Original Notice.

     Preproposal statement of inquiry was filed as WSR 02-16-098.

     Title of Rule: Organic food standards and certification.

     Purpose: Chapter 16-157 WAC adopts the National Organic Program, establishes a fee structure for organic certification and provides organic certification logos for producers, processors and handlers certified under the chapter. The proposal increases fees for organic certification in order to cover the costs of the program and adopts all sections of the 2001 National Organic Program.

     Statutory Authority for Adoption: Chapters 15.86 and 34.05 RCW.

     Statute Being Implemented: Chapters 15.86, 34.05 RCW.

     Summary: The proposed amendments to chapter 16-157 WAC increases fees for organic certification, establish a fee structure for retail certification, and adopt additional sections of the 2001 National Organic Program so that Washington state organic standards are fully compliant with the National Organic Program.

     Reasons Supporting Proposal: The Washington state legislature amended RCW 15.86.070 to authorize the Department of Agriculture to increase fees in excess of the fiscal growth factor in order to ensure that fees cover the full cost of the organic program. Fees must be increased to cover the cost of certifying organic producers, processors, and handlers.

     The additional sections of the National Organic Program must be adopted in order for Washington state to be in compliance with the National Organic Program and continue to provide organic certification services to the organic food industry and enable producers, processors and handlers to maintain access to the organic market.

     Name of Agency Personnel Responsible for Drafting, Implementation and Enforcement: Miles McEvoy, Olympia, (360) 902-1924.

     Name of Proponent: Organic Food Program, Washington State Department of Agriculture, governmental.

     Rule is necessary because of federal law, Title 7 C.F.R. Part 205.

     Explanation of Rule, its Purpose, and Anticipated Effects: Chapter 16-157 WAC, Organic food standards and certification, adopts the National Organic Program and provides certification for producers, processors and handlers wishing to obtain organic certification. The rule sets fees for obtaining certification and provides organic certification logos for those parties certified under the rule. Organic certification is also offered for retail food stores.

     The purpose of the rule amendments are to adopt additional sections of the 2001 National Organic Program, increase fees to cover the cost of the program, make some technical corrections to the rule, provide a fee schedule for certification for retail food stores, and repeal sections of the rule that are no longer in compliance with the federal organic standards.

     Some new fees are established to cover the costs of services. Fees for certification are increased to cover the costs of providing the service.

     The amendments will provide sufficient funding for the Washington State Department of Agriculture organic food program to continue to provide organic certification services.

     Proposal Changes the Following Existing Rules:

     Briefing Memo: The National Organic Program (NOP) sets uniform standards for the production, handling and labeling of organic food products in the United States. As of October 21, 2002, all organic food products must be produced, handled and labeled in compliance with the NOP.

     Prior to the implementation of the National Organic Program, organic standards in Washington state were set in the Washington Administrative Code (WAC). The Washington State Department of Agriculture (WSDA) set organic standards and provided certification to organic producers, processors and handlers. With the implementation of the NOP, organic standards are now set at the federal level. WSDA continues to provide organic certification as an NOP accredited organic certification agency. The organic rules in Washington state (chapter 16-157 WAC) adopt the NOP and establish fees for obtaining organic certification to the National Organic Program.

JUSTIFICATION FOR PROPOSED AMENDMENTS

     Adopting additional sections of the National Organic Program: Washington state adopted the National Organic Program in April 2002. Not all sections of the NOP were adopted in April because we thought that the Washington state regulations covered those sections of the NOP. In July, the WSDA organic food program was audited by the NOP and it was determined that additional sections of the NOP needed to be adopted by WSDA. These sections need to be adopted so that the Washington state organic standards are fully compliant with the National Organic Program. The federal National Organic Program preempts the state from having standards that differ from the federal standards. Therefore, the proposal adopts the entire National Organic Program, 7 C.F.R. Part 205, by reference in order to fully adopt the federal program.

     Increasing fees: The organic food industry has quadrupled in value in Washington state over the last five years. Sales of organic food products have increased from $50 million in 1997 to $200 million in 2001. During this same time period the number of certified organic producers, processors and handlers has doubled from 381 to 764 and acreage in organic production has more than tripled from 12,000 acres in 1997 to over 40,000 acres in 2001.

     Over the last few years, the WSDA organic food program has struggled to keep up with the increased demand for organic certification. New inspectors and administrative staff have been hired and trained to handle the increased workload. New requirements such as ISO Guide 65 and the National Organic Program have increased the program's cost of providing organic certification. As a result, expenses have exceeded revenue by about $100,000 over the last three years. In order to address this budget shortfall, the program has reduced the number of samples collected and unannounced inspections conducted. Some farms are not inspected until September rather than earlier in the growing season when organic control points can be more readily verified. The program is stretched thin and currently does not have the resources to investigate complaints or adequately enforce violations of organic standards.

     By statute, the WSDA organic food program is required to recover the full cost of the program from organic certification fees. The program does not receive any general fund support and is required by statute to develop a fee schedule to pay for the cost of organic certification. Fees for organic producers have not increased since 1998. The fee schedule for organic handlers has remained the same since it was established in 1992. The fee schedule for organic processors was reduced in 1997. Earlier this year, the Washington state legislature amended RCW 15.86.070 to authorize WSDA to increase fees in excess of the Office of Financial Management (OFM) fiscal growth factor for fiscal year 2003 in order to ensure that fees recover the full cost of the program.

     In order to address the budget shortfall, provide quality organic certification services, and protect the integrity of organic food products, WSDA is proposing to increase fees and establish new fees for the 2003 certification year. It is estimated that the new fees and fee increases will bring in $60,000 in additional revenue. The additional revenue will be used to address the budget shortfall and to put more program resources into conducting inspections and strengthening enforcement.

     Organic Food Program Budget: The organic food program's budget for the current fiscal year (July 1, 2002 - June 30, 2003) is around $600,000. Administrative overhead (personnel, fiscal, information technology) accounts for $45,000 of the budget. Travel expenses are budgeted at around $33,000. Goods and services (office space, phone, postage, printing) expenses are $90,600. Salaries and benefits for the five full time and six part time staff are budgeted at $430,000.

     New minimum organic certification fee: There are a number of costs involved in providing organic certification services to the applicant. Staff time is needed to review applications, data must be entered into the program's record-keeping system, certificates must be issued, inspection reports must be reviewed, applicants must be billed, and files must be copied for inspectors. Inspection costs include travel costs and the time involved in scheduling inspections, conducting the inspection and completing the inspection report. Currently the minimum fee for organic certification runs from $165 for organic producers to $75 for organic handlers. The program has found that a minimum certification fee of $200 for all organic producers, processors and handlers is necessary to cover the cost of providing a basic organic certificate.

     The program is proposing to establish a minimum $200 fee for all types of certification. By comparison, the minimum certification fee from other nonsubsidized organic certification agencies runs from $335 for NOFA-New Jersey to $2,705 for Quality Assurance International. The minimum fee for Oregon Tilth certification is $225 plus the cost of the inspection.

Certification type	WSDA current minimum fee	WSDA proposed 2003 minimum fee	Oregon Tilth	California Certified Organic Farmers
Producer	$165	$200	$225 + inspection costs	$110 + 0.5% of sales + inspection costs
Processor	$150	$200	$500 + inspection costs	$415 + inspection costs
Handler	$75	$200	$500 + inspection costs	$265 + inspection costs

     Retail certification fee: Chapter 16-157 WAC does not require retail food stores to obtain organic certification. However, some retailers have requested organic certification to provide verification to their customers that they are properly handling and labeling organic food products. In response to this request, the program is proposing WAC 16-157-245 Retailer fee schedule, which allows for the organic certification of retailers. The retail certification fee schedule is designed to cover the cost of providing organic certification to retailers of organic food products. The fee schedule establishes a minimum fee of $330 and eight fee categories based on organic sales. Retail food stores have multiple departments that handle organic food products including produce, bulk foods, and delis. A minimum fee of $330 is established due to the complex nature of retail food stores.

     Increase in new applicant fees: The proposed amendments increase the new applicant fee from $75 to $100. There are a number of unique costs associated with providing certification to new applicants. New database files, office files and field files must be created. The time involved in conducting inspections and reviewing inspection reports and system plans is more extensive for new applicants than for renewal applicants. The cost of providing certification to new applicants exceeds the current $75 fee, therefore, the new applicant fee must be increased to more accurately reflect the cost of providing the service. Other organic certification agencies charge an average of $130 for new applications.

     Late fees: Renewal applications are due on March 1 of each year. Once applications are received they need to be processed, copied and prepared for inspectors. Inspectors then receive the applications and schedule their inspections in order to be efficient with their time. Late applications cause the inspector's schedules to be altered in order to cover the additional workload. Late applications can also cause less efficient use of travel time as inspectors may need to make special trips to inspect a late applicant. The proposed amendments increase late fees from $50 to $75 for all late applicants to cover the additional costs associated with the late renewal of an application. Late application fees can be avoided by simply filing a timely application.

     Inspection fees: The proposed amendments increase inspection fees to $40/hour to cover the current cost of providing inspections. The current inspection fee schedule provides two inspections within the state of Washington. The proposed amendments provide for an annual inspection and any additional inspections needed to collect samples and for routine surveillance. Additional inspections for determining compliance or when requested by the applicant for foreign market requirements will cost $40/hour. Routine additional inspections would be covered by application and certification fees. Additional inspections due to compliance issues or when necessary for the applicant's marketing purposes would be billed directly to the applicant.

     Export certificate fees: The cost of providing export certificates has risen due to the increased complexity of foreign organic certification requirements. The proposal increases the cost of export certificates from $30 to $40 per certificate to cover these additional costs.

NOTES ON PROPOSED CHANGES

     WAC 16-157-020 Adoption of the National Organic Program: The amendments adopt additional sections of the National Organic Program to the Washington state organic standards. These sections include:

     NOP 205.100 What has to be certified: Requires all organic production and handling operations to be certified unless they are exempt or excluded from certification. Provides for continuation of certification if the production or handling operation is certified by an accredited certifier prior to October 21, 2002. Specifies that knowingly selling a product as organic that is not in compliance with the NOP may result in a $10,000 civil penalty.

     NOP 205.101 Exemptions and exclusions from certification: Exempts producers and handlers that sell less than $5,000 worth of organic products from certification. Organic products from exempt producers may not be used in processed organic foods but may be sold at farmers markets and retail stores. Retail food stores are exempt from certification. Processors that produce products with less than 70% organic ingredients or limit their organic claims to the information panel are exempt from certification. Handlers that only sell packaged organic food products are not required to obtain certification.

     The adoption of NOP 205.101 exempts a number of producers, processors and handlers from certification requirements.

Business category	Currently required to be certified under WSDA rules?	Required to be certified under NOP rules?
Small producer with under $5,000 in organic sales	Exempt only if all sales are consumer direct (e.g. farmers markets, farm stand, u-pick, Community Supported Agriculture)	No
Small handler with under $5,000 in sales	Yes	No
Retail food store	No	No
Processor with less than 70% organic ingredients	Yes	No
Processor that limits organic claims to information panel	Yes	No
Handler that only handles organic products in packaged form (e.g. grocery and produce distributors, brokers)	Yes	No
Retail food store that processes organic food products	Yes	No

     NOP 205.642 Fees and other charges for certification: This section requires certification agencies to provide details regarding certification fees including any nonrefundable fees to applicants.

     NOP 205.660 - 668 Compliance: These sections provide the compliance procedures for violations of the National Organic Program.

     NOP 205.670 - 672 Inspection and Testing, Reporting, and Exclusion from Sale: These sections set parameters for inspections, sampling and residue analysis. Agricultural products that have prohibited pesticide residues in excess of 5 percent of the Environmental Protection Agency's regulatory tolerances are prohibited from being sold as organic. Crops and livestock that are treated under emergency pest treatment programs are excluded from sale as organic.

     NOP 205.680 - 681 Adverse Action Appeals Process: These sections outline procedures to appeal noncompliance decisions to the National Organic Program and the Administrator of the USDA Agricultural Marketing Service.

     WAC 16-157-030 Definitions, this section is amended to be consistent with the National Organic Program. Fourteen definitions are eliminated because they are defined under subpart A of the National Organic Program.

     WAC 16-157-100 Land requirements, this section is repealed as these requirements are covered within the National Organic Program, subpart C.

     WAC 16-157-110 Records, this section is repealed as record-keeping requirements are specified in NOP 205.103.

     WAC 16-157-200 Application for certification, this section is repealed as the requirements are covered by the National Organic Program.

     WAC 16-157-220 Producer fee schedule, the proposed amendments establish a minimum $200 certification fee for producers with sales under $15,000. Fees are increased in all other fee categories at varying rates according to recommendations of the Organic Advisory Board. Fees are increased by $5 per fee category for sales between $15,001 and $42,500. Fees are increased by $10 per fee category for sales between $42,501 and $100,000. Above $100,000 in sales, fees are increased by variable rates in order to provide a fee schedule that has regular incremental fees from one fee category to the next.

     The current fee schedule has irregular fees from one fee category to the next. For instance, for sales of $100,001 - $125,000 the current fee is $1,100. The next fee category ($125,001 - $150,000) has fees of $1,150, a $50 higher fee than the previous category. The next fee category ($150,001 - $175,000) has fees of $1,320, a $170 higher fee than the previous fee category. The next fee category ($175,001 - $200,000) has a $1,375 fee, a $55 higher fee.

     The proposed fee schedule removes the irregularities within the current fee schedule. Each fee category has a $150 higher fee for the nine fee categories between $80,001 and $375,000 in sales. The fee categories between $375,001 and $500,000 in sales have a $250 higher fee between each fee category. Fees are $300 higher for the $500,001 - $750,000 fee category. Fees for sales between $750,001 and $7,000,000 are increased by 10%. The current fee is $2,000 plus 0.10% of sales; the new fee will be $2,200 plus 0.11% of sales. A maximum fee of $10,000 is set for sales above $7,000,000. There are no organic producers that are currently in the maximum fee category.

     Additional changes to the producer fee schedule include increasing late fees from $50 to $75 and new applicant fees from $75 to $100. A spreadsheet showing the fee increases in each fee category is attached.

     WAC 16-157-230 Processor fee schedule, establishes a minimum facility fee of $200. Late fees are increased from $50 to $75 for renewal applications postmarked after March 1. New applicant fees are increased from $75 to $100. Organic certification fees are increased in most fee categories. The amendments clarify that producers that process their own organic products pay fees under the producer fee schedule and do not need to pay fees under both the processor and producer fee schedules.

     Processor certification fees are increased in all categories by approximately 10%.

Label category	Old certification fee	New certification fee
100% organic and organic products	0.275% for first one million dollars in sales 0.10% for sales above one million dollars	0.30% for first one million dollars in sales 0.11% for sales above one million dollars
Made with organic food products	0.175% for first one million dollars in sales 0.06% for sales above one million dollars	0.20% for first one million dollars in sales 0.07% for sales above one million dollars
Food products that limit organic claims to the information panel	0.10% for first one million dollars in sales 0.3% for sales above one million dollars (Note: This previous assessment rate was a technical mistake in the old rule. There has never been a certified party that has paid within this fee category.)	0.11% for first one million dollars in sales 0.04% for sales above one million dollars (Note: This corrects the mistake in the previous rule.)
Custom processing	0.35% for first one million dollars in service fees 0.10% for service fees above one million dollars	0.40% for first one million dollars in service fees 0.11% for service fees above one million dollars

     WAC 16-157-240 Handler fee schedule, late fees are increased from $50 to $75 for renewal applications postmarked after March 1. New applicant fees are increased from $75 to $100. Establishes a minimum application fee of $200. The new minimum application fee is identical to the minimum application fee for producers and processors seeking organic certification. Organic certification fees are increased by 10% in all fee categories above the first two fee categories where fees are increased to the minimum $200 fee. A fee schedule showing the fee increases in each fee category is shown in the small business economic impact statement below.

     WAC 16-157-245 Retailer fee schedule, this is a new section that establishes fees for retail food stores that wish to obtain organic certification. Though retail food stores are exempt from certification under the National Organic Program, there are retailers that have requested organic certification.

     WAC 16-157-250 Inspections, the hourly rate for inspections is increased from $30/hour to $40/hour. The hourly inspection charge does not apply to routine inspections within the state of Washington. The hourly inspection charge only applies to out-of-state inspections, inspections done per the request of the applicant, or when additional inspections are required to determine compliance with the organic standards.

     WAC 16-157-255 Sampling, charges for collecting samples are eliminated. The costs of collecting samples and conducting pesticide residue tests are now covered by the application and certification fees.

     WAC 16-157-260 Organic and transitional producer certification, this section is amended to be compliant with the criteria for certification under the National Organic Program.

     WAC 16-157-270 Organic processor and handler certification, this section is amended to be compliant with the criteria for certification under the National Organic Program.

     WAC 16-157-280 Decertification, this section is repealed. Compliance, decertification and appeals procedures are covered in the National Organic Program.

     WAC 16-157-290 Export and transaction certificates, this section is amended to allow export certificates to be issued to verify compliance with foreign organic standards. Increases fees for export and transaction certificates from $30 to $40 due to the increased complexity of verifying compliance with foreign organic standards.

     A small business economic impact statement has been prepared under chapter 19.85 RCW.

     BACKGROUND INFORMATION: The National Organic Program (NOP) sets uniform standards for the production, handling and labeling of organic food products in the United States. As of October 21, 2002, all organic food products must be produced, handled and labeled in compliance with the NOP.

     Prior to the implementation of the National Organic Program, organic standards in Washington state were set in the Washington Administrative Code (WAC). The Washington State Department of Agriculture (WSDA) set organic standards and provided certification to organic producers, processors and handlers. With the implementation of the NOP, organic standards are now set at the federal level. WSDA continues to provide organic certification as an NOP accredited organic certification agency. The organic rules in Washington state (chapter 16-157 WAC) adopt the NOP and establish fees for obtaining organic certification to the National Organic Program.

PURPOSE OF THE PROPOSED RULE AMENDMENTS

     Adopting additional sections of the National Organic Program: Washington state adopted the National Organic Program in April 2002. Not all sections of the NOP were adopted in April because we thought that the Washington state regulations covered those sections of the NOP. In July, the WSDA organic food program was audited by the NOP and it was determined that additional sections of the NOP needed to be adopted by WSDA. These sections need to be adopted so that the Washington state organic standards are fully compliant with the National Organic Program. The federal National Organic Program preempts the state from having standards that differ from the federal standards. Therefore, the proposal adopts the entire National Organic Program, 7 C.F.R. Part 205, by reference in order to fully adopt the federal program.

     Increasing fees: The organic food industry has quadrupled in value in Washington state over the last five years. Sales of organic food products have increased from $50 million in 1997 to $200 million in 2001. During this same time period the number of certified organic producers, processors and handlers has doubled from 381 to 764 and acreage in organic production has more than tripled from 12,000 acres in 1997 to over 40,000 acres in 2001.

     Over the last few years, the WSDA organic food program has struggled to keep up with the increased demand for organic certification. New inspectors and administrative staff have been hired and trained to handle the increased workload. New requirements such as ISO Guide 65 and the National Organic Program have increased the program's cost of providing organic certification. As a result, expenses have exceeded revenue by about $100,000 over the last three years. In order to address this budget shortfall, the program has reduced the number of samples collected and unannounced inspections conducted. Some farms are not inspected until September rather than earlier in the growing season when organic control points can be more readily verified. The program is stretched thin and currently does not have the resources to investigate complaints or adequately enforce violations of organic standards.

     By statute, the WSDA organic food program is required to recover the full cost of the program from organic certification fees. The program does not receive any general fund support and is required by statute to develop a fee schedule to pay for the cost of organic certification. Fees for organic producers have not increased since 1998. The fee schedule for organic handlers has remained the same since it was established in 1992. The fee schedule for organic processors was reduced in 1997. Earlier this year, the Washington state legislature amended RCW 15.86.070 to authorize WSDA to increase fees in excess of the Office of Financial Management (OFM) fiscal growth factor for fiscal year 2003 in order to ensure that fees recover the full cost of the program.

     In order to address the budget shortfall, provide quality organic certification services, and protect the integrity of organic food products, WSDA is proposing to increase fees and establish new fees for the 2003 certification year. It is estimated that the new fees and fee increases will bring in $60,000 in additional revenue. The additional revenue will be used to address the budget shortfall and to put more program resources into conducting inspections and strengthening enforcement.

     New minimum organic certification fee: There are a number of costs involved in providing organic certification services to the applicant. Staff time is needed to review applications, data must be entered into the program's record-keeping system, certificates must be issued, inspection reports must be reviewed, applicants must be billed, and files must be copied for inspectors. Inspection costs include travel costs and the time involved in scheduling inspections, conducting the inspection and completing the inspection report. Currently the minimum fee for organic certification runs from $165 for organic producers to $75 for organic handlers. The program has found that a minimum certification fee of $200 for all organic producers, processors and handlers is necessary to cover the cost of providing a basic organic certificate.

     The program is proposing to establish a minimum $200 fee for all types of certification. By comparison, the minimum certification fee from other nonsubsidized organic certification agencies runs from $335 for NOFA-New Jersey to $2,705 for Quality Assurance International. The minimum fee for Oregon Tilth certification is $225 plus the cost of the inspection.

Certification type	WSDA current minimum fee	WSDA proposed 2003 minimum fee	Oregon Tilth	California Certified Organic Farmers
Producer	$165	$200	$225 + inspection costs	$110 + 0.5% of sales + inspection costs
Processor	$150	$200	$500 + inspection costs	$415 + inspection costs
Handler	$75	$200	$500 + inspection costs	$265 + inspection costs

     Retail certification fee: Chapter 16-157 WAC does not require retail food stores to obtain organic certification. However, some retailers have requested organic certification to provide verification to their customers that they are properly handling and labeling organic food products. In response to this request, the program is proposing WAC 16-157-245 Retailer fee schedule, which allows for the organic certification of retailers. The retail certification fee schedule is designed to cover the cost of providing organic certification to retailers of organic food products. The fee schedule establishes a minimum fee of $330 and eight fee categories based on organic sales. Retail food stores have multiple departments that handle organic food products including produce, bulk foods, and delis. A minimum fee of $330 is established due to the complex nature of retail food stores.

     Increase in new applicant fees: The proposed amendments increase the new applicant fee from $75 to $100. There are a number of unique costs associated with providing certification to new applicants. New database files, office files and field files must be created. The time involved in conducting inspections and reviewing inspection reports and system plans is more extensive for new applicants than for renewal applicants. The cost of providing certification to new applicants exceeds the current $75 fee, therefore, the new applicant fee must be increased to more accurately reflect the cost of providing the service. Other organic certification agencies charge an average of $130 for new applications.

     Late fees: Renewal applications are due on March 1 of each year. Once applications are received they need to be processed, copied and prepared for inspectors. Inspectors then receive the applications and schedule their inspections in order to be efficient with their time. Late applications cause the inspector's schedules to be altered in order to cover the additional workload. Late applications can also cause less efficient use of travel time as inspectors may need to make special trips to inspect a late applicant. The proposed amendments increase late fees from $50 to $75 for all late applicants to cover the additional costs associated with the late renewal of an application. Late application fees can be avoided by simply filing a timely application.

     Inspection fees: The proposed amendments increase inspection fees to $40/hour to cover the current cost of providing inspections. The current inspection fee schedule provides two inspections within the state of Washington. The proposed amendments provide for an annual inspection and any additional inspections needed to collect samples and for routine surveillance. Additional inspections for determining compliance or when requested by the applicant for foreign market requirements will cost $40/hour. Routine additional inspections would be covered by application and certification fees. Additional inspections due to compliance issues or when necessary for the applicant's marketing purposes would be billed directly to the applicant.

     Export certificate fees: The cost of providing export certificates has risen due to the increased complexity of foreign organic certification requirements. The proposal increases the cost of export certificates from $30 to $40 per certificate to cover these additional costs.

     Producer fee schedule: The proposed amendments establish a minimum $200 certification fee for producers with sales under $15,000. Fees are increased in all other fee categories at varying rates according to recommendations of the organic advisory board. Fees are increased by $5 per fee category for sales between $15,001 and $42,500. Fees are increased by $10 per fee category for sales between $42,501 and $100,000. Above $100,000 in sales, fees are increased by variable rates in order to provide a fee schedule that has regular incremental fees from one fee category to the next.

     The current fee schedule has irregular fees from one fee category to the next. For instance, for sales of $100,001 - $125,000 the current fee is $1,100. The next fee category ($125,001 - $150,000) has fees of $1,150, a $50 higher fee than the previous category. The next fee category ($150,001 - $175,000) has fees of $1,320, a $170 higher fee than the previous fee category. The next fee category ($175,001 - $200,000) has a $1,375 fee, a $55 higher fee.

     The proposed fee schedule removes the irregularities within the current fee schedule. Each fee category has a $150 higher fee for the nine fee categories between $80,001 and $375,000 in sales. The fee categories between $375,001 and $500,000 in sales have a $250 higher fee between each fee category. Fees are $300 higher for the $500,001 - $750,000 fee category. Fees for sales between $750,001 and $7,000,000 are increased by 10%. The current fee is $2,000 plus 0.10% of sales; the new fee will be $2,200 plus 0.11% of sales. A maximum fee of $10,000 is set for sales above $7,000,000. There are no organic producers that are currently in the maximum fee category.

     Additional changes to the producer fee schedule include increasing late fees from $50 to $75 and new applicant fees from $75 to $100. A spreadsheet showing the fee increases in each fee category is attached.

     Processor fee schedule: Establishes a minimum facility fee of $200. Late fees are increased from $50 to $75 for renewal applications postmarked after March 1. New applicant fees are increased from $75 to $100. Organic certification fees are increased in most fee categories. The amendments clarify that producers that process their own organic products pay fees under the producer fee schedule and do not need to pay fees under both the processor and producer fee schedules.

     Processor certification fees are increased in all categories by approximately 10%.

Label category	Old certification fee	New certification fee
100% organic and organic products	0.275% for first one million dollars in sales 0.10% for sales above one million dollars	0.30% for first one million dollars in sales 0.11% for sales above one million dollars
Made with organic food products	0.175% for first one million dollars in sales 0.06% for sales above one million dollars	0.20% for first one million dollars in sales 0.07% for sales above one million dollars
Food products that limit organic claims to the information panel	0.10% for first one million dollars in sales 0.3% for sales above one million dollars (Note: This previous assessment rate was a technical mistake in the old rule. There has never been a certified party that has paid within this fee category.)	0.11% for first one million dollars in sales 0.04% for sales above one million dollars (Note: This corrects the mistake in the previous rule.)
Custom processing	0.35% for first one million dollars in service fees 0.10% for service fees above one million dollars	0.40% for first one million dollars in service fees 0.11% for service fees above one million dollars

     Handler fee schedule: Late fees are increased from $50 to $75 for renewal applications postmarked after March 1. New applicant fees are increased from $75 to $100. Establishes a minimum application fee of $200. The new minimum application fee is identical to the minimum application fee for producers and processors seeking organic certification. Organic certification fees are increased by 10% in all fee categories above the first two fee categories where fees are increased to the minimum $200 fee. A fee schedule showing the fee increases in each fee category is shown below.

     Businesses Affected by the Rule Amendment: Chapter 16-157 WAC affects all individuals and businesses that produce, process or handle organic and transitional food products.

     Reporting and Record-keeping Requirements: The record-keeping requirements are simplified by repealing WAC 16-157-110 Records. Record-keeping requirements under the National Organic Program (NOP) are specified under section 205.103. Prior to the repeal of WAC 16-157-110 Records, producers, processors and handlers have had to comply with record-keeping requirements under the NOP and under the state organic rules. Eliminating duplicative record-keeping requirements should help mitigate the increased compliance costs.

     Compliance Requirements: Most of the National Organic Program was adopted by Washington state in April 2002. The additional sections of the NOP that are being adopted do not impose any additional compliance requirements, rather they reduce the compliance requirements. The adoption of NOP 205.101 exempts a number of producers, processors and handlers from certification requirements.

Business category	Currently required to be certified under WSDA rules?	Required to be certified under NOP rules?
Small producer with under $5,000 in organic sales	Exempt only if all sales are consumer direct (e.g. farmers markets, farm stand, u-pick, Community Supported Agriculture)	No
Small handler with under $5,000 in sales	Yes	No
Retail food store	No	No
Processor with less than 70% organic ingredients	Yes	No
Processor that limits organic claims to information panel	Yes	No
Handler that only handles organic products in packaged form (e.g. grocery and produce distributors, brokers)	Yes	No
Retail food store that processes organic food products	Yes	No

     Professional Services: The reporting, record-keeping and compliance requirements in chapter 16-157 WAC do not require the use of professional services by any business regulated by the chapter. No professional service expenses would be incurred by the small businesses affected by chapter 16-157 WAC.

     Industries Impacted by the Rule Amendment: Chapter 16-157 WAC applies to all Washington state producers, transitional producers, processors and handlers of organic food products within the following SIC codes:

SIC Code	Industry Description
019	General farms, primarily crop
0241	Dairy farms
029	General farms, primarily livestock and animal specialties
201	Meat products
202	Dairy products
203	Canned, frozen, preserved fruits, vegetables & food specialties
205	Bakery products
515	Farm product-raw materials
542	Meat and fish (seafood) markets
545	Dairy product stores

     In 2002, WSDA certified 558 producers, 143 processors and 127 handlers of organic food products.

     Cost of Compliance:

Fee	Cost of Compliance	Rationale
Organic producer late application renewal fee (WAC 16-157-220 (1)(a))	Increased fee from $50 to $75	Increase is necessary to cover the cost of processing late application. Fee can be avoided by filing a timely application for renewal.
Organic producer new applicant fee (WAC 16-157-220 (1)(b))	Increased fee from $75 to $100	Increase is necessary to cover the cost of processing first-time applications.
Organic producer application fee schedule (WAC 16-157-220 (1)(b))	Based upon Year 2001 applications and the proposed producer fee schedule, organic producers would incur an increased compliance cost of $0.08 per $100 of sales	Increase is necessary to comply with RCW 15.86.070(1), which mandates that the "rules shall include a fee schedule that will provide for the recovery of the full cost of the organic food program." The proposed increase will cover the cost of services that the organic program provides organic food producers in Washington state.
Organic processor late application renewal fee (WAC 16-157-230 (1)(a))	Increased fee from $50 to $75	Increase is necessary to cover the cost of processing late application. Fee can be avoided by filing a timely application for renewal.
Organic processor new applicant fee (WAC 16-157-230 (1)(b))	Increased fee from $75 to $100	Increase is necessary to cover the cost of processing first-time applications.
Organic processor certification fees (WAC 16-157-230(2))	The proposed processor certification fees will increase processor compliance cost by $0.09 per $100 of sales	Increase is necessary to comply with RCW 15.86.070(1), which mandates that the "rules shall include a fee schedule that will provide for the recovery of the full cost of the organic food program." The proposed increase will cover the cost of services that the organic program provides organic food processors in Washington state.
Organic handler late application renewal fee (WAC 16-157-240(1))	Increased fee from $50 to $75	Increase is necessary to cover the cost of processing late application. Fee can be avoided by filing a timely application for renewal.
Organic handler new applicant fee (WAC 16-157-240(2))	Increased fee from $75 to $100	Increase is necessary to cover the cost of processing first-time applications.
Organic handler application fee schedule (WAC 16-157-240(3))	Based upon reported Year 2000 organic handler sales and the proposed handler fee schedule, organic handlers would incur an increased compliance cost of $0.02 per $100 of sales	Increase is necessary to comply with RCW 15.86.070(1), which mandates that the "rules shall include a fee schedule that will provide for the recovery of the full cost of the organic food program." The proposed increase will cover the cost of services that the organic program provides organic food handlers in Washington state.
Organic retailer certification fee schedule (WAC 16-157-245(3))	New certification fees for retailers who wish to obtain an organic food certification	Fee applies only to those retailers who wish to obtain an organic food certification. The fee is necessary to cover the cost of processing a retailer's application.
Organic retailer late application renewal fee (WAC 16-157-245(1))	New fee of $75	Fee is necessary to cover the cost of processing late application. Fee can be avoided by filing a timely application for renewal.
Organic retailer new applicant fee (WAC 16-157-245(2))	New fee of $100	Fee is necessary to cover the cost of processing first-time applications.
Inspection fees (WAC 16-157-250)	Increased fee from $30 to $40 per hour	Increase is necessary to cover the increased cost of conducting inspections.
Fee for export and transaction certificates (WAC 16-157-290(3))	Increased fee from $30 to $40 per application	Increase is necessary to cover the increased cost of processing applications.

     Impact on Small Businesses: It is clear that the proposed fee amendments will increase the cost of doing business for those businesses regulated by chapter 16-157 WAC and it is equally clear that many of the businesses in the Washington state organic food industry are "small businesses" as defined by RCW 19.85.020(1). However, RCW 15.86.070 mandates that the department fully recover, from fees charged, the full cost of operating the organic certification program. Therefore, the department has concluded that the proposed new fees and increases in current fees are necessary.

     RCW 19.85.040 requires that the department determine if its proposed fees have a disproportionate impact on small businesses by comparing "the cost of compliance for small businesses with the cost of compliance for the ten percent of businesses that are the largest businesses required to comply with the proposed rule." The department used "cost per one hundred dollars of sales" to determine if the proposed fees had a disproportionate impact. As a result, the department found a slight disproportionate impact between "small" and "large" producers and handlers as illustrated in the following table:

ORGANIC PRODUCERS	Cost per $100 of Sales
Small producers (494 producers with total sales of $17,647,777 and an increased compliance cost of $17,894)	$0.10 per $100 of sales
Large producers (50 producers with total sales of $29,263,751 and an increased compliance cost of $18,299)	$0.06 per $100 of sales

     The disproportionate impact is the result of establishing a minimum producer certification fee of $200. This minimum fee is needed in order to recover the cost of providing organic certification to the very smallest producers. If the smallest producers are dropped from the calculations, the cost per $100 of sales for small producers is $0.05 and for large producers, $0.06.

ORGANIC HANDLERS	Cost per $100 of Sales
Small handlers (109 handlers with total sales of $247,587,244 and an increased compliance cost of $7,313)	$0.03 per $100 of sales
Large handlers (12 handlers with total sales of $46,264,377 and an increased compliance cost of $4,550)	$0.01 per $100 of sales

     Again, the disproportionate impact is the result of establishing a minimum handler certification fee of $200. This minimum fee is needed in order to recover the cost of providing organic certification to the very smallest handlers. If the smallest handlers are dropped from the calculations, the cost per $100 of sales for both small and large handlers is $0.01.

     In addition, many of the producers in the lowest fee category may be exempt from certification due to the adoption of NOP 205.101, which exempts producers with less than $5,000 in organic sales from certification. Handlers with less than $5,000 in organic sales are also exempt under NOP 205.101 and, therefore, may also be exempt from certification requirements.      Presolicitation and Research Efforts: The organic food program has worked with the WSDA appointed organic advisory board in the development of the proposed fee increases. The proposed fee increases were sent to all certified organic producers, processors and handlers for comment in August 2002.