ORGANIC’S INTERNATIONAL TRADE IMPACT

PANELISTS Bob Anderson, Principal, Sustainable Strategies

Cheri Courtney, Director, Accreditation and International Activities, USDA National Organic Program Ted Jaenicke, PhD, Associate Professor, Penn State University

Monique Marez, Associate Director, International Trade, OTA

10:30 – 11:45 a.m. | Room 317 | Baltimore Convention Center

ON DECK

• Meet the Panel • Background on HS Code & Available Data • What is Equivalency? • What does the data show? • What is happening in the field? • What’s next?

INTERNATIONAL ORGANIC TRADE

• Exports – Strong Growth! – $553.1M for 2014 – 11% of total exports for same products

• Imports – $1.28B for 2014. – 13% of total imports for same products

USDA Certified Organic Products Exports to the World

2005 - 2014

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Mill

ions

2005-2014 Compound Annual Growth Rate = 25.4%

HTS CODES 101

• Harmonized Tariff Schedule • How do you get an HS Code? • Trade flows, both volume and $ amount • 10 digit breakouts = statistical annotations • Data for USDA, USTR, Census, CBP

HTS CODE BENEFITS

• Understand international market behavior • Develop policy priorities • Compare with conventional competitors • Official data for negotiations

USDA GATTS SYSTEM

http://apps.fas.usda.gov/GATS/default.aspx

38 EXPORT & 40 IMPORT CODES

Top ten organic exports: 1. Apples 2. Lettuce 3. Grapes 4. Spinach 5. Strawberries 6. Carrots 7. Cauliflower 8. Coffee (roasted) 9. Tomato Sauce 10. Pears

Top ten organic imports: 1. Coffee, 2. Soybeans 3. Olive Oil 4. Bananas 5. Wine 6. Honey 7. Almonds 8. Mangoes 9. Avocados 10. Yellow Dent Corn

WHAT IS EQUIVALENCY?

Cheri Courtney Director

Accreditation & International Activities USDA National Organic Program

STATE OF ORGANIC TRADE

• Organic trade expanding • Many governments have established organic

standards and control systems • Import requirements may be barriers for

farmers/suppliers to access export organic markets

BARRIERS TO TRADE

• Different organic standards

• Cost of certification to multiple standards

• Record keeping costs to maintain certification to multiple standards

WHAT IS AN EQUIVALENCY ARRANGEMENT?

• A trade arrangement between countries that recognize the other’s organic certification designation to be “equivalent.”

• Allows products produced, processed, and certified to either country’s organic standards to be sold as organic in both countries.

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BENEFITS TO ORGANIC EQUIVALENCY

• Reduce barriers

• Reduce costs of duplicative certification, inspections

• Facilitates the growth of the global organic

industry

• Increase markets access

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EQUIVALENCY PROCESS

Equivalency is determined by assessing and

comparing two regulatory systems, the standards, certification, accreditation, compliance and

enforcement procedures, legal authority etc., to determine whether the principles and outcomes

achieved are equivalent.

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STEPS TO REACH AN EQUIVALENCY DECISION

• Side by side evaluation

• Meetings

• On-site assessment of control system

• NOP continually monitors & ensures compliance 15

ORGANIC EQUIVALENCY ARRANGEMENTS

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US-Canada Organic Equivalency Arrangement June 2009

US-EU Organic Equivalency Arrangement June 2012

US-Japan Organic Equivalency Arrangement January 2014

US-South Korea Organic Equivalency Arrangement June 2014

US-Switzerland Organic Equivalency Arrangement July 2015

EFFECTIVENESS OF EQUIVALENCY

TED JAENICKE, PhD Associate Professor

Penn State University

BACKGROUND FOR ANALYSIS Organic Equivalency Policies • Reciprocal arrangements:

– Canada (2009) – European Union (June 2012) – Japan (January 2014) – South Korea (July 2014)* – Switzerland (July 2015)*

• Non-reciprocal recognition of U.S. organic exports

– Taiwan (2009)

Organic Trade Data • 2011: HS codes for organic

products first issued – 23 organic export products with

HS codes – 20 organic import products

• August 2015: – 34 organic export products with

HS codes – 40 import products

• Organic products with codes represent only a fraction of all organic trade.

• Note: because of the late effective dates, neither the South Korea or

Switzerland policies are model in this analysis.

• Key for analysis: Organic HS codes pre-date the E.U., Japan, and Korea equivalency arrangements, but not Canada or Taiwan.

The Gravity Model of International Trade

Background • Background info – when it’s been used • Used only once for the U.S. HS-coded trade data A Model to Be Estimated (Best) Fit

log 𝑋𝑋𝑖𝑖 = 𝑎𝑎 + 𝑏𝑏1 log 𝐺𝐺𝐷𝐷𝐷𝐷 𝑝𝑝𝑝𝑝𝑝𝑝 𝑐𝑐𝑎𝑎𝑝𝑝𝑖𝑖 + 𝑏𝑏2 log 𝑘𝑘𝑘𝑘𝑖𝑖 + 𝑐𝑐 𝐷𝐷𝑃𝑃𝑃𝑃𝑃𝑃𝑐𝑐𝑃𝑃𝑖𝑖 + 𝑑𝑑1𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑖𝑖 + 𝑑𝑑2𝐸𝐸𝐸𝐸𝐸𝐸𝑃𝑃𝑃𝑃𝐸𝐸𝐸𝑖𝑖 + 𝑑𝑑3𝑆𝑆𝑃𝑃𝑆𝑆𝑆𝑆𝐸𝑝𝑝𝑝𝑝𝐸𝐸𝑆𝑆𝑝𝑝𝑘𝑘𝑖𝑖 + 𝑑𝑑4𝑁𝑁𝐸𝐸𝑖𝑖 +𝜀𝜀𝑖𝑖 • 𝑋𝑋𝑖𝑖 is the U.S.’s exports to or imports from country i. • The key estimate of interest is c, which gives an indication of the policy impact.

Empirical obstacles • A choice: 2011 codes only, or more complete set of codes • A “zero” problem: Some countries with zero organic exports or imports in a

particular year

Results: Exports Using 2011 HS Codes

Model Version

Negative Binomial zeros included

Policy variable All Policies together Individual Policies Equiv Policy – Any 57.50% -

E.U. Equiv Policy - -0.3%#

Canada Equiv Policy - 454.60% Japan Equiv Policy - 219.70% Taiwan Export Policy - 211.10%

Predicted Change in Annual Organic Exports Due to Organic Equivalency Policies (2011 HS Codes)

Results: Imports Using 2013 HS Codes

Model Version

Negative Binomial - Zeros Included

Policy variable All Policies together Individual Policies

Equiv Policy – Any +109.7% E.U. Equiv Policy +91.3%

Canada Equiv Policy +370.6% Japan Equiv Policy +267.5%

Predicted Change in Annual Organic Imports Due to Organic Equivalency Policies (2013 codes, 2013 – 2014 data)

Results: Imports Using 2013 HS Codes

Model Version

Negative Binomial - Zeros Included

Policy variable All Policies together Individual Policies Equiv Policy – Any -45.3% E.U. Equiv Policy -60.2%

Canada Equiv Policy +64.9%#

Japan Equiv Policy +196.4%

Predicted Change in Annual Organic Imports Due to Organic Equivalency Policies (2011 codes, 2011 – 2014 data)

EQUIVAELNCY IN PRACTICE

BOB ANDERSON Principal

Sustainable Strategies

CONSIDERATIONS BEYOND #S

• Scientific Research • CODEX as norm • Relationships / confidence • Enhanced Political Will • Constant Communication with Industry • Transparency & Open Availability of public

information • Technical Analysis, Mitigation & resolution at

implementation and ongoing

CANADA & EU SUCCESS HEIGHTENED GLOBAL DEMAND

• Japan • Korea • Taiwan • Switzerland • Mexico • Latin America • New Zealand

EQUIVALENCY SUCCESS STORIES

• Canada Trade UP 14% • EU Trade Up 44% • Japan Trade Up 17% (after steady declines) • Korea Trade Up 50% (markets were closed) • U.S. Global Organic Trade Up 20 % • Estimated at $3.2 Billion Dollars