Going Global: Exporting Organic Products

By David Gagnon


Throughout the world, the United States is seen as a purveyor of high-quality organic goods and today many U.S. organic companies are capitalizing on this fact via exporting. In fact, according to data recently released from the Organic Trade Association’s (OTA) 2008 Manufacturers’ Survey, over half of all the organic companies surveyed are already exporting internationally, and another 22 percent plan to export in the future (Figure 1).

For many organic companies, exporting efforts are already leading to significant sales. In the survey, about one quarter of exporters report that international markets represent more than 25 percent of their total sales. Conversely, over half reported that exports only represent 10 percent or less of sales. This is most likely due to the fact that the majority (59 percent) of the current exporters have just begun to do business in the global arena in the last five years. These numbers are likely to grow as the organic industry grows globally and countries are able to establish better harmonization and trade programs.

Although there is a world of opportunity out there, before you sink time, money and effort into exporting, it’s crucial to understand the international marketplace and corresponding trade issues. Also, before committing to export products, companies should fully explore and fulfill domestic opportunities, as exporting is never a simple or inexpensive venture. Then, look for the largest markets with similarities to your domestic market, said to Bob Anderson of Sustainable Strategies, a consulting firm specializing in international organic food and agriculture. “Be sure to examine export opportunities with your eyes wide open,” he added.

Possible Markets
For U.S. manufacturers, Canada is cited as one of the particularly important markets. In the 2008 Manufacturers’ Survey, among the companies that plan to begin exporting, Canada is mentioned as the first target most often (24 percent). Another 28 percent mention it as being among their top three priorities. Canada recently published new organic regulations, and even more exciting to the U.S organic industry is the fact that the United States and Canada are currently working on establishing an equivalency agreement that will have a very positive impact on trade between the two countries.

Another important market is Mexico, which is currently in the process of developing regulations. The European Union (EU) is an attractive market, but presents challenges because sales and trade negotiations largely take place at the country level, which means companies must meet the requirements of individual nations.

South Korea and Japan are also good markets, but trade relations between the United States and those nations are more complex due to differing regulations. One bright spot is Taiwan, which has completed a draft of its regulations and recently reached an export arrangement in which it recognized the U.S. National Organic Program (NOP) as equivalent to its organic regulations (see accompanying box showing various types of international trade agreements). Trade negotiations are also in progress around Korean import regulations.

Companies can also explore export opportunities in open access markets, such as Dubai, Southeast Asia, Australia and Hong Kong.

Navigating a World of Regulations
Although all these markets offer opportunity, different organic regulations and importing laws among countries can act as trade barriers. Resolving trade issues is a time-consuming and complex process.

“The challenge of selling U.S. organic goods abroad is two-fold: products have to meet basic standards in the foreign nation, as well as its provisions specific to organic,” said Tiffany Landry, the Organic Trade Association’s (OTA’s) export program coordinator. “Generally speaking, emerging markets have open access, while more mature markets have organic standards, which pose issues about equivalency and recognition.”

Landry pointed to the example of Japan, which used to be an open access market, but after developing organic regulations it now prohibits certain substances from being used in organic products. “In general, it’s useful to establish trade relationships before standards are set,” she added.

Certification agencies, which tend to be aware of what is happening on the regulatory front, can assist companies seeking certification in a given country. While this can be a complex process, it doesn’t have to be. In some cases, Landry said, “it only requires checking a few extra boxes on an application form.”

Working to Understand the Differences. U.S. officials are working diligently to establish trade agreements to ensure continued free trade and market access. Last year, the U.S. Department of Agriculture’s (USDA’s) Foreign Agricultural Service (FAS) approved $750,000 in Technical Assistance for Specialty Crops (TASC) funding over three years to OTA, in partnership with Sustainable Strategies, for projects that analyze technical trade barriers for U.S. organic products.

With the funding, Sustainable Strategies will conduct comparative gap analyses and overviews of international markets for U.S. organic products. Comparative gap analyses are side-by-side comparisons of the U.S. national organic standards and those of designated countries. Each analysis identifies the barriers to exporting U.S. organic products to specific international specialty markets.

Exporting Resources
There are several other resources currently available to companies wishing to export. One is the U.S. Organic Export Directory, which was developed by OTA through funding from USDA’s Market Access Program (MAP). The Export Directory, which receives tens of thousands of visitors per month, lists over 300 companies that export and offers listings in eight languages. The directory, which is a free service for both OTA members and non-members, can be found online at www.usorganicproducts.com.

The Export Directory is part of the Organic Export Program, which seeks to promote U.S. organic products to the world market. Examples of activities within this program include:

• U.S. organic pavilions at international trade shows

• Opportunities for international buyers to meet with organic suppilers in the United States

• Export educational programs

• U.S. organic market education pieces for foreign buyers, including a booklet and video on buying U.S. organic products, and

• The Organic Export Directory

Companies can also visit USDA’s website to view GAIN reports produced by different agricultural attachés which offer updates on marketing issues in countries around the world (www.fas.usda.gov/ info/factsheets/reports.asp). OTA also offers an International Trade Forum.

Considerations for Companies Looking To Export
Besides researching the regulations, Anderson suggests that a company that is thinking about exporting should ask itself questions such as:

• How will my product be priced abroad? What will my margins be?

• Is my product stable enough to travel around the world?

• How will it get there? How will I get it through customs?

• Who will sell it? How will it be distributed?

• Who will manage clients once the product is over there?

• How will our company get paid?

Figure Out if Exporting Your Product Makes Sense. Price can be a challenge to selling U.S. organic products abroad. Due to import duties and taxes, the retail price in foreign markets is often two to four times higher than it is in the United States. The devaluation of foreign currencies against the U.S. dollar exacerbates this situation. There are also costs associated with getting a license to sell in a foreign country. And don’t forget to factor in shipping. “Exporting can be costly,” noted Anderson. “These costs are often greater than people anticipate.”

A company also should weigh whether it is willing to satisfy the demands of the importing country. Is it willing to invest in putting foreign-language labels on its product? For example, the “made with” category does not exist in some countries, so labels on products may have to be modified.

Also, in considering if exporting makes sense, companies must also look at the shelf life of their products. As a rule, Hal Shenson, president of Nature’s SunGrown Foods, Inc., suggests, “If perishable goods have a shelf life of less than 45 days, they are not exportable. If dry goods have a shelf life of less than nine months, they are not exportable.”

Exporting Expertise. A company must also decide whether to export on its own or work with an exporting company knowledgeable about foreign requirements for organic products. Although this adds to your exporting bottom line, such expertise can save your company a lot of time and many headaches.

Besides brokers, certification agencies can guide you toward sales opportunities and help you understand the differences in standards. “The biggest challenge is meeting the diverse array of international standards and maintaining multiple certifications,” according to Faye Litzinger, handler certification and export specialist for California Certified Organic Farmers (CCOF).

Some certifiers, such as CCOF, offer programs that allow a given product to be reviewed against all standards. “The thought is that it’s better to be certified to too many standards than to fall short of meeting a given standard and be shut out of that market,” said Litzinger.

Anderson pointed out that it is important to work with a certifier accredited in the country to which your company wishes to export. The NOP website (www.ams.usda.gov/nop) includes a list of certifiers able to certify products to other nations’ standards.

Companies can also reach out to U.S. agricultural trade officials. “These individuals are very knowledgeable. They are good at developing trade relationships and are excellent problem solvers. If you are stuck at the border and are having difficulty getting through customs, you can call them and they will help,” Anderson said.

Lastly, most major ingredient suppliers are aware of international regulations and can help you make sure products are certified accordingly. Co-packing and storing facilities are less predictable, however, so companies should make sure these facilities maintain certification to the standards of the country to which they want to export.

Managing Your International Sales. While you can get help from many outside resources, it is also important to identify a “go-to” person within your company, said Shenson.

“This person will organize and implement the export plan and respond to inquiries about the company’s exported products,” he noted. “This person must be prepared to travel overseas at least once a year to visit foreign buyers. Really, foreign buyers don’t want to meet you and see you only once. They want to establish a personal relationship with the company from which they are buying. Thus, multiple interactions are key to establishing and building trust.”

Getting Paid. Companies must determine terms of payment to ensure that they are fairly compensated. In regard to this issue, Anderson suggested signing an irrevocable letter of credit guaranteeing that payment will be received upon shipment or receipt of goods.

“It is too easy to not get paid once goods are in the hands of foreign salespeople. You then have little recourse without some form of written agreement outlining a payment plan,” he said.

Reaching Out to Foreign Buyers
Companies considering exporting are encouraged to develop relationships and collect references for foreign buyers. They can conduct market research to see what opportunities are out there, and look at export programs available at the state level.

Companies can generate interest from foreign buyers by displaying and sampling products at trade shows that specialize in organic and natural products.

During the fall of 2009, OTA will also be organizing a press mission and tour in which media representatives from the EU and Japan will be invited. The purpose will be to highlight U.S. goods now available to those markets in light of regulatory changes in those regions.

Individual companies can also participate in MAP’s branded program for brand promotion. For this, companies can be reimbursed up to 50 percent for export-related costs, such as attendance at trade shows, as long as they meet specified criteria.

There are also opportunities to take part in USDA-sponsored “tabletop shows” where companies can send samples and product brochures that are specific to foreign buyers.

The Future of Organic Exporting
Today, there remains more international demand for organic goods than the supply, which means many foreign buyers are looking to the United States to help meet demand.

The data on regulatory differences currently being researched will make great strides in helping us understand how to better reach out to these markets. However, even more important to facilitate international trade are ongoing efforts toward harmonization and mutual recognition of each others’ standards and mechanisms.

“We are moving toward harmonization, but this takes place slowly on a regulatory timetable,” Litzinger said. “As more harmonization takes place, it may become easier and less costly to export due to decreased certification costs. This, in turn, may make it more feasible for businesses to consider exporting organic goods.

Until then, be sure to do your homework on the international regulations and markets. When you do, you will most likely find that there is a world of exporting opportunities waiting for you.

David Gagnon, chief operating officer and managing director for the OTA (www.ota.com), serves as the OTA leader on U.S. organic export projects. He can be reached at dgagnon@ota.com.