below.
    Several commenters felt that limiting producers to one transition 
was unnecessarily restrictive and would create undue hardship for 
organic dairy farmers. The commenters preferred that operations be 
allowed to transition animals into organic production without limit and 
thought 12 months of organic management was sufficient for sale of milk 
as ``organic'' under OFPA. They argued that allowing producers to 
transition animals without limit allows producers to respond quickly to 
consumer demand and to rebuild herds in the case of disease or illness. 
They also argued that the current demand for organic milk was evidence 
that consumers are satisfied by the current requirements.
    AMS is not allowing organic operations to continually transition 
nonorganic animals into organic production in the final rule. While an 
allowance to continually transition nonorganic animals would allow 
producers to adjust their herd size quickly by permitting the purchase 
of nonorganic animals to transition, such an allowance would also be 
likely to decrease the organic management of calves. This is because 
during the period of nonorganic management, producers would not be 
required to adhere to the feed, healthcare, or living condition 
requirements stipulated by the USDA organic regulations. Even if AMS 
were not to limit transition to a one-time event, as suggested by some 
comments, AMS would not expect all organic dairies to stop managing 
calves and young dairy stock organically. Some producers would likely 
continue to use the organic milk produced by their animals as feed for 
their offspring, while others might source nonorganic milk to reduce 
feed costs. AMS does not believe that all producers would adopt a 
consistent practice in response to the policy, and AMS could not assure 
consumers that organic dairy products are using common production 
standards which are consistent a key purpose of OFPA (7 U.S.C. 
6501(2)).
    Furthermore, many organic stakeholders commented that the practice 
of taking animals out of organic production upon birth and restarting 
organic management one year prior to milk production (which is 
currently allowed by some certifying agents) is inconsistent with 
consumer expectations, and has led to inconsistencies in the 
implementation and oversight of the organic livestock rules. As 
discussed above, AMS explicitly made the policy choice to implement 
provisions that increase the number of animals managed as organic from 
the last third of gestation. Establishing national standards to govern 
the marketing of organically produced products is a key purpose of OFPA 
(7 U.S.C. 6501(1)). Further, based on public comments, AMS believes the 
policy choices in this rule align with practices that many certifiers 
and most organic operations already follow.<SUP>25 26</SUP>
---------------------------------------------------------------------------

    \25\ See Audit Report 01601-03-Hy.
    \26\ See AMS-NOP-11-0009-2799.
---------------------------------------------------------------------------

(3) Prohibit Third-Year Transitional Feed During Transition (Sec.  
205.236(a)(2)(vii))
    Another comment received by AMS requested that third-year 
transitional crops not be allowed as feed during the transition period. 
The commenter pointed out that these crops cannot be fed to organic 
slaughter stock or fiber-bearing animals and argued that the allowance 
for transitioning dairy stock to consume these feeds does not advance a 
consistent organic standard, as intended by OFPA.
    AMS recognizes that there are differences between the requirements 
for transitioning dairy animals and livestock used to produce organic 
meat and fiber products. AMS has not prohibited third-year transitional 
crops as feed during transition in the final rule, as the allowance to 
use third-year transitional crops eases the burden of transitioning for 
new dairy operations and is permitted by OFPA.
(4) Prohibit Third-Year Transitional Feed for Offspring (Sec.  
205.236(a)(2)(iii) and (iv) and (v) and (vi))
    A commenter argued that AMS was expanding the allowance for third-
year transitional crops by allowing offspring to consume this type of 
feed during the transition. They commented that OFPA does not allow 
offspring born to transitioning animals to be fed crops and forage in 
the third year of organic management.
    AMS disagrees that OFPA limits use of third-year transitional crops 
to any specific class or age of livestock during the transition. OFPA 
allows third-year transitional crops to be fed to dairy animals up to 
the end of the 12-month transition period. Dairy animals, regardless of 
the stage of production, are equally subject to these requirements. 
Restricting the use of third-year transitional crops for offspring 
would impose stricter requirements for offspring born during 
transition, even though these animals are managed organically for a 
longer period of time prior to production of organic milk.
    The final rule allows any transitioning animal to consume third-
year transitional crops during the 12-month transition, including 
offspring born during the transition and young stock. Animals that 
consume third-year transitional crops during the transition period are 
transitioned animals, and animals born to transitioned animals that 
consumed third-year transitional crops during the last third of 
gestation are transitioned animals. Transitioned animals are not 
eligible to produce organic meat or fiber. In addition, transitioned 
dairy animals may not be sourced by certified organic dairies.
(5) Require Milk for Offspring That Is Eligible for Sale as Organic 
(Sec.  205.236(a))
    Some commenters pointed out that both the current organic 
regulations and the proposed rule allow milk to be fed to offspring in 
certain circumstances when the milk would not meet the requirements for 
sale as organic. They referred to Sec.  205.237, which requires 
organically produced agricultural products in livestock feed rations 
and questioned how milk that does not qualify for sale as organic can 
be provided to offspring. For example, the organic regulations only 
require that breeder stock be managed organically starting no later 
than the last third of gestation. If nonorganic breeder stock are 
managed as organic only during the last third of gestation, the milk 
suckled by offspring at the time of birth would not qualify for sale as 
organic. Additionally, commenters also requested that AMS clarify if 
milk from nonorganic animals that has been managed organically during 
the last third of gestation can be provided to animals other than their 
own offspring.
    In the final rule, offspring born to animals that have been managed 
organically starting no later than the last third of gestation can be 
considered organic animals instead of transitioned animals. AMS has not 
imposed stricter requirements for dairy animals than

[[Page 19754]]

those that currently exist for slaughter stock or changed the 
requirements for slaughter stock, and organic slaughter stock may 
receive milk that could not itself be sold as organic. AMS recognizes 
that the allowance for feeding offspring milk that cannot itself be 
certified and sold as organic (for human consumption) may appear 
inconsistent. However, current organic regulations clearly allow 
animals to be certified organic if managed organically managed starting 
no later than the last third of gestation, without any prohibition on 
milk nursed from the nonorganic mothers by the offspring. The final 
rule does not change these requirements.
    In response to comments about whether milk from nonorganic breeder 
stock or transitioning animals may be provided to animals that are not 
an animal's own offspring, if offspring are separated from their 
mothers after birth, as is common practice on dairy farms, milk that is 
pooled from a group of animals but is not comprised entirely of organic 
milk may not be provided to offspring. Milk from transitioning animals 
that is collected by the dairy farm and not consumed directly by the 
offspring may not be sold as organic.
    The final rule establishes limitations on offspring that have 
consumed milk from a transitioning mother that consume(d) third-year 
transitional crops during or after the last third of gestation. Calves 
are considered transitioned themselves when they or their mothers 
consume(d) third-year transitional crops during or after the last third 
of gestation. As transitioned animals, these offspring are not eligible 
for sale as organic slaughter stock and may not be sourced by organic 
dairies per Sec.  205.236(a)(2).
    Conversely, mothers that have been organically managed starting no 
later than the last third of gestation and which are fed only organic 
feed during the last third of gestation (no third-year transitional 
crops) give birth to organic offspring (organically managed from the 
last third of gestation) with a status similar to that of organic 
slaughter stock born to nonorganic breeder stock. Organic animals 
organically managed from the last third of gestation may be sold 
between organic dairy farms and produce organic milk on any organic 
dairy farm.
(6) Applying for Certification--Timeline (Sec.  205.236(a)(2)(ii))
    AMS received comments about the proposed requirement for producers 
to submit an application for certification during the 12-month 
transition period, including a description of the transition. Several 
commenters requested that AMS revise the requirement so producers would 
be required to submit their application and describe the transition 
prior to starting the 12-month transition rather than during the 12-
month transition. These commenters thought this would allow a 
certifying agent to oversee the entire transition, prevent potential 
infractions, and help ensure adequate recordkeeping and tracking of 
transitioning animals.
    Another commenter suggested that AMS require producers to apply for 
certification within 90 days before or after feeding dairy animals 
third-year transitional crops. Another commenter stated it was unclear 
if the proposed rule changed the existing rule in regard to the 
obligations and responsibilities of transitioning operations and 
certifying agents. Yet another commenter pointed out that the language 
in the proposed rule made it unclear if a producer could submit an 
application before the transition started.
    In the final rule, AMS has not required that producers submit an 
application prior to starting the 12-month transition. Operations that 
sell livestock or livestock products as organic, including milk, must 
be certified, with the exception of those operations described in Sec.  
205.101. While there are likely benefits to both producers and 
certifying agents when an application is submitted early in the 
transition to organic, the timing of the submission of an application 
does not dictate whether an operation meets the requirements for 
certification. Certifying agents are required to verify that producers 
comply with all provisions of the USDA organic regulations. Producers 
who choose to submit an application late in their transition may 
experience delays in obtaining certification until the certifying agent 
verifies that all provisions are compliant. The transitioning animals 
will continue to transition through this pre-certification period; 
product may not be sold or represented as organic without 
certification.
    Applications submitted prior to, or at any time during, the 12-
month period are all subject to the same review criteria described in 
Sec. Sec.  205.400-205.406 of the current regulations. Certifying 
agents who are unable to verify an applicant is in compliance with the 
requirements must not grant certification.
(7) Provide 18 Months for Transition (Sec.  205.236(a)(2)(vi))
    Several commenters requested that producers be given more than a 
12-month period to transition to organic. Extending the period of time 
from 12 months to 18 months would allow a producer to add additional 
nonorganic animals to its operation for six months after the beginning 
of its transition, while still requiring each animal to be managed 
organically for no less than 12 months immediately prior to production 
of milk to be sold, labeled, or represented as organic. Commenters 
stated that a longer period would help reduce the stress associated 
with starting a new dairy by allowing flexibility. Commenters stated 
that by allowing additional time, new producers would be able to use 
the additional time to source animals and stagger when animals start to 
transition to reduce the financial burden of transition.
    AMS understands that transitioning a dairy to organic can be 
financially and logistically challenging. However, AMS is maintaining, 
as proposed, the 12-month transition requirement. While AMS recognizes 
that a longer period for the transition would likely ease some of the 
challenges of transition, AMS finds a 12-month total allowance is still 
appropriate. AMS did not find broad support for this option in 
comments, and verification of compliance is simpler when animals are 
transitioned as one group. Under the final rule, producers are not 
prevented from sourcing animals for the transition over a period of 
time, but the group must transition together. For example, a farm could 
gradually acquire nonorganic animals for six months prior to starting 
the 12-month transition, begin the transition once all animals arrive 
on the farm, and then end the transition for all animals at the same 
time. Additionally, the regulations allow new operations and certified 
operations to purchase dairy animals at any time, provided they have 
been managed organically from the last third of gestation.
(8) Do Not Limit Transition for Goat Operations (Sec.  205.236(a)(2))
    AMS received a few comments regarding non-bovine animals (e.g., 
sheep or goats). Several commenters stated that the proposed rule would 
have a greater impact on goat operations than cattle operations, as 
there are fewer non-bovine dairy operations and sourcing organic 
replacements may be difficult. One commenter requested that AMS allow 
goat operations to continuously transition animals on existing 
operations. The commenter stated that goat producers are continually 
striving to improve their genetics and that, if limited to purchasing 
organic goats, the producers could not efficiently improve the genetics 
of the herd. The commenter

[[Page 19755]]

stated that under the rule, new genetics would need to be introduced by 
obtaining nonorganic bucks alone, rather than nonorganic does and 
bucks.
    AMS recognizes that the availability of organic (last third of 
gestation) non-bovine animals for sale is limited; however, AMS is not 
making an exception to the one-time transition for non-bovine 
operations in the final rule. AMS does not believe there is a 
difference in consumer expectations for these milks compared to organic 
cow milk. Given the policy choice, based an agency analysis and public 
comments, to increase the number of animals managed as organic from the 
last third of gestation, it is appropriate to require goats to meet the 
same requirements as cows. Additionally, as described below, producers 
may purchase nonorganic male breeder stock and nonorganic female 
breeder stock, at any time, for the production of organic offspring. 
Breeder stock that are not transitioned as part of the initial herd may 
not produce milk to be sold, labeled, or represented as organic.

C. Breeder Stock (Sec.  205.236(a)(3))

    This section of the final rule describes the provisions for 
bringing on breeder stock from a non-organic operation to an organic 
operation. The provision stipulates that breeder stock must be brought 
onto an operation by the last third of gestation and must be 
organically managed from the last third of gestation through the period 
in which the breeder stock is nursing its offspring. No changes were 
made to this section between the proposed regulations and the final 
rule. Below we describe the final rule and respond to comments received 
on the proposed rule.
i. Breeder Stock--Changes Requested But Not Made
(1) Require Organic Management of Breeder Stock (Sec.  205.236(a)(3))
    In 2015, AMS received many comments that expressed opposition to 
allowing breeder stock to rotate in and out of organic management. 
Commenters generally requested that the final rule require 
uninterrupted organic management of breeder stock starting from the 
time they are brought onto an organic operation. Commenters requested 
that if the organic management of nonorganic breeder stock is 
interrupted, the breeder stock can no longer produce organic offspring.
    In 2019, AMS received additional comments that discussed this 
issue. As in 2015, comments predominantly supported modifying the 
current language in the proposed rule to stipulate that breeder stock 
can be transitioned only once to organic management. These commenters 
cited organic herd health and consistency with the language in OFPA as 
their principal factors. One commenter further referenced the OFPA 
provision related to breeder stock and argued that the proposed rule 
language allowing breeder stock to be transitioned from nonorganic to 
organic at any time is inconsistent with the intent of OFPA. One 
commenter noted that modifying the current language in the proposed 
rule stipulating breeder stock may be transitioned to organic 
management only once would be inconsistent with language in OFPA that 
states ``any source.'' This commenter recommended that these advocates 
work with Congress rather than the USDA to achieve these changes.
    AMS has not revised the requirements for breeder stock in the final 
rule. OFPA states that breeder stock may be purchased from any source 
(7 U.S.C. 6509(b)); there is no requirement that the source be 
certified organic. Further, while the current regulations at Sec.  
205.236(b)(1) clarify that organic livestock removed from organic 
operations lose their organic status, this provision does not extend to 
nonorganic breeder stock that are themselves not certified organic or 
eligible for slaughter, sale, or labeling as organic (Sec.  
205.236(b)(2)). Therefore, AMS does not believe that restrictions on 
how nonorganic breeder stock are managed outside of the last third of 
gestation and after the weaning of organic offspring are warranted.
    However, AMS is establishing requirements for the management of 
nonorganic breeder stock during the last third of gestation and while 
an organic offspring is consuming milk from the nonorganic breeder 
stock after birth. Additionally, a producer must continue to prevent 
commingling of organic and nonorganic products and prevent contact of 
any organic production or products with prohibited substances (7 CFR 
205.201(a)(5)).
(2) Change Regulatory Text From ``Brought'' To ``Purchase'' (Sec.  
205.236(a)(3))
    Several comments requested that AMS change the language at Sec.  
205.236(a)(3) to only allow organic operations to ``purchase'' 
nonorganic breeder stock rather than allow breeder stock to be 
``brought'' onto organic operations, as currently allowed. Commenters 
pointed out that OFPA language allows for organic operations to 
purchase nonorganic breeder stock and that this implies the breeder 
stock are to be managed organically following purchase. By changing the 
language to align with OFPA, the commenters argue breeder stock would 
no longer go in and out of organic management while managed at the 
operation.
    AMS is not convinced that changing the regulations to allow 
purchase of nonorganic breeder stock at any time would be significantly 
different than the current regulation. Furthermore, as nonorganic 
animals, breeder stock are not regulated under USDA organic 
regulations, except during the last third of gestation when producing 
organic offspring and/or nursing their organic offspring.
(3) Require One Year of Organic Management Prior To Allowing Calves To 
Consume Milk (Sec.  205.236)
    See discussion above in Dairy Transition--Changes Requested but Not 
Made, titled ``Require Milk for Offspring that is Eligible for Sale as 
Organic''.
(4) Allow Milk Suckled by Animals Other Than Own Calf (Sec.  205.236)
    See discussion above in Dairy Transition--Changes Requested but Not 
Made, titled ``Require Milk for Offspring that is Eligible for Sale as 
Organic.''
(5) Clarify the Status of Male Animals for Breeding (Sec.  
205.236(a)(2)(ix))
    Some commenters noted that the wording of proposed Sec.  
205.236(a)(2)(ix) implies that male animals cannot be brought onto an 
organic operation for breeding purposes. They proposed including 
language affirming that male breeder stock may be used at any time and 
won't be required to be managed organically.
    AMS has not made any changes and points out that this section 
describes requirements for dairy animals used ``for organic milk 
production,'' which do not include male animals. Breeder stock are 
defined at Sec.  205.2 as female livestock. The use of nonorganic male 
animals for breeding purposes is not restricted by this section or by 
other sections of the organic regulations.

D. Prohibitions (Sec.  205.236(b))

    This section of the final rule stipulates that product from animals 
from removed from organic management to a nonorganic operation cannot 
be sold as organic and breeder stock and transitioned animals not under 
continuous management since the last third of gestation may not be 
sold, labeled, or represented as organic slaughter stock. Below we 
describe the final rule and respond to comments received on the 
proposed rule.

[[Page 19756]]

i. Prohibitions--Comments and Revisions
    Section 205.236(b)(1)--A commenter thought AMS should specify in 
this section that handling organic livestock products at a nonorganic 
operation affects the organic status of products, as the term AMS used 
(``managed'') does not apply well to edible and nonedible products. The 
commenter suggested that ``managed'' be changed to ``managed or 
handled''.
    AMS agrees that the term ``managed'' is better used to describe 
activities related to livestock production than it is suited to 
describe activities (e.g., processing) related to livestock products. 
In the final rule, AMS has removed the reference to livestock products 
from this section after concluding that it is not necessary to discuss 
livestock products in this section. Requirements related to the 
handling, processing, and labeling of organic products are covered at 
length and in detail under other sections of the USDA organic 
regulations. Other sections of the regulations also address the types 
of operations that must be certified organic, and AMS is preparing a 
separate final rule to clarify requirements for operations that handle 
organic products and to clarify which operations are exempt from the 
requirements of certification (see proposed rule at 85 FR 47536).
    Section 205.236(b)(2)--AMS revised the proposed term ``dairy 
stock'' to ``dairy animals'' in the final rule to be consistent with 
language used throughout Sec.  205.236(a).

E. Records (Sec.  205.236(c))

    Section 205.236(c) amends the current regulations to specifically 
require that an operation's records identify whether dairy animals were 
transitioned to organic. These records are required for certifiers to 
verify compliance, as organic operations may not source transitioned 
animals after their one-time transition is complete (Sec.  
205.236(a)(2)). Additionally, transitioned animals may not be 
represented as organic slaughter stock. These requirements support the 
livestock recordkeeping requirements described in OFPA (7 U.S.C. 
6509(f)) and the USDA organic regulations at 7 CFR 205.103. No changes 
were made to this section between the proposed rule and the final rule.

F. Administrator Variances for Movement of Transitioned Animals (Sec.  
205.236(d))

    This added section of the final rule includes provisions to allow 
for movement of transitioned animals in certain situations. See 
discussion above in ``DAIRY TRANSITION (Sec.  205.236(a)(2)).''

G. Livestock Feed (Sec.  205.237(a))

    This section of the final rule includes a revision to the livestock 
feed requirements. Below we describe the final rule and changes from 
the proposed rule.
i. Livestock Feed--Revisions
    In the final rule, Sec.  205.237(a) was revised to include a 
reference to Sec.  205.236(a)(3), which allows offspring to consume 
milk from nonorganic breeder stock. The reference to these requirements 
is made here to recognize that milk from breeder stock is not 
necessarily certified organic. Section 205.236(a)(3) requires 
operations to provide breeder stock with organic feed throughout the 
last third of gestation and during the lactation period, during which 
time they may nurse their own offspring. The reference to these 
requirements in Sec.  205.237(a) is intended to provide a more complete 
description of the livestock feed requirements. The update to this 
section does not permit the feeding of milk from breeder stock to 
organic animals other than the breeder stock's offspring.

H. Other Amendments Considered

i. Other Amendments Considered--Changes Requested But Not Made
(1) Fiber Producing Animals (Sec.  205.236(b)(2))
    AMS received several comments about the sections of the proposed 
rule that include information about fiber-producing animals. Some 
commenters argued that the rule should be revised to allow a one-time 
transition for fiber-bearing animals. One comment noted that recent 
changes to organic regulations align dairy and fiber animals in other 
areas, such as parasiticide use, and so the rule for transitioning of 
dairy animals should be the same for fiber-bearing animals. They also 
stated that this revision would be consistent with other organic 
livestock fiber standards around the world and excluding it would put 
United States producers at a global economic disadvantage.
    AMS did not propose an allowance for transition of fiber animals in 
the proposed rule, so AMS is not creating an allowance for the 
transition of fiber animals in the final rule. An allowance to 
transition fiber animals could require amendment of OFPA, which 
authorizes a transition for dairy animals only. This means that 
producers can transition sheep, for example, from nonorganic milk 
production to organic milk production, but would need to source animals 
organically managed beginning at the last third of gestation in order 
to produce organic wool.

V. Related Documents

    Documents related to this final rule include the Organic Foods 
Production Act of 1990, as amended, (7 U.S.C. 6501-6524) and its 
implementing regulations (7 CFR part 205). AMS published a series of 
proposed rules that addressed, in part, the origin of livestock 
provisions at: (1) 62 FR 65850, December 16, 1997; (2) 65 FR 13511, 
March 13, 2000; and (3) 71 FR 24820, April 27, 2006. Past final rules 
relevant to this topic were published at: (1) 65 FR 80548, December 21, 
2000; and (2) 71 FR 32803, June 7, 2006.
    The NOSB deliberated and made the recommendations described in this 
final rule at public meetings announced in the following Federal 
Register notices: 67 FR 19375, May 7, 2002; 67 FR 54784, September 17, 
2002; 67 FR 62949, October 19, 2002; and 68 FR 23277, May 13, 2003. AMS 
also considered NOSB recommendations from June 2, 1994, and March 20, 
1998, in the development of this final rule. NOSB meetings are open to 
the public and allow for public participation. NOSB recommendations are 
available on the AMS website.

Paperwork Reduction Act

    This final rule is clarifying current requirements pertaining to 
documenting, reporting, and recordkeeping for organic dairies and no 
additional collection or recordkeeping requirements are being imposed. 
In addition, AMS is prohibiting the sourcing of transitioned animals in 
Sec.  205.236(a)(2) that would have allowed transitioned animals to 
move between organic operations in response to public comment on the 
proposed rule. However, certified operations may request a temporary 
variance from the prohibition on the movement of transitioned animals 
for specific circumstances, now described in Sec.  205.236(d). The 
paperwork burden in the currently-approved OMB ICR# 0581-0191 \27\ 
includes the time and costs to comply with existing organic system plan 
requirements and recordkeeping requirements, and more than accounts for 
any burden associated with requesting temporary variances even with the 
expanded criteria at Sec.  205.236(d).
---------------------------------------------------------------------------

    \27\ Approved January 21, 2021.
---------------------------------------------------------------------------

    Currently, temporary variances as described at Sec.  205.290 are 
calculated at 10% or 4,628 of 46,277 total

[[Page 19757]]

operations \28\ at one hour for each variance for a total of 4,628 
hours annually. Yet, there were only 10 actual temporary variances 
requested in 2021 \29\ although 2 requests covered certified organic 
ruminant operations in counties impacted by extreme drought that were 
declared disaster areas.\30\ If we calculated 2021 as impacting 25 
operations, this would amount to a total of 25 hours of impact. This 
still leaves a very large annual margin of 4,603 hours under the 
current information collection for all types of temporary variances. 
Actual previous 10 years of requests for temporary variances averaged 
about 2-7 requests per year. If all 3,134 currently certified organic 
dairy producers request a temporary variance under the expanded 
criteria described in Sec.  205.236(d), there would still be very large 
margin of 1,469 burden hours.
---------------------------------------------------------------------------

    \28\ Total number of currently certified organic operations from 
Organic Integrity Database, August 7, 2019, https://organic.ams.usda.gov/Integrity.
    \29\ Variance requests can be viewed by the public at: https://www.ams.usda.gov/rules-regulations/organic.
    \30\ Applies only to certified organic ruminant livestock 
producers located in counties designated as primary or contiguous 
natural disaster areas by Secretary Vilsack. The list of declared 
State counties is available on USDA's website for Disaster 
Designation Information.
---------------------------------------------------------------------------

    AMS recognizes that the burden for temporary variances will need to 
be restructured. AMS will prepare an information collection package for 
this additional burden and will ultimately merge impacts from this 
final rule into OMB ICR# 0581-0191. The process for updating the NOP's 
overall program ICR will begin in January 2023, and will allow an 
opportunity to merge the burden from any other final rules with optimal 
efficiency.

Civil Rights Review

    AMS has reviewed this final rule in accordance with the Department 
Regulation 4300-4, Civil Rights Impact Analysis, to address any major 
civil rights impacts the final rule might have on minorities, women, 
and persons with disabilities. AMS has determined that there is 
evidence of an adverse impact to males, females, Hispanics, Whites, 
Black/African Americans, Asian Americans, and Native Hawaiians based on 
an 80 percent analysis for farms reporting 50 percent or more from 
organic sales; the impact rate for American Indians/Alaskan Native does 
not meet the condition for adverse impact. There are no data for a 
baseline comparison for all organic dairy producers.
    AMS is not aware of any data indicating organic dairy operations 
owned by members of protected groups are more likely to continually 
source transitioned animals. While AMS does not have specific race, 
ethnicity, or gender data regarding organic livestock producers, the 
rule would not alter the ability for producers of any race, color, 
national origin, gender, religion, age, disability political beliefs, 
sexual orientation, or marital or family status to participate in the 
National Organic Program or change their protections from 
discrimination.
    The Agency has concluded that the final rule will impact organic 
dairy producers by potentially increasing production costs for: (1) 
Organic livestock and dairies that currently continually transition 
nonorganic animals for use on their operation or sale; (2) organic 
dairies that currently source transitioned dairy animals as 
replacements; and (3) organic dairies that purchase organic replacement 
animals (as increased demand could increase prices). To mitigate these 
impacts, AMS is providing organic producers one year from publication 
of the final rule to complete any ongoing transitions. Additionally, 
any organic operations selling organic replacement heifers may benefit 
from higher prices.

Executive Order 13175

    This final rule has been reviewed in accordance with the 
requirements of Executive Order 13175, ``Consultation and Coordination 
with Indian Tribal Governments.'' Executive Order 13175 requires 
Federal agencies to consult and coordinate with tribes on a government-
to-government basis on policies that have tribal implications, 
including regulations, legislative comments or proposed legislation, 
and other policy statements or actions that have substantial direct 
effects on one or more Indian tribes, on the relationship between the 
Federal Government and Indian tribes, or on the distribution of power 
and responsibilities between the Federal Government and Indian tribes.
    AMS has assessed the impact of this rule on Indian tribes and 
determined that this rule would not, to our knowledge, have tribal 
implications that require consultation under E.O. 13175. In a December 
2019 AMS Quarterly Tribal Listening Session, AMS provided an overview 
of this final rule and invited any requests for concerns or 
consultation. AMS received no questions or comments during the 
listening session. AMS has also researched its database of certified 
organic dairies operating under Tribal Government and found no such 
operations.

Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives, and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
AMS has prepared the RIA with the purpose of accomplishing these 
objectives.
    The Regulatory Flexibility Act (5 U.S.C. 601-612) requires agencies 
to consider the economic impact of each rule on small entities and 
evaluate alternatives that would accomplish the objectives of the rule 
without unduly burdening small entities or erecting barriers that would 
restrict their ability to compete in the market.

Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs designated this rule 
as not a major rule, as defined by 5 U.S.C. 804(2).

Executive Order 12988

    Executive Order 12988 instructs each executive agency to adhere to 
certain requirements in the development of new and revised regulations 
in order to avoid unduly burdening the court system. This final rule is 
not intended to have a retroactive effect.
    To prevent duplicative regulation, states and local jurisdictions 
are preempted under OFPA from creating programs of accreditation for 
private persons or State officials who want to become certifying agents 
of organic farms or handling operations. A governing State official 
would have to apply to USDA to be accredited as a certifying agent, as 
described in section 6514(b) of OFPA. States are also preempted under 
sections 6503 and 6507 of OFPA from creating certification programs to 
certify organic farms or handling operations unless the State programs 
have been submitted to, and approved by, the Secretary as meeting the 
requirements of OFPA.
    Pursuant to section 6507 of OFPA, a State organic certification 
program may contain additional requirements for the production and 
handling of organically produced agricultural products that are 
produced in the State and for the certification of organic farm and 
handling operations located within the

[[Page 19758]]

State under certain circumstances. Such additional requirements must: 
(a) Further the purposes of OFPA, (b) not be inconsistent with OFPA, 
(c) not be discriminatory toward agricultural commodities organically 
produced in other States, and (d) not be effective until approved by 
the Secretary.
    In addition, pursuant to section 6519(c)(6) of OFPA, this final 
rule does not supersede or alter the authority of the Secretary under 
the Federal Meat Inspection Act (21 U.S.C. 601 et seq.), the Poultry 
Products Inspection Act (21 U.S.C. 451 et seq.), or the Egg Products 
Inspection Act (21 U.S.C. 1031 et seq.), concerning meat, poultry, and 
egg products, nor any of the authorities of the Secretary of Health and 
Human Services under the Federal Food, Drug and Cosmetic Act (21 U.S.C. 
301 et seq.), nor the authority of the Administrator of the EPA under 
the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. 136 et 
seq.).

Regulatory Impact Analysis and Regulatory Flexibility Analysis

    AMS is taking this action to set origin of livestock production 
practice standards for organic dairy animals, reduce variance between 
the approaches taken by certifying agents, and increase the share of 
organic dairy animals that are under organic management for their 
entire lives. AMS updated the analysis from the proposed rule (84 FR 
52041) using the most recent information about the dairy market, 
including the number of certified organic operations and the number of 
organic dairy animals. Updating information with NASS Organic Survey 
data from 2019 revises the estimated costs of the final rule to 
$615,000-$1,845,000. Below public comments on previously published 
regulatory analyses are also discussed.

Need for the Rule

    AMS determined that the USDA organic regulations for sourcing dairy 
animals and managing breeder stock require additional specificity to 
ensure organic dairy operations meet a consistent standard. AMS's 
revisions of the requirements support two purposes of OFPA (7 U.S.C. 
6501): To establish a national standard for organically produced 
products and to assure consumers that organically produced products 
meet a consistent standard. Interpretations of the ``origin of 
livestock'' organic regulations have differed between certifying 
agents, and the different interpretations have led to divergent 
practices by organic dairy operations for sourcing replacement dairy 
animals. These inconsistencies have contributed to confusion among 
organic dairy producers about what the regulations require. The 
inconsistencies have produced an unequal situation in which production 
costs are influenced by any given certifier's interpretation of the 
organic livestock regulations. However, a certifier is not likely to 
publish its interpretation of the existing regulations, and a certifier 
may not even apply its interpretation consistently among the operations 
it certifies (some may be allowed to continually transition animals 
while others are not).
    AMS is revising the regulations to ensure the USDA organic 
regulations are administered and enforced in a clear and uniform 
manner, and to address inconsistencies determined in the 2013 USDA 
Office of Inspector General (OIG) Audit.\31\ The OIG audit of organic 
milk operations found that the interpretation and implementation of the 
origin of livestock requirements differed across producers and 
certifying agents. As a result, organic milk producers may have faced 
materially different organic production requirements based on their 
particular certifier's interpretation of the NOP's origin of livestock 
requirements. This rulemaking will help ensure that producers face 
consistent application of the organic standards. Furthermore, AMS 
expects that increased clarity will help assure consumers that organic 
dairy products meet a consistent standard, a stated purpose of the 
Organic Foods Production Act (OFPA) of 1990 (7 U.S.C. 6501). NOP's 
experience is that because organic products cannot be readily 
distinguished from nonorganic products based on sight inspection, 
buyers rely on process verification methods to ensure that organic 
claims are true. Within the economics literature, organic food products 
are ``credence goods,'' or goods with characteristics that are valuable 
but are difficult to verify, both before and after 
purchase.<SUP>32 33 34</SUP> Foods certified under USDA's NOP, 
including milk, have a common standard that specifies production 
practices, such as dairy herd pasture requirements, permitted feeds, 
and permitted use of antibiotics and hormones, that cannot be 
independently verified by consumers.
---------------------------------------------------------------------------

    \31\ The July 2013 OIG audit report on organic milk operations 
may be accessed at the following website: http://www.usda.gov/oig/webdocs/01601-0002-32.pdf.
    \32\ Caswell, Julie A. and Eliza M. Mojduszka. 1996. ``Using 
Informational Labeling to Influence the Market for Quality in Food 
Products.'' American Journal of Agricultural Economics. Vol. 78, No. 
5: 1248-1253.
    \33\ Zorn, Alexander, Christian Lippert, and Stephan Dabbert. 
2009. ``Economic Concepts of Organic Certification.'' Deliverable 5 
of the EU FP7 CERTCOST Project: Economic Analysis of Certification 
Systems in Organic Food and Farming.
    \34\ Michael Darby and Edi Karni, ``Free Competition and the 
Optimal Amount of Fraud'' Journal of Law and Economics 16(1973)1:67-
88
---------------------------------------------------------------------------

    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 A-4 cites asymmetric 
information as a source of market failure and as a potential 
justification for regulation. However, the social benefit of addressing 
an information asymmetry can be no higher than the willingness to pay 
for the additional information by the party with less information. 
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.\35\
---------------------------------------------------------------------------

    \35\ Lassoued, R. and J.E. Hobbs (2015) ``Consumer Confidence in 
Credence Attributes: The Role of Brand Trust'' Food Policy 52:99-
107.
---------------------------------------------------------------------------

    AMS developed the final rule in the context of maintaining 
consistency and trust in the USDA organic label as directed by OFPA, as 
it pertains specifically to organic dairy farms and to organic farms 
and organic handlers/processors generally. AMS anticipates this final 
rule will support both producer and consumer confidence in the organic 
label by reducing major inconsistencies in production practices across 
organic dairies, and resulting in more organic animals that are managed 
organically throughout their productive lives.

Baseline

    This rule specifies 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 section II. Background above.
    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 this rule will have a substantial 
economic impact on those specific sub-sectors for the following 
reasons: Goat does and sheep ewes are

[[Page 19759]]

able to produce milk earlier than cows, so the potential cost-savings 
for non-bovine 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 non-
bovine herds is likely less prevalent than with organic bovine herds. 
While a commenter asked for an exemption for goats during the comment 
period citing limited availability of organic genetics, there are 
avenues to bring in additional genetics through breeding stock. These 
operations also make up a relatively small portion of the organic dairy 
industry. The Organic Integrity Database \36\ of certified organic 
operations includes approximately 56 dairy goat operations and 2 dairy 
sheep operations.
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    \36\ 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.
---------------------------------------------------------------------------

    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 USDA's Economic 
Research Service (ERS) and includes questions about dairy farm cattle 
purchases, restocking rates, and organic status.\37\ In 2016, ERS 
conducted a supplemental ARMS that focused on organic dairy operations; 
this was the most recent such survey. AMS worked with ERS to analyze 
the ARMS data and develop an estimation of organic dairy production 
practices and costs for this rule.
---------------------------------------------------------------------------

    \37\ The ERS ARMS survey information may be found at the 
following link: http://www.ers.usda.gov/data-products/arms-farm-financial-and-crop-production-practices.aspx.
---------------------------------------------------------------------------

    Other sources of data are the National Agricultural Statistics 
Service's (NASS) 2019 Certified Organic Production Survey and 2017 
Census of Agriculture,\38\ which include State-level data on 
production, herd sizes, output, and sales for organic and non-organic 
crops and livestock. Additionally, the Organic Trade Association's 
(OTA) 2021 Organic Industry Survey is used to summarize market 
information and trends within the organic industry.\39\ Also, AMS 
requested an organic dairy farm special tabulation from the National 
Animal Health Monitoring System (NAHMS) Dairy 2014 report collected by 
USDA's Animal and Plant Health Inspection Service.\40\
---------------------------------------------------------------------------

    \38\ The USDA NASS surveys may be found at the following link: 
https://www.nass.usda.gov/Surveys/Guide_to_NASS_Surveys/Organic_Production/.
    \39\ OTA/Nutrition Business Journal, 2021 Organic Industry 
Survey. Nutrition Business Journal conducted a survey between 
January 13 and April 23, 2021, to obtain information for their 
estimates. Over 120 organic firms responded to the survey. Available 
online at https://ota.com/resources.
    \40\ The 2014 Dairy NAAHMS report may be found at the following 
link: http://go.usa.gov/xKfEh.
---------------------------------------------------------------------------

    A final source of data is the AMS list of all certified operations 
included in the Organic Integrity Database (OID). The organic 
regulations require USDA-accredited certifying agents to keep track of 
the number of operations they certify in OID (7 CFR 
205.501(a)(15)(ii)). AMS consolidates this information into a public, 
searchable online database.\41\ AMS used information from this database 
to cross-check NASS data on the number of organic dairy operations.
---------------------------------------------------------------------------

    \41\ Current and historical data may be accessed through the 
Organic Integrity Database at the following link: https://organic.ams.usda.gov/Integrity/.
---------------------------------------------------------------------------

The Organic Dairy Market--Sales and Number of Operations
    According to the OTA Industry Survey, U.S. organic food, fiber, and 
agricultural product sales were over $61.9 billion in 2020.\42\ 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, 
exceeded $7.4 billion in 2020. Table 2 shows the organic dairy market 
characteristics by subcategory.
---------------------------------------------------------------------------

    \42\ Organic Trade Association (OTA)/Nutrition Business Journal, 
2021 Organic Industry Survey (pp. 3).

                           Table 2--Organic Dairy Market--Retail Sales by Subcategory
----------------------------------------------------------------------------------------------------------------
                                                                  % of organic
          Subcategory             2020 Sales ($    2020 Growth     dairy sales     Avg. premium       Organic
                                       M)              (%)             \a\           \b\ (%)       premium ($ M)
----------------------------------------------------------------------------------------------------------------
Milk/Cream.....................          $3,770            11.1            59.2               68          $1,527
Yogurt \d\.....................           1,310             3.9            20.6               30             304
Cheese \e\.....................             653            14.3            10.3               73             276
Butter/Cottage Cheese/Sour                  492            15.8             7.7               72             207
 Cream \d\.....................
Ice Cream \e\..................             142            19.5             2.2               65              56
                                --------------------------------------------------------------------------------
    Total......................           6,367            10.5           100.0               61           2,370
----------------------------------------------------------------------------------------------------------------
\a\ The Organic Trade Association's 2021 Organic Industry Survey (p. 67) included eggs as a subcategory for its
  summary on organic dairy sales, but we have excluded the data on eggs from this table.
\b\ USDA's AMS weekly reported prices in the 2020 weekly dairy retail report based on the first weekly report in
  January, April, July, and October. These reports are available at: https://www.ams.usda.gov/market-news/dairy.
  Average prices of product categories are averages across the four periods weighted by store counts. Premiums
  are calculated as the: ((Organic Price-Conventional Price)/Conventional Price). Any missing data was
  supplemented by the previous weeks prices, if available.
\c\ The dollar value of the organic premium for each category is: (Organic Sales x Premium)/(1 + Premium).
\d\ The yogurt and butter, sour cream and cottage cheese premiums are respectively the average of the premiums
  of 32 oz. yogurt products and 1 lb. of butter, weighted by counts of stores advertising organic products.
  Cheese premiums are for natural varieties in 8 oz. blocks.
\e\ Price data for organic Ice Cream was only available the first quarter. The premium is calculated with only
  this data.

    Table 2 also includes premiums (or ``markups'') in the prices of 
dairy products marketed as organic versus nonorganic products. For 
dairy products, the average organic premium was 61 percent and totaled 
nearly $2.4 billion in value.\43\ In market equilibrium, this markup 
reflects both the higher costs of organic production and the value 
consumers place on organically labeled products and their various 
attributes.
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    \43\ National Retail Report--Conventional vs Organic--https://usda.library.cornell.edu/concern/publications/000000043?locale=en.
---------------------------------------------------------------------------

    The 2019 NASS Organic Production Survey estimated that U.S. had 
approximately 3,134 certified and exempt organic dairy farms that 
milked

[[Page 19760]]

a peak of 363,404 cows in 2019.\44\ These organic dairy farms had milk 
sales of nearly $1.6 billion in 2019. Total organic milk production in 
the United States increased to 5.1 billion pounds in 2019, representing 
a 27 percent increase in production from 2016 and 84 percent increase 
since 2011. In that same time frame, the number of certified organic 
farms grew 22 percent over 2016 (2,559 farms in 2016) and grew 70 
percent compared to 2011 (1,848 farms in 2011). AMS used the 2019 NASS 
data for our analysis, as it is consistent with data from the Organic 
Integrity Database \45\ and also includes data on the number of organic 
dairy cattle maintained by certified operations. The Organic Integrity 
Database does not include data on the number of organic animals managed 
by organic operations.
---------------------------------------------------------------------------

    \44\ USDA NASS. 2017. Census of Agriculture--2019 Certified 
Organic Survey. Available online at: https://www.nass.usda.gov/Surveys/Guide_to_NASS_Surveys/Organic_Production/.
    \45\ The Organic Integrity Database is available online at: 
https://organic.ams.usda.gov/Integrity/. AMS identifed approximately 
3,180 bovine dairy operations in the database, as of January 2020.
---------------------------------------------------------------------------

Organic Dairy Farms--Characteristics and Distribution
    Organic dairy farms are, on average, smaller than conventional 
dairy farms. NASS's Certified Organic Surveys Agriculture (not 
conducted on an annual or regular basis) show that the number of milk 
cows owned by organic dairy farms averaged 108 head in 2011, 105 head 
in 2016, and 108 head in 2019. In contrast, NASS's Census of 
Agriculture (conducted in every five years) showed the number of milk 
cows for conventional dairy farms averaged 144 head in 2012 and 175 
head in 2017.
    Organic dairy farms also have lower yields, on average, than 
conventional dairy farms. The 2019 NASS Organic Production Survey 
showed that each organic cow produces about 14,096 pounds of milk 
annually, or 47 pounds per day over a 300-day lactation period. NASS 
production data for 2019 shows that across all operations (conventional 
and organic) average production is 23,391 pounds of milk per animal 
annually, or 78 pounds per day over the same 300-day period.\46\ 
Despite lower yields, organic dairy farms can be economically viable 
through the price markups they receive over conventional milk and milk 
products. Table 2 shows that the average premium for organic dairy 
products averaged 61 percent at the retail level.
---------------------------------------------------------------------------

    \46\ USDA's Milk Production (December 2020) Report available 
online at: https://downloads.usda.library.cornell.edu/usda-esmis/files/h989r321c/q524kf13h/ws85b748b/mkpr1220.pdf.
---------------------------------------------------------------------------

    Based on the 2019 NASS Survey of Organic Production Data, Table 3 
shows that the highest concentration of organic dairy farms is in the 
Northeast and Upper Midwest regions,\47\ however the large, organic 
dairy farms in California and Texas represent a large share of output. 
The five States with the largest number of certified organic dairy 
farms (Wisconsin, Pennsylvania, New York, Ohio, and Indiana) accounted 
for 64.5 percent of total farms. However, those States represented less 
than 25.7 percent of national organic milk production.
---------------------------------------------------------------------------

    \47\ USDA's Certified Organic Production Survey available online 
at: https://www.nass.usda.gov/Surveys/Guide_to_NASS_Surveys/Organic_Production/.
---------------------------------------------------------------------------

    By contrast, the West and South Central regions accounted for the 
highest milk production per farm. The two highest organic milk 
producing States (California and Texas) represented only 5.13 percent 
of total certified organic dairy farms, while producing 33.4 percent of 
the total organic milk nationally. The survey also indicates 
significant regional differences in the average number of milk cows on 
dairy farms. For example, California dairies average 372 head per farm, 
Texas dairies average 4,647 head per farm, and Wisconsin dairies 
average 60 head per farm. ARMS and NAHMS data show similar patterns of 
size difference across regions.

                   Table 3--Top States With Organic Dairy Farms Compared to Production (2019)
----------------------------------------------------------------------------------------------------------------
                                                          Percent of U.S.
                                      Number of organic    organic dairy     Milk production    Percent of U.S.
                                          dairy farms          farms             (pounds)       milk production
----------------------------------------------------------------------------------------------------------------
United States.......................              3,134                100      5,122,684,816                100
    California......................                150               4.79        889,290,462              17.36
    Texas...........................                  9               0.29        821,868,224              16.04
    Wisconsin.......................                525              16.75        440,963,146               8.61
    Oregon..........................                 40               1.28        321,420,989               6.27
    New York........................                607              19.37        386,732,234               7.55
    Pennsylvania....................                362              11.55        215,797,929               4.21
    Vermont.........................                172               5.49        202,401,003               3.95
    Washington......................                 45               1.44        136,897,016               2.67
    Minnesota.......................                125               3.99        138,891,803               2.71
    Ohio............................                260               8.30        128,388,287               2.51
    Idaho...........................                 29               0.93        364,524,076               7.12
    Indiana.........................                246               7.85        142,678,892               2.79
    Michigan........................                 93               2.97         66,684,699               1.30
    Iowa............................                105               3.35         70,705,742               1.38
    Maine...........................                 88               2.81         61,387,355               1.20
----------------------------------------------------------------------------------------------------------------

The Organic Dairy Market--Replacement Animals
Cull and Mortality Rates
    Operations source replacement animals from on- and off-farm sources 
to replace animals that are sold to other farms, die, or are 
intentionally removed and sold to slaughterhouses (``culled''). The 
APHIS NAHMS surveys \48\ in 2007 and 2014 provide data on how many 
animals are culled (removed) from U.S. dairies annually and the reasons 
for their removal. Most dairy cows were removed for udder problems or 
reproductive problems, followed by lameness and poor production.\49\ In 
the 2007 APHIS NAHMS survey of dairies, 23.6 percent of all dairy 
animals were permanently removed from farms that year (excluding cows 
that died) \50\ while the 2014 survey found a corresponding

[[Page 19761]]

annual cow removal rate of 28.4 percent.\51\ The 2014 NAHMS survey 
found that 21 percent of adult organic cows were removed from the U.S. 
national organic herd that year. These figures include animals that are 
sold as replacement females to other dairies. The 2014 survey found a 
lower percentage of cows were permanently removed on small and medium 
operations (26.0 and 26.3 percent, respectively) than on large 
operations (29.7 percent).
---------------------------------------------------------------------------

    \48\ USDA APHIS. NAHMS Dairy, 2007, Part I: Reference of Dairy 
Cattle Health and Management Practices in the United States, 2007. 
This survey included both nonorganic and organic dairy animals. 
Available online at: http://go.usa.gov/xKfEh.
    \49\ USDA APHIS. NAHMS Dairy 2007, 84.
    \50\ USDA APHIS. NAHMS Dairy 2007, 87.
    \51\ USDA APHIS. NAHMS Dairy 2014, Report I: Dairy Cattle 
Management Practices in the United States, 2014. Available online 
at: http://go.usa.gov/xKfEh, 218.
---------------------------------------------------------------------------

    The same surveys provide information about the deaths of animals on 
dairies. Overall, annual mortality rates were 7.8 percent for un-weaned 
heifers, 1.8 percent for weaned heifers, and 5.7 percent for cows (2007 
survey). In 2014, NAHMS identified that about 5 percent of adult 
organic dairy cows die on the farm (compared to 21 percent of adult 
organic cows that were removed for other reasons). These numbers were 
roughly consistent with the 2007 report.
    Between culling and mortality, a dairy farm would need to raise or 
purchase females that represent about 30 percent (23.6 percent culled 
plus 5.7 percent deaths) of the farm's herd size to maintain its size. 
As a lactating dairy herd (cattle) typically calves about 50 percent 
female offspring each year, the overall dairy herd should have enough 
replacement females to replace culled animals and animals that die. 
This conclusion considers downward adjustments for mortality (using 
2007 NAHMS rates noted above of 7.8 percent and 1.8 percent) and 
additional reduction for culling.\52\ The additional (excess) 
replacement female animals should allow organic dairy operations to 
expand the number of animals in their herds should they wish to expand. 
Additionally, producers may choose to breed with sexed semen which will 
increase the number of female offspring available to the dairy farm.
---------------------------------------------------------------------------

    \52\ As an example, a 100-cow lactating dairy herd would produce 
about 50 heifers annually (i.e., 50 percent of births). Considering 
this heifer group as a single group, a 7.8 percent mortality rate 
would reduce the herd to about 46.1 animals by the end of year one 
(assuming a 7.8 percent mortality rate over the entire year). 
Additionally, AMS assumes a 10 percent cull rate could further 
reduce this to 41.5 animals at the end of year one. By the end of 
the second year, this number could be reduced another 1.8 percent 
(mortality rate for weaned heifers) to 40.7 animals. Assuming a 
further 10 percent reduction due to culls, the original 50-animal 
group may be reduced to 36.6 animals by the end of year two.
---------------------------------------------------------------------------

Sourcing Organic Replacement Animals
    Most organic dairy farms replace culls and deaths with replacement 
heifers that are born and raised on the farm. The 2014 NAHMS data 
reports that 96.5 percent of organic replacement heifers are born and 
raised on the organic operation. An additional 2.6 percent of the 
replacement heifers are born on the operation and are subsequently 
raised off the operation before returning to the operation. The 
remaining 0.9 percent of replacement females are born off the operation 
and are presumably purchased from other operations.
    The 2016 ARMS data (again, the most recent survey of this type) 
also provides information about how dairies source replacement animals. 
Overall, ARMS data indicates that in 2016, the average organic dairy 
farm milked 102.7 cows and added 43.0 replacement animals of all types 
(cows or heifers of all sizes). Of those replacements, 93.8 percent 
(40.35 head) were born on the farm (and owned continuously by it) and 
85.1 percent (36.62 head) were both born and raised on the farm. Based 
on 2,559 total dairy farms with a total herd size of 267,523 reported 
in the Census of Agriculture (2016 data), ARMS data indicates that 
110,037 total heifers and milk cows (41.1 percent of the herd) were 
added to operations in 2016.\53\ Purchased animals from off-farm 
sources included 4,325 milk cows (3.9 percent), 1,953 large heifers 
weighing more than 500 pounds (0.73 percent), and 559 small heifers 
weighing less than 500 pounds (0.2 percent).
---------------------------------------------------------------------------

    \53\ The 2017 ARMS survey indicates that the average organic 
herd size is 102.7 head while the 2016 Census of Organic Production 
indicates it is 104.5 (= 267,523 head/2,559 farms).
---------------------------------------------------------------------------

    Exact data on how many of the purchased replacement heifers are 
transitioned heifers and how many are organically managed from the last 
third of gestation is not available. For this reason, this RIA 
calculates costs for two conjectured values for the share of purchased 
replacements that are transitioned heifers. Furthermore, AMS does not 
have aggregated data on what approach producers currently use when 
purchasing replacement heifers. Therefore, AMS does not have data on 
how many producers are bringing heifers into organic production as 
nonorganic animals and transitioning them into organic (or purchasing 
animals transitioned on other organic operations) versus sourcing and 
managing animals as organic from the last third of gestation. Excluding 
small heifers (which would not be able to achieve the cost savings of 
continuous transitioning), AMS uses the 2016 ARMS survey to estimate 
the total number of large replacement heifers purchased (2,460 large 
heifers purchased annually) and assumes 25-50% of all large 
replacements are transitioned for our cost model based on the OIG 
report (Audit Report 01601-0002-32) that half of certifiers allowed the 
practice of continuous transitioning.\54\ AMS did not receive comments 
providing more accurate estimates or objections to this assumption 
during the comment periods for the proposed rule.
---------------------------------------------------------------------------

    \54\ The OIG report does not represent a random sample of 
operations. No commenter disputed or provided additional data for 
this estimate through public comment.
---------------------------------------------------------------------------

    AMS notes that, according to the OIG report, not all certifying 
agents allow certified operations to continually transition animals. 
OIG found in a survey of six certifying agents (among the top ten 
certifying agents for dairy operations) that three allowed certified 
operations to continually transition animals.

Regulatory Impact Analysis

Comments Received on Costs and Benefits

    AMS sought input from the public about the estimated costs and 
benefits of this rule. AMS published estimated costs and benefits in 
the 2015 proposed rule and published an updated analysis in May 2021. 
AMS summarized and responded to these comments below.

Availability of Replacement Animals

    In 2015, some comments noted that organic heifer supplies were 
tight and that the heifers for sale were not of consistently high 
quality. This led commenters to believe the proposed rule could curtail 
growth of existing or new operations, restrict milk supply, and raise 
consumer prices. Some comments urged AMS to seek a consistent standard 
for all operations while considering that operations may need to grow 
to meet consumer demand.
    A comment in 2015 calculated that a dairy could be expected to 
raise only enough of its own heifers to grow at an annual rate of 5 
percent, after accounting for morbidity and culling. This commenter 
questioned AMS's conclusion there would be an ample supply of organic 
heifers under the rule. The commenter estimated that the industry would 
take time to catch up with the demand for organic heifers (organically 
managed from the last third of gestation).
    Other comments in 2015 argued that there was an adequate supply of 
organic heifers (organically managed from the last third of gestation) 
available or that operations would raise and sell them if the price was 
higher and reflected the

[[Page 19762]]

cost of raising them. In 2019, commenters claimed there is a surplus of 
organic heifers (organically managed from the last third of gestation) 
available to meet market needs and that there is an ample supply of 
animals even if morbidity/mortality rates are high or heifer selection 
is aggressive. No comments in 2019 or 2021 claimed that organic heifer 
supplies were constrained.
    AMS response: Based on our analysis of the comments received, AMS 
continues to believe that sufficient numbers of organic heifers 
(organically managed from the last third of gestation) would be 
available after rule implementation to maintain and/or grow existing 
organic dairies. To mitigate potential and unforeseen impacts, AMS is 
providing a compliance date of ten months beyond the effective date of 
this final rule to allow animals in the middle of an approved 
transition to complete the transition and produce organic milk. AMS 
received many comments that supported this approach during the comment 
periods. AMS is also including a variance process for certified 
operations that are small businesses, and meet certain other specific 
and limited circumstances. These operations may request a variance from 
the prohibition on the movement of transitioned animals for specific 
and limited situations.

Price of Replacement Animals

    A commenter in 2019 disagreed with AMS's estimate of a $1,300 cost 
difference between transitioned animals and organic animals 
(organically managed from the last third of gestation). The commenter 
believed AMS's estimate was too high. The commenter further explained 
that its ``discussions with dairy auction sales barns that previously 
sold organic cattle do not align with that value'' and the most common 
response it received from extension agents in the Northeast was that 
``demand and verified sales have all but dried up for organic springing 
heifers [heifers close to calving].''
    AMS received many comments in 2019 related to the cost difference 
for raising heifers organically vs. nonorganically during the first 12 
months of life. One commenter found a $469 average cost difference 
(organic being more costly) per animal. Most comments noted a cost 
difference from $600 to $1,000 per calf, and some comments noted a 
difference as high as $1,300 per calf. Commenters tended to use the 
difference in production costs to describe the financial disadvantage 
and the harm to operations that source only organic animals 
(organically managed from the last third of gestation) in comparison to 
operations that continually transition heifers to organic production. 
In 2021, several commenters reiterated the difference in cost of 
raising dairy replacement heifers under organic management versus 
conventional management in the first year of life, citing figures from 
$623 to $1,300 per calf. A few commenters referred to a study by 
Cornell Cooperative Extension that found an average $884 savings per 
animal compared to animals raised using organic methods.\55\
---------------------------------------------------------------------------

    \55\ Fay Benson. Cornell College of Agriculture and Life 
Sciences. ``USDA Puts Northeast Organic Dairies at a Disadvantage.'' 
Small Farms Quarterly. January 13, 2020. https://smallfarms.cornell.edu/2020/01/usda-puts-northeast-organic-dairies-at-a-disadvantage/.
---------------------------------------------------------------------------

    Commenters in 2015, 2019, and 2021 generally agreed that 
implementation of the proposed rule would result in greater demand for 
organic heifers and would likely increase the price of organic 
replacement animals. Many commenters viewed this scenario favorably, as 
it would benefit organic producers who sell organic animals 
(organically managed from the last third of gestation), as opposed to 
some heifer-raising operations currently selling transitioned animals. 
In 2021, one producer commented that in the last decade the market 
value of organic replacement dairy cattle (organically managed from 
last third of gestation) is $1,100/head (or more) below the cost of 
producing them, as the continuous transitioning of non-organic dairy 
replacements has flooded the market. Another commenter stated that 
market prices are $1,500 to $1,800 per head, a lower value than the 
$2,000 or $2,500 value assumed by USDA's analysis.
    AMS response: AMS continues to present the costs of the rule as a 
range based on different potential scenarios (see Table 5). AMS agrees 
with comments that the price of organic heifers may increase, and we 
have estimated costs under two scenarios where the price of heifers 
increases by $500 and where the price does not increase that are 
discussed further in the section on final rule costs. AMS estimates 
that the price of an organic heifer (organically managed from the last 
third of gestation) is $2,000 and up to $2,500 if increased demand 
drives prices upward. This represents a $1,000 to $1,500 premium for 
organic animals (organically managed from 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. AMS recognizes that this price estimate may be high and 
thus the result might be considered an upper bound of the estimated 
costs.

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, thereby negatively affecting consumer demand. 
However, AMS also received comments in 2015 from organic milk consumers 
that supported the proposed rule even though they expected the rule to 
lead to higher milk prices. Other comments 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. In 2021, commenters were again concerned 
about an oversupply of organic milk and the subsequent economic 
hardship for organic dairy farmers. Commenters found that a strict and 
fair enforcement of the rule would allow for a gradual increase in 
organic milk production that would match consumer demand. NOP received 
comments regarding concerns about Concentrated Animal Feeding 
Operations (CAFOs) producing large quantities of organic milk, with one 
commenter noting if transitioning remained, it would only further push 
market power to fewer operations in the industry and another stating 
their ability to capitalize on transitioning pushed small and mid-sized 
operations out of production. Commenters stated that the rule would not 
have a significant effect on consumer milk prices but would positively 
affect many dairy farmers. One group of dairy farmers reported that 88 
operations would be positively impacted by the rule, while only four 
would face a negative impact.
    AMS response: Table 2 figures indicate that the retail premium of 
organic milk products over conventional milk products is 61 percent. 
The AMS Dairy Market News for August 9th to 13th, 2021, indicated that 
the twelve-month average (farm-level) organic milk pay price was $31.55 
per hundredweight while forecasting the 2021 all milk price at $17.95 
per

[[Page 19763]]

hundredweight. Together these values indicate that the farm-level 
organic markup is 76 percent. The ERS farm share of the retail price 
for the milk and dairy basket in 2020 was 30 percent.
    Table 5 shows that the total costs of this rule to the organic milk 
producers' net of transfers would be $1,845,000 under our 50 percent 
transitioning scenario and $922,500 under our 25 percent transitioning 
scenario discussed further below. The Census of Organic Agriculture 
indicates that farm-level organic milk revenue was $1.585 billion in 
2019.\56\ Based on these figures, AMS estimates that a final rule would 
increase producer costs by less than 1%.\57\
---------------------------------------------------------------------------

    \56\ Because of economic effects due to the pandemic and recency 
of data, AMS does not adjust for inflation in our estimates.
    \57\ Total industry costs are estimated to be 1.3 billion using 
organic dairy enterprise budget from Iowa State University Research 
and Extension. Source: https://www.extension.iastate.edu/dairyteam/content/iowa-dairy-budgets.
---------------------------------------------------------------------------

Number of Transitioning Animals

    One commenter in 2015 estimated there were 60,000 conventional 
animals transitioning to organic production on new 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 information, obtained from industry and 
certifying agents, indicates that most organic dairy farms do not 
continually transition animals. However, because of the lack of precise 
numbers available, AMS estimates 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.\58\ 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 replacement animals (organically 
managed from last third of gestation) and a corresponding drop in 
prices for these animals.
---------------------------------------------------------------------------

    \58\ See AMS-NOP-11-0009-2799.
---------------------------------------------------------------------------

    AMS response: AMS recognizes that the organic dairy market in 2015 
differed from the current organic dairy market. Our calculation of 
costs for this rule 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.
    AMS also notes that there have been significant changes in the 
organic dairy market starting in 2020 that correspond to the start of 
the COVID-19 global pandemic. During this time, the demand for organic 
products, including organic milk and milk products, increased 
dramatically due to changes in consumer behavior such as a shift to at-
home dining (vs. dining out), among other impacts. Organic dairy grew 
almost 2% in 2019 and 8% in 2020.\59\ Data on the current trends in 
organic replacement heifer markets are limited, but AMS observes 
relatively stable prices in the non-organic dairy replacement market 
now compared to pre-pandemic period.\60\ The long-term effects of the 
pandemic on consumer behavior and the organic dairy market, 
specifically, are difficult to predict, though AMS expects the 
predicted effects of costs and benefits of our analysis to hold. For 
this analysis, AMS used the most current information available to 
present our estimated costs and benefits.
---------------------------------------------------------------------------

    \59\ Source: Organic Trade Association (OTA), 2021 Organic 
Industry Survey.
    \60\ Source: AMS Feeder and Replacement Auction Data, https://www.ams.usda.gov/market-news/feeder-and-replacement-cattle-auctions.
---------------------------------------------------------------------------

Costs and Benefits (General)

    A commenter in 2019 disagreed with AMS's 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 organic animals (organically 
managed from the last third of gestation) using the difference in 
production costs for transitioned animals and organic animals 
(organically managed from the last third of gestation). 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 
commenter's 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 and the 2016 organic U.S. herd size 
of 279,021 head).
    AMS understands the commenter's general concern that organic dairy 
farms need to replace a substantial share of cows each year and that 
the different application of transition practices by certifiers and 
producers creates cost disparities. AMS uses the cost difference for 
purchased replacement heifers (transitioned vs. organically managed 
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 not account for increased costs to 
operations that might maintain ownership of offspring that are born on-
farm, subsequently removed from organic production, and then 
transitioned back into organic production. AMS understands that most 
certifiers do not interpret the current regulations to allow this 
practice. Any increase in the cost of replacement heifers only applies 
to the purchasers of such animals who would otherwise have purchased 
transitioned animals. For this reason, AMS believes that applying the 
cost differential to replacement heifers that are both purchased and 
unpurchased (i.e., owned) would overstate the cost of the rule.

[[Page 19764]]

    As described in our consideration of regulatory alternatives below 
(see Alternative A), AMS expects that purchases of replacement heifers 
that are transitioned animals would increase if AMS allowed this 
practice through regulatory action. Additionally, dairy operations 
utilizing heifer-raising operations while retaining ownership may 
switch to operations that use conventional practices and then 
transition the animals to organic production. Table 4 shows that only 
11 percent of operations purchase replacement heifers. The uneven 
application of the current rule suggests that a smaller share of 
producers is benefiting from the cost advantage of transitioned heifers 
at a level higher than that suggested by the average number of head 
purchased.

Costs of Final Rule

    The final rule will likely increase production costs on organic 
livestock and dairy operations that currently continually transition 
nonorganic animals and/or operations that source transitioned dairy 
animals as replacements. Additionally, any dairy that purchases organic 
heifers may pay higher prices for organic animals due to increased 
demand, but organic operations selling replacement heifers would 
benefit from any higher prices.
    We assume that farms that exclusively raise their own organic 
replacement heifers and manage those animals organically from birth 
would not incur additional costs under the final rule. Similarly, dairy 
farms that send organic heifer calves to other certified organic 
operations to have the animals continuously managed as organic (for 
some period of time before returning to the farm) would not incur 
additional costs. Finally, nonorganic dairy operations converting to 
organic production for the first time would not incur new costs during 
the 12-month transition period; they may transition animals on a one-
time basis under the final rule.

Estimated Costs for Dairies

    The final rule creates two costs for organic dairy farms. First, 
dairy farms that transition heifers or purchase transitioned 
replacement heifers after their initial transition to organic would be 
required either to purchase higher-cost organic replacement heifers 
(organically managed from the last third of gestation) or to raise 
their own replacements by raising organic calves to maturity. This 
analysis assumes that transitioned animals are sold at a discount 
compared to organic replacement animals (organically managed from last 
third of gestation).
    Second, by raising the demand for organic replacement heifers, the 
final rule may raise the price of organic replacement heifers if 
operations currently selling organic (transitioned) replacement heifers 
cannot comply with the requirements and operations that sell organic 
replacement heifers (organically managed from last third of gestation) 
cannot easily increase offerings. While this price increase is likely 
to be small, it would raise costs to any organic dairy farm that is a 
net buyer of organic replacement heifers, regardless of whether it 
continually transitions animals or purchases transitioned replacement 
heifers. This same price effect, however, would create an offsetting 
benefit to any dairy farm that is a net seller of organic replacement 
heifers.
    AMS investigated the additional costs that could possibly arise due 
to limiting the movement of transitioned animals. Under the final rule, 
producers are unable to sell their transitioned animals as organic and 
must take the conventional price for these animals. This cost is likely 
to only impact producers seeking to liquidate their herd. The final 
rule does not alter the current regulations that prohibit transitioned 
animals from being sold for organic slaughter (therefore would not 
receive the organic premium at end of life) and operations can continue 
to manage a transitioned animal rather than sell it for a loss in most 
cases of continued operation. Only when an operation is forced to sell 
their animals at the lower conventional price because of the final rule 
would there be any additional cost due to the prohibition of the 
movement transitioned. The final rule provides for a variance request 
process (Sec.  205.236(d)) that could allow an organic operation to 
sell their transitioned animal in certain situations (bankruptcy, 
insolvency, intergenerational transfers).
    AMS looked at all operations with listed dairy animals that were 
suspended or surrendered their organic certification between 2016-2021 
and found at most five that could face costs due to limited movement of 
transitioned animals.\61\ Between the five operations, they had less 
than 300 head in total at the time of exit from the organic market. 
While the increased costs possibly faced by these operations would 
increase the total cost of the rule, data indicate that all observed 
operations would likely have been eligible for the variance and thus 
been able to avoid additional costs. Because no operations would have 
faced additional costs due to the prohibition on the movement of 
transitioned animals between 2016-2021, AMS did not include this as an 
additional cost in the final analysis.
---------------------------------------------------------------------------

    \61\ Using the Organic Integrity Database, AMS identified dairy 
cattle operations with listed organic animals that were suspended or 
surrendered their organic dairy certification between 2016-2021.
---------------------------------------------------------------------------

    AMS estimates the costs of the final rule by estimating the total 
number of replacement animals purchased by U.S. organic dairy cattle 
operations annually. AMS then estimates the percentage of all purchased 
animals that do not meet the requirements of the final rule (i.e., the 
percentage of animals bought by organic operations that are not 
organically managed from the last third of gestation). Due to the 
unavailability of precise data, AMS estimated a range of possibilities 
(25 percent to 50 percent of all purchased animals). AMS received no 
public comments that provided a more accurate estimate. To calculate 
costs, AMS then multiplied the number of animals by the price 
difference between organic (organically managed from last third of 
gestation) and nonorganic heifers (we use nonorganic heifer prices as a 
substitute for transitioned animals in the absence of that data). 
Finally, AMS considered a possible increase for the price of 
organically managed from the last third of gestation heifers to 
calculate the maximum expected costs. The data and calculations are 
discussed in detail below.
    The ARMS survey includes farm-level data on purchases and sales of 
heifers weighing more than 500 pounds, a category that explicitly 
includes sales of springers.\62\ While the ARMS survey does not 
identify whether purchased heifers have been organic from birth or have 
transitioned to organic status, it does identify whether the farms 
themselves are certified or transitioning to organic status. Since all 
cattle sold by organic dairies are themselves organic and all cattle 
sold by non-organic dairies are conventional, this analysis assumes 
that the difference in the large heifer sales prices for organic or 
transitioning farms and other farms reflects the difference in costs 
for those animals. This analysis estimates costs under the alternative 
assumptions that either 25 or 50 percent of all purchased heifers are 
transitioned heifers.
---------------------------------------------------------------------------

    \62\ A springer is a heifer (i.e., a female cow that has not 
previously calved) that is 7 to 9 months pregnant and will begin 
producing milk within 0 to 2 months.
---------------------------------------------------------------------------

    AMS used 2016 ARMS data to estimate the number of replacement 
animals purchased by organic

[[Page 19765]]

operations. (This survey is conducted every 5 years, so these are the 
most recent numbers available at the time of this writing.) Table 4 
provides the average numbers and prices of large heifers bought and 
sold by organic or transitioning farms, divided into four different 
size categories, along with figures for all organic or transitioning 
farms and all other non-organic farms. Compared with their non-organic 
counterparts, organic and transitioning dairy farms are more likely to 
purchase large heifers as replacements, and sell a smaller share of 
their large heifers. On average, organic dairies purchased replacement 
large heifers at a rate of 0.73 percent of their total herd size (or 
0.75 head) and sold large replacement heifers at a rate of 1.27 percent 
of their total herd size. However, only 10.9 percent of organic and 
transitioning dairy farms purchased large heifers so that the average 
farm purchasing heifers bought 6.9 head. Based on a 2019 herd size of 
337,540 milk cows,\63\ all organic dairies purchase 2,464 large heifers 
annually. Rounding the large heifer purchase figure to 2,460, these 
figures imply that 615 purchased heifers are transitioned (rather than 
organically managed from the last third of gestation) under our 25 
percent assumption, and 1,230 are transitioned heifers under our 50 
percent assumption.
---------------------------------------------------------------------------

    \63\ USDA NASS 2019 Organic Survey, Table 17, dairy cow 
inventory as of December 31, 2019. https://www.nass.usda.gov/Publications/AgCensus/2017/Online_Resources/Organics/index.php.

      Table 4--Heifer Purchase and Sales Price and Related Statistics by Dairy Farm Size and Organic Status
                                                     [ARMS]
----------------------------------------------------------------------------------------------------------------
                                                     1-49        49-99       100-199        200+         All
----------------------------------------------------------------------------------------------------------------
                                     Organic and Organic Transitioning Farms
----------------------------------------------------------------------------------------------------------------
Number of Farms in ARMS Survey.................          144          114           42           32  ...........
Largest Number of Cows Milked..................           33           68          132          499          103
L. Heifers Sold (head per operation)...........         0.31         0.84         0.60         8.02         1.27
Sold L Heifers ($/Head)........................       $1,350       $1,993       $2,111       $1,918       $1,887
% of Farms Purchasing L. Heifers...............           8%          16%          10%           7%        10.9%
Purch. L. Heifers as a % of Herd...............         1.5%         1.0%         1.3%         0.2%        0.73%
----------------------------------------------------------------------------------------------------------------
                                                   Other Farms
----------------------------------------------------------------------------------------------------------------
L. Heifers Sold (Head).........................         1.14         1.37         1.73         9.68          5.5
Sold L Heifers ($/Head)........................         $600       $1,161       $1,304         $989       $1,012
% of Farms Purchasing L. Heifers...............         3.3%         7.2%         4.8%        12.1%         8.7%
Purch. L. Heifers as a % of Herd...............         0.2%         1.0%         0.8%         3.2%         2.9%
----------------------------------------------------------------------------------------------------------------

    AMS also used the 2016 ARMS data (again, the most recent data 
source of this type) to estimate the price difference between organic 
replacement animals and nonorganic replacement animals. Table 4 shows 
the price at which organic and transitioning dairies sold large 
replacement heifers. Because the price of transitioned heifers compared 
to organic heifers (organically managed from the last third of 
gestation) is not available, our analysis uses the cost of non-organic 
large heifers as a substitute. This is likely to exaggerate the cost 
differential. The large heifer selling price of $1,887 at organic and 
transitioning dairy farms was $865 more than the selling price of 
$1,012 at non-organic farms. Across individual farm size categories, 
however, this difference in prices between organic and non-organic 
selling prices varied across size categories, ranging from $750 (farms 
with 0-49 cows) to $937 (200+ cows). Based on the data, our analysis 
assumes that before the imposition of any of the changes, a 
transitioned heifer costs $1,000 and an organic heifer costs $2,000 so 
that the difference in price between the two animal types is slightly 
higher than the largest difference observed in the data.
    Related data and public comments support these assumptions on price 
relationships. The approximately $1,000 price of non-organic bred 
heifers (our substitute for the price of a transitioned animal) is 
supported by livestock auction market prices.\64\ These data show that 
bred heifers in the third trimester (i.e., springers) of supreme and 
approved quality sold for $1,045. Additionally, the assumptions are 
supported by public comments that indicate it costs between $600 and 
$1,300 more to raise an organic calf than a nonorganic calf. Comments 
in 2021 echoed this cost difference. Additionally, several commenters 
pointed to an analysis completed in 2019 by the Cornell Cooperative 
Extension that determined the cost is on average $844 higher per animal 
for organic management during the first year of life. The study 
considered not just higher feed costs but also labor, buildings, 
machinery, health costs, trucking, manure handling and culling.\65\
---------------------------------------------------------------------------

    \64\ This includes 2019 data collected in the AMS Livestock and 
Replacement Cattle Reports reported at https://www.ams.usda.gov/market-news/feeder-and-replacement-cattle-auctions for the following 
five auction: Mid-Georgia Livestock, Jackson, GA; Empire Livestock, 
Cherry Creek, NY, Mammoth Cave Dairy Auction, Smiths Grove, KY; New 
Holland Sales Stables, New Holland, PA; and Toppenish Monthly Dairy 
Replacement Sale, Toppenish, WA.
    For the final rule, not all of the auctions previously used had 
available data. Using the three available reports in August 2021, 
AMS determined that the average price for non-organic springers was 
approximately $1,169. While this is higher than our previous 
measurement, AMS maintains the approximation of $1,000 because of 
the smaller available sample and the lower price produces an upper-
bound on our cost estimates.
    \65\ Fay Benson. Cornell College of Agriculture and Life 
Sciences. ``USDA Puts Northeast Organic Dairies at a Disadvantage.'' 
Small Farms Quarterly. January 13, 2020. https://smallfarms.cornell.edu/2020/01/usda-puts-northeast-organic-dairies-at-a-disadvantage/.
---------------------------------------------------------------------------

    The increased demand for 1,230 additional organic replacement 
heifers (organically managed from last third of gestation) under the 50 
percent transitioning assumption (or 615 additional organic replacement 
heifers under the 25 percent transitioning assumption) is not expected 
to lead to large price increases for organic heifers because the 
additional organic pasture and feed required for 1,230 additional 
organic replacements constitutes a very small share of the input 
requirements for the 103,000 heifers currently retained by organic 
farms for their own replacements. Therefore, increased demand for 
organic dairy replacement animals is not expected to lead to dramatic 
price increases: because the

[[Page 19766]]

increase in demand is relatively insignificant, supply should be able 
to match demand without spurring substantial price increases. However, 
this analysis assumes that the increased demand for organic replacement 
heifers pushes up their price by $500, or 25 percent,\66\ to $2,500. In 
this case, the total cost of purchasing replacement heifers by organic 
dairy farms would be $6.15 million per year (2,460 replacements animals 
purchased from off farm at $2,500 per head). This would be the new 
total cost of purchasing organic heifers rather than the additional 
cost of purchasing organic heifers, which is considerably less.\67\
---------------------------------------------------------------------------

    \66\ A 25 percent price increase resulting from a 50 percent 
increase in quantity supplied is consistent with an elasticity of 
supply of 2.
    \67\ These costs reflect only those for dairy cattle. Costs for 
purchasing dairy sheep and goats are not included in this analysis.
---------------------------------------------------------------------------

    Table 5 shows the estimated costs to and intra-industry transfers 
between organic dairy farms purchasing organic heifers under 
alternative assumptions on price response and replacement heifer 
purchases. The costs capture the additional resources need to shift the 
supply of transitioned cattle into the supply of organic cattle. The 
intra-industry transfers may arise from the increased demand for 
organic dairy heifers, after accounting for shift of supply from 
transitioned supply to organic supply as described above, that may 
result in increased prices. Industry transfers are costs to a set of 
dairy farms (or possibly milk processors and consumers) that are 
exactly offset by benefits to another dairy farm (or possibly milk 
processors and consumers) which results in no additional resources 
being produced. When the final rule is enacted, transfers may flow from 
net buyers of organic heifers to net sellers of organic heifers as the 
price of organic heifers increases. If the price of organic heifers 
does not increase, then no transfers will occur.
    AMS expects that organic dairy farms will purchase 2,460 
replacement heifers per year based on our analysis of ARMS data.\68\ If 
the price of organic dairy heifers were to be unchanged following the 
rule, our analysis finds that total costs would increase by $1,230,000 
per year under the assumption that 50 percent of purchased replacement 
animals had been transitioned animals, or costs increase by $615,000 
under the assumption that 25 percent of purchased replacement animals 
had been transitioned animals. In these cases, there are no transfers. 
If the price of organic dairy heifers rises to $2,500 and 25 percent of 
purchased replacements are transitioned, our analysis finds that total 
costs are $922,500 (reflecting 615 new organic replacement heifers 
purchased for $1,500 over the conventional price) and transfers are 
$922,500 (reflecting 1,845 previously purchased organic heifers 
purchased at price $500 higher).
---------------------------------------------------------------------------

    \68\ This estimate accounts only for replacement animals, not 
any animals that would be required to facilitate growth in the 
industry.
---------------------------------------------------------------------------

    If the price of organic dairy heifers rises to $2,500, and 50 
percent of purchased replacements are transitioned, our analysis finds 
that total costs would be $1,845,000 (reflecting 1,230 new organic 
replacement heifers purchased for $1,500 over the conventional price) 
and transfers would be $615,000 (reflecting 1,230 previously purchased 
organic heifers purchased at price $500 higher). This information is 
presented in Table 5 below.

   Table 5--Estimated Costs Under Alternative Assumptions for Price Response and the Quantity of Transitioned
                           Animals Purchased by Certified Organic Operations Annually
----------------------------------------------------------------------------------------------------------------
                           Assumptions regarding . . .                               Estimated
---------------------------------------------------------------------------------   additional       Estimated
                                                                                   costs net of      transfers
         . . . Price response \69\                . . .Transitioning heifers         transfers
----------------------------------------------------------------------------------------------------------------
The price of organic heifers remains at      25 percent of heifers are                  $615,000              $0
 $2,000.                                      transitioning.
The price of organic heifers remains at      50 percent of heifers are                 1,230,000               0
 $2,000.                                      transitioning.
The price of organic heifers rises from      25 percent of heifers are                   922,500         922,500
 $2,000 to $2,500.                            transitioning.
The price of organic heifers rises from      50 percent of heifers are                 1,845,000         615,000
 $2,000 to $2,500.                            transitioning.
----------------------------------------------------------------------------------------------------------------

    If some of the sellers of the 1,230 additional organic heifers 
required under the 50 percent assumption (or the 615 additional organic 
heifers required under the 25 percent assumption) have costs to 
supplying these animals that are less than $2,500, then industry 
transfers would exceed the values stated in Table 5. Increased sales 
are expected to benefit operations that have more flexibility in 
capacity (e.g., available pasture) to accommodate raising organic 
replacement heifers for the organic market. Importantly, sales response 
across individual farms will likely be uneven and depend on site-
specific factors such as the farm's ability to access new buyers and 
increase organic pasture.
---------------------------------------------------------------------------

    \69\ As discussed above, AMS has found that organic heifer 
prices have changed slightly from the proposed rule, but are still 
close to original estimates and chose to represent organic and 
conventional heifer prices as $2,000 and $1,000 respectively for 
simplicity. This does not impact the estimated cost impact of the 
rule.
---------------------------------------------------------------------------

    Differences in purchase patterns of milk cows and replacement 
heifers also vary by size in a way that affects the distribution of 
costs associated with the final rule. Ten percent of operations with 
fewer than 50 cows reported purchasing milk cows, and the average 
number purchased was 6 head. Five percent of operations with between 50 
and 99 cows reported purchasing milk cows, and the average number 
purchased was 14 head. Three percent of operations with between 100 and 
199 cows reported purchasing milk cows, and the average number 
purchased was 10 head. No operations with 200 or more cows reported 
purchasing milk cows.
    The pattern is different for purchasing heifers. Eight percent of 
operations with fewer than 50 cows reported purchasing heifers, and the 
average number purchased annually was 7 head. Sixteen (16) percent of 
operations with between 50 and 99 cows reported purchasing heifers, and 
the average number purchased annually was 4 head. Ten (10) percent of 
operations with between 100 and 199 cows reported purchasing heifers, 
and the average number purchased annually was 17 head. Seven (7) 
percent of operations with 200 or more cows reported purchasing 
heifers, and the average number purchased was 12 head.

[[Page 19767]]

    Based on the range created by the scenarios presented in Table 
5,\70\ the average dairy with fewer than 50 cows would pay an 
additional $127-$510; dairies with between 50 and 99 cows would pay an 
additional $166-$666; dairies with between 100 and 199 cows would pay 
an additional $439-$1,755; and dairies with 200 or more cows would pay 
an additional $209-$837. The costs by size of operation are summarized 
in Table 6.
---------------------------------------------------------------------------

    \70\ Scenario 1 presents the low cost estimate, with only 25% of 
heifers purchased associated with the additional $1,000 organic 
premium. Scenario 4 presents the high cost estimate, with 50% of 
heifers associated with a $1,500 dollar organic premium (the 
difference between the cost of transition and the increased price 
due to demand) and 50% of heifers incurring a $500 dollar premium 
from the increased prices due to increased demand. [The $500 dollar 
premium is an industry transfer, but AMS keeps the cost for 
individual operations to better acknowledge the possible high end 
costs for operations who only purchase animals.]

                                           Table 6--Costs by Size of Operation for Purchasing Organic Heifers
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     Size of Operation
                                                                 ---------------------------------------------------------------------------------------
                                                                   Fewer than  50 cows       50-99 cows           100-199 cows        200 or more cows
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Farms.................................................                 1,359                 1,076                   396                   302
Share of Operations.............................................                   43%                   34%                   13%                   10%
Average Cost Per Farm...........................................             $127-$510             $166-$666           $439-$1,755             $209-$837
Total annual cost for purchase of replacement heifers across         $173,210-$692,839     $179,127-$716,506     $173,915-$695,660      $63,189-$252,757
 size class.....................................................
Percent of operations that purchased replacement heifers                          7.6%                 16.4%                 10.2%                  6.8%
 annually.......................................................
Average number of replacement heifers purchased annually (for                     6.68                  4.06                 17.22                 12.33
 operations purchasing heifers).................................
Cost per operation annually (25% to 50% transitioned heifers)            $1,670-$6,678         $1,016-$4,063        $4,306-$17,225        $3,082-$12,330
 (for operations purchasing heifers)............................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The costs in Table 6 do not reflect the offsetting effect of 
transfers (i.e., they only capture the cost of transfers at a producer 
level, not accounting for how the producers selling will gain from 
this). For this reason, the sum of the total costs of replacing heifers 
across all size categories ($0.56 million and $2.37 million) in Table 6 
roughly equals the sum costs (net of transfer) and transfers in Table 5 
($0.615 million and $2.46 million) with minor discrepancies reflecting 
rounding differences.

Effects on Heifer-Raising Operations

    Organic dairy operations that continually source transitioned 
heifers will need to change their practices to meet the requirements of 
the final rule. In some cases, organic dairy operations source their 
transitioned heifers from off-site heifer-raising operations. Here, AMS 
discusses the potential effects of the final rule on these operations.
    A 2011 USDA NAHMS study on heifer-raising operations \71\ found 
that most heifers sent to heifer-raising operations (80 percent) are 
returned to their dairy of origin. The study also found that most 
heifer-raising operations receive weaned calves (rather than wet 
calves) and send them back as pregnant heifers. AMS specifically 
requested comments and data on the likely impacts on heifer-raising 
operations. AMS did not receive any data on the number of heifer-
raising operations that continually transition animals for sale to 
organic dairies or on the number of animals raised by such operations 
annually. Aside from fragmentary evidence in the AMS Organic Integrity 
Database, AMS does not currently have specific data on the locations, 
numbers, or sizes of organic heifer-raising operations.\72\
---------------------------------------------------------------------------

    \71\ USDA, Animal Plant Health Inspection Service. Dairy Heifer 
Raiser, 2011 (October 2012). Available online at: https://www.aphis.usda.gov/aphis/ourfocus/animalhealth/monitoring-and-surveillance/nahms/nahms_dairy_studies.
    \72\ The Organic Integrity Database includes descriptions of the 
products for which organic farms are certified as recorded by the 
certifying agent. It lists 220 operations that recorded dairy cattle 
but not milk production (i.e., a possible indicator for a heifer-
raising operation). These operations were often identified as being 
involved with ``dairy cows,'' ``breeding operations,'' and 
``replacements.'' Unfortunately, the database does not provide 
sufficient information to use in our analysis of heifer-raising 
operations.
---------------------------------------------------------------------------

    In the absence of specific information, AMS considered that organic 
dairy operations could be using organic heifer-raising operations to 
transition animals on a continual basis by taking in nonorganic weaned 
calves (e.g., 12-month old heifers) and providing organic management 
for 12 months before returning the pregnant organic heifers to an 
organic dairy.
    Under the final rule, organic heifer-raising operations will not be 
required to change their animal production practices. These operations 
are certified organic and currently manage animals in compliance with 
the USDA organic regulations as a requirement of their organic 
certification. However, the final rule does not allow any operations, 
once certified, to source nonorganic animals. Therefore, these 
operations will be able to accept only weaned calves that have been 
organically managed from the last third of gestation.
    Within the analysis, AMS assumed that competitive markets for both 
transitioning and replacement heifers have resulted in prices for these 
animals that are sufficiently high enough to allow sellers to recover 
the cost of raising these animals along with a ``normal'' rate of 
return on capital investment. The analysis assumes that the 50 percent 
conjectured increase in price of organic replacement heifers is 
sufficient to simultaneously ensure that markets clear (i.e., quantity 
supplied equals quantity demanded) at the higher number of transacted 
animals and offset the increased costs to supplying more animals.
    As with other aspects of our analysis regarding supply response, 
AMS assumes that the ability of individual sellers of replacement 
heifers to adjust management practices to market conditions will vary 
with the site-specific characteristics of operations, such as their 
ability to find new buyers and access to additional organic pasture. 
Whether heifer-raising operations will increase or decrease sales of 
organic heifers following the implementation of the rule cannot be 
determined with the available data.
Regulatory Impacts and Effects on Consumers
    Most dairies report that they source at least some of their 
replacement cows from their own calves, and only 11 percent of all 
dairies purchase replacement heifers, with less than 1 percent of all 
replacements being purchased externally (off the farm). The majority of 
producers that do not purchase replacement heifers would not see an 
increase in costs. To replace purchased transitioned heifers, dairies 
would have to either raise their own replacements or buy them from an

[[Page 19768]]

operation that sells organic replacement heifers (organically managed 
from the last third of gestation). Since the current supply of 
replacement heifers can be increased without large price increases, as 
detailed above, it is unlikely that the final rule will significantly 
increase milk production or milk costs to the consumer.
    The final rule will provide producers and consumers of organic 
foods with multiple benefits that extend beyond the organic livestock 
producers that are directly impacted. First, the rule will provide 
uniformity to the enforcement of regulations relating to the origin of 
livestock, removing avenues for inefficiencies and risks created by 
different certifier standards and potentially reducing consumer 
confusion about the nature of production of dairy products. Second, the 
rule will create uniformity in the application of the USDA organic 
regulations, by generally requiring organic management for an animal's 
entire life. This has the potential to decrease information asymmetries 
associated with the meaning of the organic seal and reduce transactions 
costs to consumers in interpreting the meaning of the seal with respect 
to milk products. In addition, some consumers may actually be willing 
to pay more for milk that they know to have been produced by animals 
that were managed as organic from the last third of gestation. While 
other policy options would also achieve consistency, the policy choice 
to restrict the transitioning of organic dairy animals is considered 
most consistent with producer and consumer expectations for the organic 
management of an animal throughout its life.
    Together, the provisions in this rule could enhance and protect the 
value of organic premiums that some consumers are willing to pay for 
milk certified under the USDA organic regulations, as it reinforces 
consumer trust and demand in the label. Research has shown that 
consumers purchase organic products for various reasons.\73\ A number 
of these reasons, including environmental and animal welfare concerns, 
accrue benefits over the entire period of production. The final rule 
should increase these consumer benefits (due to increased number of 
dairy animals that are managed as organic throughout their productive 
lives) while also protecting against shocks to consumer demand due to 
reaction to inconsistent practices.
---------------------------------------------------------------------------

    \73\ Hughner, R.S., McDonagh, P., Prothero, A., Shultz, C.J., & 
Stanton, J. (2007) Who are organic food consumers? A compilation and 
review of why people purchase organic food. Journal of Consumer 
Behaviour: An International Research Review, 6(2-3), 94-110.
---------------------------------------------------------------------------

    The 2019 NASS Certified Organic Production Survey shows that 
organic milk is the top organic commodity in sales value, worth $1.6 
billion in 2019.\74\ Sales of organic milk increased by 14 percent from 
2016. At the retail level, the OTA 2021 U.S. Industry Survey \75\ found 
sales of organic dairy products, including milk, cream, yogurt, cheese, 
butter, cottage cheese, sour cream, and ice cream, exceeded $7.4 
billion in 2020. As a result, even a fraction-of-a-percentage increase 
in willingness to pay would more than justify the quantified costs of 
the rule. Table 2 shows the organic dairy market characteristics by 
subcategory.
---------------------------------------------------------------------------

    \74\ USDA NASS organic surveys are available at: https://www.nass.usda.gov/Surveys/Guide_to_NASS_Surveys/Organic_Production/index.php.
    \75\ Organic Trade Association (OTA)/Nutrition Business Journal, 
2021 Organic Industry Survey (pp. 3).
---------------------------------------------------------------------------

    Organic dairy cattle producers who sell organic dairy females may 
receive a benefit as part of an intra-industry transfer. AMS estimates 
that on the high side, the price of an organic heifer may increase by 
$500 over current prices due to increased demand. If this price 
increase were to occur, dairy producers who are net sellers of 
replacement springers would benefit through the intra-industry 
transfer.
    While AMS does not know whether the final rule will increase demand 
for organic milk, AMS believes there is value in creating a uniform 
origin of livestock rule that prevents organic dairies from 
continuously transitioning non-organic animals into organic milk 
production. If inconsistent practices were to persist in the industry, 
consumer confidence and the organic premium as a whole would be at risk 
to confusion about the benefits of the label. Strengthened consumer 
confidence should be valuable for organic milk producers as it 
strengthens the value of the organic brand in the mind of consumers.
    Survey results from a producer survey, sent out by the Cornucopia 
Institute to certified organic dairies in the country, provide general 
support for prohibiting continuous transition of heifers and ensuring a 
uniform interpretation of organic origin of livestock rules. Of 174 
responses received, 70% supported immediate implementation of a ban on 
continuous transition of dairy cows, and not a single respondent said 
allowing continuous transition has had a positive economic impact on 
their operation. Of the 41 respondents that listed a specific dollar 
loss resulting from the lack of consistent standards with respect to 
livestock origin rules, the mean loss reported per milking animal was 
$490. A total of 86 respondents indicated the uneven standards have had 
a negative economic impact on their operation, either due to lower 
heifer prices or lower milk prices. In addition to these quantitative 
estimates of perceived losses, some producers expressed their opinion 
that inconsistent interpretation of the origin of livestock rules harm 
the organic brand, lower milk prices, contribute to an oversupply of 
organic milk, tilt the market towards large dairies against small 
dairies, increase psychological stress for farmers, and lead to the 
loss of organic milk contracts.
    AMS sees these observations as indicators of risk to demand for 
organic dairy product. Studies show that consumers value organic 
standards for the environmental and health benefits they perceive 
flowing from them. Lack of consistency in organic standards may shake 
some consumers' confidence in the label. Reduced consumer confidence 
could lead to lower demand for organic milk (and perhaps other 
products), which would lower quantity and price of organic milk 
products on average. Confidence from organic producers is also 
important in sustaining the organic market to meet growing demand. If 
organic dairy producers become discouraged by the known differences in 
interpretation and application of origin of livestock provisions, they 
may exit the market, believing the system to be unfair.
    Overall, the survey responses identify a series of perceived 
negative consequences to the respondents individual operations stemming 
from inconsistent standards, and likewise from any alternative that 
would continue to allow continuous transition of conventional animals 
into organic dairy production. Finally, outreach by organic producers 
on this rule, both to AMS and Congress, emphasize the importance of 
this rule to the broader organic industry, beyond organic dairy. 
Inconsistency in the implementation of this set of provisions is seen 
as part of a broader need to ensure consistent implementation of the 
standards in accordance with the OFPA. Again, while this consistency 
could be achieved in different ways, AMS has selected the policy path 
that aligns with many public comments over many years encouraging the 
limitation of organic transitions of livestock.

Alternatives Considered

    AMS considered alternatives that would be both less stringent (less 
costly)

[[Page 19769]]

and more stringent (more costly). The alternatives considered are shown 
in Table 7 and discussed below.

                    Table 7--Alternatives Considered
------------------------------------------------------------------------
              Alternative                          Description
------------------------------------------------------------------------
(A) Allow Continual Transition for All   Allow any operation to
 Operations.                              transition nonorganic dairy
                                          animals into organic
                                          production over a 12-month
                                          period on a continual basis.
(B) Prohibit All Transitions...........  Remove all exceptions for
                                          transition of nonorganic
                                          animals.
------------------------------------------------------------------------

Alternative A--Allow Continual Transition for All Operations

    AMS considered amending the regulations to specify that any 
operation could transition dairy animals into organic production over a 
12-month period on a continual basis. Under OFPA, a dairy animal from 
which milk or milk products will be sold or labeled as organically 
produced must be raised in accordance with OFPA for not less than the 
12-month period immediately prior to the sale of such milk and milk 
products (7 U.S.C. 6509(e)(2)(A)). The final rule will typically 
require more than a 12-month period of organic management prior to the 
sale of milk and milk products for established dairies (i.e., from the 
last third of gestation). OFPA specifies that dairy livestock be 
managed organically for a period not less than a 12-month period, so 
AMS could presumably allow transition of any dairy animal into organic 
production after a period of exactly 12 months of organic management.
    This is the legal standard currently in effect. While current 
regulations allow for continual transition of nonorganic dairy animals 
into organic dairy operations, that is not occurring under the current 
regulations. As a result, AMS estimates no immediate changes in costs 
or benefits associated with leaving existing regulations in place. 
However, in this scenario, organic dairy farms may be more likely to 
source or transition animals if the practice is affirmed by the program 
and universally allowed by certifiers. If more transitioned animals are 
sourced, more young dairy animals will be treated with antibiotics and 
other medications prohibited in organic livestock production and/or 
provide nonorganic feed until one year. Relatedly, operations wanting 
to assure consumers that they had raised organic heifers under organic 
conditions through their entire lives would have to do so under a 
separate certification program.
    ARMS Data indicated that the average organic dairy operation kept 
40.4 heifers (or 39.3 percent of its herd) for breeding, of which 36.6 
heifers (or 35.7 percent of its herd) were kept for breeding and raised 
on the operation. The difference of these values (3.6 percent) 
represents the likely proportion of organic heifers raised on outside 
heifer-raising operations (as a share of the total herd). If all those 
animals become transitioned heifers, then an additional 12,154 animals 
(i.e., 337,540 head * 3.6 percent) would be transitioned. AMS assumes 
that the price difference between organic (organically managed from the 
last third of gestation) and transitioned heifers reflects the $1,000 
cost difference in raising dairy heifers between these two comparative 
production systems. In this case, the reduced cost of allowing for 
continuous transitioning of heifers is $12,154,000.
    The potential cost associated with the adoption of the continuous 
transition for all organic dairies could be illustrated by a 
deleterious effect on markups to products marketed under the organic 
label; although a markup reduction is not a cost, from the society-wide 
perspective taken for purposes of Executive Order 12866 and OMB 
Circular A-4, it may signify a greater incentive for the (costly) 
establishment of alternative certifications to USDA organic 
certification. Table 2 shows that milk products marketed under the 
organic label earned an average premium of 61 percent over conventional 
products that total $2.4 billion in total value. A one percent fall in 
total premiums would be associated with a $24 million reduction in 
organic premiums at the retail level.
    While continual transition could theoretically support a regulatory 
objective to establish a consistent and uniform standard for all 
operations, AMS is not selecting this alternative. Based on available 
information, AMS understands that most established organic dairies can 
(and do) readily raise dairy animals for a period longer than the 12-
month minimum required in OFPA. If AMS selected Alternative A, it would 
likely be more disruptive to existing operations and require more 
operational changes than we expect will be required by this final rule. 
Furthermore, the National Organic Standards Board's recommendations, 
and stakeholder comments support and inform AMS's decision to not 
select this alternative.
    OFPA directs organic animal production practices to be free of 
antibiotics (7 U.S.C. 6509(c)(3) and 6509(d)(1)). While a one-time 
transition allowance is necessary to support growth in the organic 
dairy market, AMS believes that the policy option that minimizes 
antibiotics (and provides for lifelong organic management) is the best 
course to remain true to the broad range of organic production 
practices described in OFPA. Comments indicate that at least some 
consumers already expect organic milk is produced without the use of 
any antibiotics (and other substances prohibited under the USDA organic 
regulations) and expect organic management of all animals on organic 
operations from the last third of gestation. Alternative A would not 
meet these expectations, and adopting the alternative could cause a 
decline in consumer confidence, lower demand for organic milk and dairy 
products, and lower organic milk prices for producers. The 
aforementioned survey results presented by the Cornucopia Institute 
strongly support this reasoning.

Alternative B--Prohibit All Transitions

    A second alternative AMS considered was to remove any allowance for 
dairy operations to transition animals to organic production, including 
new and nonorganic dairies seeking to convert to organic production. 
Under this option, all dairy animals would need to be managed 
organically from the last third of gestation for milk and dairy 
products to be sold, labeled, or represented as organic.
    The costs of this alternative are threefold. First, producers would 
bear the increased annual costs of $1,845,000 described in Table 5 and 
under the one-time transition scenario where 50 percent of heifers are 
transitioning. Because conventional dairy farms transitioning to 
organic would also need to purchase heifers and milking cows 
approximately equal to the size of their current operations, AMS 
believes this alternative may lead to price increases for organic 
heifers of significantly more

[[Page 19770]]

than 50 percent. This would increase the costs of the rule.
    Second, this alternative would limit the ability of the industry to 
expand to meet growing demand and could thereby create price 
instability within the market. In periods of stable demand, firm entry 
into the organic market is modest, reflecting factors such as 
population and income growth. In these stable periods under current 
rules, the cost of producing organic milk for established producers 
reflects both the higher cost of production in terms of feed costs, 
land requirements, and animal husbandry practices, and the higher cost 
of replacement heifers. In periods of rapid industry growth (i.e., high 
demand), entrants to this industry bear those costs as well, but also 
face the significant additional costs of converting land for organic 
feed and pasture over a 3-year period.
    Under this alternative, in periods of industry growth (i.e., high 
demand) new entrants to the industry would face the additional cost of 
acquiring organic heifers and milking cows under periods of tight 
supply and this alternative could lengthen the time required for new 
entrants to begin production. While a subset of organic dairies would 
see higher returns on sales of heifers, incumbent farms seeking to grow 
would see higher costs of expanding herds through heifer purchases and 
the additional time required to certify additional land under the 
organic program. While some incumbent producers may benefit under this 
alternative in the short-term, the added costs to entry and expansion 
would likely foster price volatility for organic heifers and wholesale 
organic milk, as the industry's ability to quickly expand in response 
to demand fluctuations would be severely handicapped.
    Furthermore, organic heifers are an input to wholesale organic milk 
production, and wholesale milk is an input to retail organic milk 
products such as organic cheese, yogurt, butter, and retail-level milk. 
Bringing organic milk products to market requires complementary 
investments in retail marketing outlets and brand development. Bernanke 
(1983), Cabellero and Pindyck (1996), and Carruth et al. (2000) find 
that increasing input price volatility reduces investment since the 
value of the option to delay the investment rises with increased 
uncertainty about the investment's return.<SUP>76 77 78</SUP> Such 
volatility could limit long-term growth in organic milk demand if 
downstream milk processors (for cheese and other milk products) and 
retailers require an organic milk supply with stable prices to allow 
for planning of other investments such as equipment, brand promotion, 
and retail promotion, which in some cases constitutes building retail 
stores focused solely on the sale of organic products.
---------------------------------------------------------------------------

    \76\ Bernanke, Ben S. (1983) ``Irreversibility, Uncertainty and 
Cyclical Investment'', Quarterly Journal of Economics (98) 85-106.
    \77\ Caballero, Ricardo J. and Pindyck, Robert S. ``Uncertainty, 
Investment, and Industry Evolution'' International Economic Review 
(1996)37:641-663.
    \78\ Carruth, A., Dickerson, A., and Henley, A. (2000) ``What do 
We Know About Investment Under Uncertainty?'' Journal of Economic 
Surveys (14)2: 119-154.
---------------------------------------------------------------------------

    This alternative would simplify enforcement of the requirements by 
applying a single standard, without exceptions, to all organic dairy 
operations. It would also align the requirements for dairy animals with 
the requirements for organic slaughter stock, but AMS does not believe 
this option is necessary for several reasons. First, AMS believes that 
certifiers will be able to enforce a rule that allows for a limited and 
well-defined transition. Second, AMS believes that allowing one-time 
transitions for organic dairy operations maintains market stability 
while simultaneously preserving the value of the organic label. 
Transition is also permitted by OFPA (7 U.S.C. 6509(e)(2)). Third, AMS 
notes that other aspects of the USDA organic regulations slow entry 
into this market and believes that eliminating its historic allowance 
of dairy animal transitions could impact downstream organic processors 
and retailers, who have invested in the industry based on the 
expectation of the continuation of regulations that ensure a stable and 
responsive market supply. Most commenters supported a one-time 
allowance.

Final Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612) requires 
agencies to consider the economic impact of each rule on small entities 
and evaluate alternatives that would accomplish the objectives of the 
rule without unduly burdening small entities or erecting barriers that 
would restrict their ability to compete in the market. The purpose is 
to fit regulatory actions to the scale of businesses subject to the 
action. Pursuant to the requirements set forth in RFA, AMS performed an 
economic impact analysis on small entities. Small entities include 
producers and agricultural service firms, such as handlers and 
accredited certifying agents. AMS has determined that the final action 
would impact small entities but that it would not have a significant 
economic impact on them.
    The RFA permits agencies to prepare the regulatory flexibility 
analysis in conjunction with other analyses required by law, such as 
the RIA. AMS notes that several requirements of the regulatory 
flexibility analysis overlap with those of the RIA. For example, the 
RFA requires a description of the reasons why the action by the agency 
is being considered and an analysis of the rule's costs to small 
entities. The RIA likewise describes the need for the rule, the 
alternatives considered, and the potential costs and benefits of the 
rule. In order to avoid duplication, AMS combined some analyses, as 
allowed in Sec.  605(b) of the RFA. As explained below, AMS expects 
that the entities that could be impacted by the final rule would 
qualify as small businesses. In the RIA, the discussion of alternatives 
and the potential costs and benefits pertains to impacts upon all 
entities, including small entities. Therefore, the scope of those 
discussions in the RIA is applicable to regulatory flexibility analysis 
under the RFA. The RIA should be referred to for more detail.

Potentially Affected Small Entities

    AMS has considered the economic impact of the final action on small 
entities. Small entities include producers transitioning into organic 
dairy production, existing organic dairy producers, producers that 
raise replacement animals for organic dairies, and certifying agents. 
AMS believes that the cost of implementing the rule will fall primarily 
on organic dairies that currently purchase transitioned heifers, 
although any organic dairies that purchase organic heifers would be 
expected to pay higher prices in the short-term due to increased 
competition for these animals. Farms that sell their excess organic 
replacement heifers may see an increase in demand for their heifers, 
and farms that raise their own organic replacement heifers would not 
likely be affected by the rule. AMS believes heifer development 
operations also could be impacted by this action. However, limited 
information on the number and size of heifer development operations 
prevents our estimation of the number of such entities and any 
increased costs for those entities.
    The Small Business Administration (SBA) defines small agricultural 
service firms, which include certifying agents, as those having annual 
receipts of less than $8,000,000 (13 CFR 121.201). There are currently 
76 USDA-accredited certifying agents; based on a query of AMS's Organic 
Integrity Database (OID), there are approximately 57 certifying

[[Page 19771]]

agents (38 domestic and 19 foreign) who are currently involved in the 
certification of organic livestock operations. While certifying agents 
are small entities that would be affected by the final rule, AMS does 
not expect that these certifying agents would incur significant costs 
as a result of this action. Certifying agents already must comply with 
the current regulations. The recordkeeping burden of these routine 
certification activities are accounted for in the information 
collection package OMB #0581-0191, e.g., maintaining certification 
records for organic dairy operations.
    For the final regulatory flexibility analysis, AMS estimated how 
organic dairy operations of different sizes (small versus large) would 
be impacted as a result of purchasing only organic dairy replacement 
animals (organically managed from the last third of gestation). As 
defined by SBA (13 CFR 121.201), small agricultural producers are those 
having annual receipts of less than $1,000,000. AMS used this SBA 
criterion to identify large organic dairy operations as those with cash 
receipts of more than $1,000,000 and small operations as those with 
cash receipts of $1,000,000 or less.
    Data on the exact shares of organic dairy farms that have sales 
above and below $1,000,000 are not available. However, ARMS data 
indicates that the average sales revenue of dairy farms from sales of 
organic milk and animals is $2,855 per milked cow, a figure that 
indicates that revenues exceed $1,000,000 for farms with more than 350 
head.
    Within the 2016 ARMS data, 90 percent of organic dairy farms (300 
of the 332) had fewer than 200 milking animals. Lacking more detailed 
information, AMS assumes that 90 percent of all organic dairy farms, or 
2,832 operations of the 3,134 operations, qualify as small businesses 
under the SBA standard. AMS also assumes that these farms purchase 
replacement heifers in the same pattern as the average farm with 200 or 
fewer head. In this case, small organic dairy farms purchase 0.7 
replacement heifers on average, with the 11.3 percent of small farms 
that purchase replacement heifers buying 6.6 head on average. In 
contrast, large organic dairy farms purchase 0.8 replacement heifers on 
average, with the 6.8 percent of large farms that purchase replacement 
heifers buying 12.3 head on average.

                                           Table 8--Costs by Size of Operation for Purchasing Organic Heifers
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Fewer than 50 cows        50-99 cows           100-199 cows        200 or more cows
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Size of Operation
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Farms.................................................                 1,359                 1,076                   396                   302
Share of Operations.............................................                   43%                   34%                   13%                   10%
Average Cost Per Farm...........................................             $127-$510             $166-$666           $439-$1,755             $209-$837
Total annual cost for purchase of replacement heifers across         $173,210-$692,839     $179,127-$716,506     $173,915-$695,660      $63,189-$252,757
 size class.....................................................
Percent of operations that purchased replacement heifers                          7.6%                 16.4%                 10.2%                  6.8%
 annually.......................................................
Average number of replacement heifers purchased annually (for                     6.68                  4.06                 17.22                 12.33
 operations purchasing heifers).................................
Cost per operation annually (25% to 50% transitioned heifers)            $1,670-$6,678         $1,016-$4,063        $4,306-$17,225        $3,082-$12,330
 (for operations purchasing heifers)............................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    For this cost analysis (shown in Table 8), AMS assumed that the 
difference in cost between transitioned replacement heifers and organic 
replacement heifers (organically managed from the last third of 
gestation) is currently $1,000 per head, that half of organic 
replacement heifers currently purchased are transitioned. In our more 
conservative scenario, we assumed only 25% of replacement heifers were 
bought transitioned and would face a $1,000 increase in cost. Our most 
costly scenario assumes that the increased demand for organic 
replacement heifers raises their price by $500, for a total of $1,500 
in additional costs to 50% of all replacement heifers. Based on our 
analysis, AMS estimates that, under the final rule, small operations 
would collectively spend an additional $526,251 (25% at a $1,000 
increase cost per head) to $2,105,005 (50% at a $1,500 increase cost 
per head) for heifers. Large operations would collectively pay an 
additional $63,189 to $252,757 for heifers. Of the operations that 
purchase heifers, the average additional cost per operation in the 
scenarios would be between $1,642 to $6,569 for small operations and 
$3,082 <SUP>79 80</SUP> Table 8 summarizes the cost analysis using SBA 
criterion for small businesses (i.e., producers with less than 
$1,000,000 in cash receipts).
---------------------------------------------------------------------------

    \79\ Small operations making purchases buy 6.57 heifers and will 
pay $1,000 more for half those animals and $2,000 on the others. 
Large operations making purchases buy 12.33 heifers and will also 
pay $1,000 more for half those animals and $2,000 on the others.
    \80\ As with the Table 6 costs breakout by operation size, total 
costs in Table 8 ($0.59 million and $2.36 million under the 25 
percent transition at $1,000 in cost and 50 percent transition at 
$1,500 in cost scenarios) roughly equal the Table 4 estimates of 
costs net of transfers ($0.615 million and $2.46 million). 
Discrepancies are attributed to rounding errors.

 Table 9--Cost of Organic Replacement Heifers by SBA Criterion for Small
                               Businesses
------------------------------------------------------------------------
                                Small operations      Large operations
                                  (<$1,000,000)        (>=$1,000,000)
------------------------------------------------------------------------
Number of Operations........                 2,832                   302
Total cost (all operations).   $526,251-$2,105,005      $63,189-$252,757
Per operation purchasing             $1,642-$6,569        $3,082-$12,330
 replacement heifers........
------------------------------------------------------------------------

    To understand the potential costs in context, AMS used the higher 
average cost estimate per operation from Table 9 the purchase of 
organic replacement heifers (i.e., $6,569 for small; $12,330 for large) 
and compared it to the average gross cash farm income for farms with 
200 head or fewer and for farms with more than 200 head using a revenue

[[Page 19772]]

estimate from ARMS data that farms earn $2,855 per head. Of farms with 
200 head or fewer and an average of $158,003 in sales, the 11.3 percent 
of farms purchasing replacement heifers will have their costs increase 
4.2 percent on average in the costliest scenario. Of large farms with 
more than 200 head and $1,683,366 in revenue, the 12.33 percent 
purchasing replacement heifers will see costs increase by 0.7 percent.
    It is important to note that these cost figures do not include the 
potential offsetting effect of transfers or increased revenue from 
replacement heifer sales as organic replacement heifer prices increase. 
This revenue is recorded as a transfer in the benefit-cost analysis.
    AMS is including additional flexibility for certified dairy 
operations that are small businesses, specifically, by allowing those 
operations (in certain limited circumstances) to request a variance 
from a portion of this final rule. Procedures described at Sec.  
205.236(d) allow small businesses to request movement of transitioned 
animals between certified organic operations in specific and limited 
situations (e.g., bankruptcy, intergenerational transfers). These 
procedures should increase flexibility for small business production 
decisions and lower the upper bound of the costs estimated in Table 9.
    AMS has not identified any relevant Federal rules that are 
currently in effect that duplicate, overlap, or conflict with the final 
rule. The action will provide additional clarity on the origin of 
livestock requirements that are specific and limited to the USDA 
organic regulations.

List of Subjects in 7 CFR Part 205

    Administrative practice and procedure, Agricultural commodities, 
Agriculture, Animals, Archives and records, Fees, Imports, Labeling, 
Livestock, Organically produced products, Plants, Reporting and 
recordkeeping requirements, Seals and insignia, Soil conservation.
    For the reasons set forth in the preamble, 7 CFR part 205 is 
amended as follows:

PART 205--NATIONAL ORGANIC PROGRAM

0
1. The authority citation continues to read:

    Authority: 7 U.S.C. 6501-6524.


0
2. Section 205.2 is amended by adding in alphabetical order the terms 
``organic management'', ``third-year transitional crop'', and 
``Transitioned animal'' to read as follows:


Sec.  205.2  Terms defined.

* * * * *
    Organic management. Management of a production or handling 
operation in compliance with all applicable provisions under this part.
* * * * *
    Third-year transitional crop. Crops and forage from land included 
in the organic system plan of a producer's operation that is not 
certified organic but is in the third year of organic management and is 
eligible for organic certification in one year or less.
    Transitioned animal. A dairy animal converted to organic milk 
production in accordance with Sec.  205.236(a)(2) that has not been 
under continuous organic management from the last third of gestation; 
offspring born to a transitioned animal that, during its last third of 
gestation, consumes third-year transitional crops; and offspring born 
during the one-time transition exception that themselves consume third-
year transitional crops.
* * * * *

0
3. Section 205.236 is revised to read as follows:


Sec.  205.236  Origin of livestock.

    (a) Livestock products that are to be sold, labeled, or represented 
as organic must be from livestock under continuous organic management 
from the last third of gestation or hatching: Except, That:
    (1) Poultry. Poultry or edible poultry products must be from 
poultry that has been under continuous organic management beginning no 
later than the second day of life;
    (2) Dairy animals. Subject to the requirements of this paragraph, 
an operation that is not certified for organic livestock and that has 
never transitioned dairy animals may transition nonorganic animals to 
organic production only once. After the one-time transition is 
complete, the operation may not transition additional animals or source 
transitioned animals from other operations; the operation must source 
only animals that have been under continuous organic management from 
the last third of gestation.
    Eligible operations converting to organic production by 
transitioning organic animals under this paragraph must meet the 
following requirements and conditions:
    (i) Dairy animals must be under continuous organic management for a 
minimum of 12 months immediately prior to production of milk or milk 
products that are to be sold, labeled, or represented as organic. Only 
certified operations may represent or sell products as organic.
    (ii) The operation must describe the transition as part of its 
organic system plan. The description must include the actual or 
expected start date of the minimum 12-month transition, individual 
identification of animals intended to complete transition, and any 
additional information or records deemed necessary by the certifying 
agent to determine compliance with the regulations. Transitioning 
animals are not considered organic until the operation is certified.
    (iii) During the 12-month transition period, dairy animals and 
their offspring may consume third-year transitional crops from land 
included in the organic system plan of the operation transitioning the 
animals;
    (iv) Offspring born during or after the 12-month transition period 
are transitioned animals if they consume third-year transitional crops 
during the transition or if the mother consumes third-year transitional 
crops during the offspring's last third of gestation;
    (v) Consistent with the breeder stock provisions in paragraph 
(a)(3) of this section, offspring born from transitioning dairy animals 
are not considered to be transitioned animals if they are under 
continuous organic management and if only certified organic crops and 
forages are fed from their last third of gestation (rather, they are 
considered to have been managed organically from the last third of 
gestation);
    (vi) All dairy animals must end the transition at the same time;
    (vii) Dairy animals that complete the transition and that are part 
of a certified operation are transitioned animals and must not be used 
for organic livestock products other than organic milk and milk 
products.
    (3) Breeder stock. Livestock used as breeder stock may be brought 
from a nonorganic operation onto an organic operation at any time, 
Provided, That the following conditions are met:
    (i) Such breeder stock must be brought onto the operation no later 
than the last third of gestation if their offspring are to be raised as 
organic livestock; and
    (ii) Such breeder stock must be managed organically throughout the 
last third of gestation and the lactation period during which time they 
may nurse their own offspring.
    (b) The following are prohibited:
    (1) Livestock that are removed from an organic operation and 
subsequently managed or handled on a nonorganic operation may not be 
sold, labeled, or represented as organic.
    (2) Breeder stock, dairy animals, or transitioned animals that have 
not been

[[Page 19773]]

under continuous organic management since the last third of gestation 
may not be sold, labeled, or represented as organic slaughter stock.
    (c) The producer of an organic livestock operation must maintain 
records sufficient to preserve the identity of all organically managed 
animals, including whether they are transitioned animals, and edible 
and nonedible animal products produced on the operation.
    (d) A request for a variance to allow sourcing of transitioned 
animals between certified operations must adhere to the following:
    (1) A variance from the requirement to source dairy animals that 
have been under continuous organic management from the last third of 
gestation, as stated in paragraph (a)(2) of this section, may be 
granted by the Administrator to certified operations that are small 
businesses, as determined in 13 CFR part 121, for any of the following 
reasons:
    (i) The certified operation selling the transitioned animals is 
part of a bankruptcy proceeding or a forced sale; or
    (ii) The certified operation has become insolvent, must liquidate 
its animals, and as a result has initiated a formal process to cease 
its operations; or
    (iii) The certified operation wishes to conduct an 
intergenerational transfer of transitioned animals to an immediate 
family member.
    (2) A certifying agent must request a variance on behalf of a 
certified operation, in writing, to the Administrator within ten days 
of receiving the request of variance from the operation. The variance 
request shall include documentation to demonstrate one or more of the 
circumstances listed in paragraph (d)(1) of this section.
    (3) The Administrator will provide written notification to the 
certifying agent and to the operation(s) involved as to whether the 
variance is granted or rejected.

0
4. Section 205.237 is amended by revising paragraph (a) to read as 
follows:


Sec.  205.237  Livestock feed.

    (a) The producer of an organic livestock operation must provide 
livestock with a total feed ration composed of agricultural products, 
including pasture and forage, that are organically produced and handled 
by operations certified under this part, except as provided in Sec.  
205.236(a)(2)(iii) and (a)(3), except, that, synthetic substances 
allowed under Sec.  205.603 and nonsynthetic substances not prohibited 
under Sec.  205.604 may be used as feed additives and feed supplements, 
Provided, That, all agricultural ingredients included in the 
ingredients list, for such additives and supplements, shall have been 
produced and handled organically.
* * * * *

0
5. Section 205.239 is amended by revising paragraph (a)(3) to read as 
follows:


Sec.  205.239  Livestock living conditions.

    (a) * * *
    (3) Appropriate clean, dry bedding. When roughages are used as 
bedding, they shall have been organically produced in accordance with 
this part by an operation certified under this part, except as provided 
in Sec.  205.236(a)(2)(iii), and, if applicable, organically handled by 
operations certified under this part.
* * * * *

Erin Morris,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2022-06957 Filed 4-4-22; 8:45 am]
BILLING CODE 3410-02-P


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