Dialogue:

More Curves Ahead:
Navigating Organic’s Long and Winding Road

An interview with Phil Margolis, CEO, Neshaminy Valley Natural Foods Distributor, Ltd.

As a 28-year industry leader, advocate and businessman, you might say Phil Margolis is well-versed in organic orienteering. As the organic industry has grown from a grassroots movement into a bona fide market with a regulatory mandate, there have been many twists and turns along its evolutionary path—and Phil is recognized as one of the industry’s most hard working navigational “aides.”

Phil has played an integral part on many fronts and through many forks in the road in the organic industry’s efforts to map a direction for its success and growth. As CEO of Ivyland, PA-based Neshaminy Valley Natural Foods Distributor, Ltd., the well-known mid-sized distribution company that he founded in 1977, Phil has provided a true compass point for many organic businesses looking for a first-rate operation on which to model themselves. Serving customers from Massachusetts to Virginia, Neshaminy Valley today provides a full line of 4,500 diverse organic and natural foods, with more than 300 bulk and freshly packaged organic commodities, including organic beans, dried fruit, seeds, nuts and produce, frozen and refrigerated foods, baby foods, baked goods, beverages and personal care products.

In addition to growing an exemplary industry business, Phil is a long-time ardent and vocal campaigner for the development and implementation of the U.S. Department of Agriculture’s (USDA) National Organic Program (NOP) regulation, and continues to serve on myriad industry development boards and committees aimed at assisting the industry in getting a good bearing on its objectives. An active member of the Organic Trade Association (OTA) and chair of the Quality Assurance Committee, Phil has been a member of OTA’s board of directors since 1999 and is currently serving his third consecutive term as OTA president (2003-2006).

Phil spent time with Organic Processing Magazine to share his views on some of the issues that may change the industry’s direction of travel, including the status of the National List and the approaching sunset provision deadline, the update on the USDA NOP’s response to NOSB feedback on the April 2004 scope guidance documents, and commentary on the Harvey v. Veneman decision—with a few suggestions on how organic companies can successfully negotiate the curves ahead.

Organic Processing: The National List of Allowed and Prohibited Substances included in the standards for organic production and handling is a significant component of the NOP regulation, and yet there remain questions in industry about what materials and processing aids are included and why. Tell us about the history of the National List and the allowed substances currently listed.

Margolis: The National List is a listing of materials that are either prohibited naturals or allowed synthetics that, when combined with other natural or certified organic agricultural ingredients, make up the bulk of what can be used in crop, livestock and manufacturing of organic products. The National List evolved through rigorous, painstaking and laborious efforts over approximately 20 years, which includes the work of the industry and the OTA prior to passage of the Organic Foods Production Act of 1990 (OFPA). This allowed for the contemporaneous birthing of the National Organic Standards Board (NOSB), which is a 15-member panel appointed to assist the Secretary of Agriculture in developing standards for substances to be used in organic production. The NOSB is comprised of four farmers/growers, two handlers/processors, one retailer, one scientist, three consumer/public interest advocates, three environmentalists and one certifying agent who, during their five-year terms, serve on area-specific committees. These committees cover the areas of policy development, livestock, materials, handling (processing), crops, and compliance, accreditation and certification.

Organic processors and others need to know that all items in the National List, either added or deleted, require the approval of the NOSB and that this group’s recommendations are forwarded to the U.S. Secretary of Agriculture. If a recommendation is adopted by the Secretary, it is published in the Federal Register and becomes part of the regulation.

Additionally, it is helpful to know that the original intent that led to the passage of OFPA was not to require any processing aid or sanitizer used in organic production to be included on the National List. The fact is that a lot of the substances on the allowed synthetics section of the list are ingredients that are commonly used by anyone in their home kitchen, including ascorbic acid, baking power and citric acid. The National List would probably be best served by recrafting it to reflect these principles. In my opinion, this listing of allowed synthetics and prohibited naturals is necessary for the manufacturing of the vast majority of products that make the organic label claim.[1]

OP: What should organic processors know about the National List petition process?

Margolis: As mentioned, in order for a material to be placed on the National List it must be approved by the NOSB and Secretary of Agriculture. The process for placing a material on the National List starts with the filing of a petition requesting that the material be considered for inclusion. The petition is very detailed and must address the evaluation criteria that the NOSB uses to assess the merits of the request for the material’s inclusion on the National List. To get a sense of the breadth of this petition, examine the template found at www.ams.usda.gov/ nop/petition/petitionhome.html.

Once the petition is complete, the NOSB reviews the submission and decides whether to authorize a Technical Advisory Panel (TAP) review, which is conducted by a private contractor. Once the TAP review is completed and determined sufficient by the NOSB, the Materials Committee deliberates and decides whether the material should be recommended for inclusion on the National List. This process, sans speed bumps, currently takes a minimum review cycle of 145 days but usually takes much longer to complete, often more than a year. The process not only can be lengthy but can be costly for the petitioner in assembling the necessary documentation to support the petition. Currently, there are several materials in various stages of the National List petition process.[2]

OP: In your opinion, how will the Harvey v. Veneman decision affect the organic industry in its efforts to comply with and apply the elements of the National List?

Margolis: In my opinion, if the results of the Harvey decision prevail, the consequences will be severe for the organic industry. That’s why OTA is working to return to a pre-Harvey status quo.[3,4] The results of the Harvey decision could significantly alter the industry and negatively impact the further growth and development of the organic processing industry.

I say this for a variety of reasons. Up to this point, consumers have been voting with their dollars in supporting the creation and evolution of more and more products that are labeled organic. The initial and obvious effects of the Harvey decision would be that any allowed synthetic used to manufacture products containing 95%+ organic ingredients would be disallowed in those products. The effect of that would be that all of those products would be relegated to making a 70% organic, or “made with,” organic ingredients label claim, which dramatically reduces the incentive to achieve a 95%+ organic label claim. The difference between 95% and 70% is 25%, so logically the initial impact would be that manufacturers who can only make a 70% claim will only need to use 70% ingredients in their products—which means a corresponding reduction in demand for organic acreage, a reduction in demand for all organic minor ingredients that manufacturers are currently sourcing in order to get to the 95%+ claim, as well as a reduction in the demand for other ingredients, since a requirement of the 95%+ claim is that organic ingredients must be used when commercially available.

Another enormous impact is that all of those 95%+ claim products that would be relegated to the 70% category would be unable to use the USDA organic seal on their packaging. I believe that this result will create significant consumer confusion as the USDA seal will appear on a product one day and be gone the next.

Additionally, in the 70% category, products may be formulated using many industrial additives and other ingredients that are disallowed in the 95%+ claim category. There are certain realities of food processing, one of which is that certain products cannot be made without the use of certain industrial additives, ingredients or processing aids that are currently herded in the synthetic category. In fact, one of the beauties of the National List is that it requires a five-year review of materials as part of the final regulation’s sunset provision, which allows for the bar to be raised as it is able to be raised. However, as of today, the impact of the Harvey suit would be to eliminate many products, and in some cases entire categories, from making a 95%+ claim, including fruit juices, cookies, crackers, processed and fresh fruits, cheese, carbonated beverages, various dairy products, tofu, some organic flavorings, and jams and jellies, just to name a few. As I mentioned, there would be no incentive for moving up to the 95%+ claim level, so I see the effects of the Harvey decision at this point, if it stands, as being very serious.

OP: Has there been an impact on substances/processing aids allowed for use in organic product manufacturing as a result of the April 2004 guidance (scope) documents issued by NOP to certifying agents, which addressed the use of fishmeal, inerts and antibiotics, the lack of standards for pet foods and aquatic animals, and the scope of OFPA authority?

Margolis: This current clarification issued by NOP seems to indicate that, aside from personal care products and fertilizers that will be deemed to be outside the scope of the NOP as it relates to making principal display panel claims, all of the other products mentioned will ultimately undergo additional rulemaking as necessary to bring them completely under the rigors of the NOP.

In October 2004, the NOSB provided feedback to the NOP on four of these issues, including recommendations regarding the use of fishmeal as a feed supplement; the use of approved pesticide treatments that may contain unknown inert ingredients; the use of antibiotics and other synthetic medical treatments for livestock; and the scope of authority for NOP organic standards regarding the eligibility of specified products.[5] NOP responded to the NOSB feedback in April 2005 with further clarification on these four issues.[6] For example, in addressing the use of fishmeal, NOP stated that it “1) concurs that fishmeal is nonsynthetic and that fishmeal preserved with natural substances may be allowed as a feed additive or feed supplement; 2) NOP further concurs that use of fishmeal must comply with FFDCA requirements; and 3) NOP concurs that any synthetic preservatives added to fishmeal must first be added to the National List through rulemaking; however, the issue of added synthetics is currently the subject of federal court litigation and final action on this issue must await the outcome. The litigation, of course, is Harvey v. Veneman.

However, because there has been back-and-forth discussion on this scope issue for several years now, it is conceivable that it will be further crafted as the rule evolves in the coming years. To a certain degree, we have to stay tuned for further developments, including the potential for legal redress by parties who are dissatisfied with the current iteration of these guidance documents and scope statements. I think it is important for people to understand that a complex regulation like NOP takes many years for the final rule to be clarified and for the various speed bumps to be ironed out.

OP: As you mentioned earlier, the NOP “sunset provision” requires that all materials on the National List must be reviewed every five years, with the first review to be completed by October 2007. As the five-year mark creeps closer, is the organic industry prepared for possible resulting changes in allowed substances on the National List? How can processors ensure that the ingredients or materials they need will remain on the National List?

Margolis: I will start with the last question because the current landscape appears to be such that processors should be proactive in doing what they can to ensure that ingredients they need remain on the National List. In order to initiate that proactive approach processors should begin to draft letters to be sent to both NOP and NOSB stating which material on the National List they need to remain there in the way it is currently listed and provide reasons similar to those required in an initial petition. That’s not to say that one needs to redo all work done that was done before, but a processor might be well served to state in the letter that they have looked for alternatives to this material but none are available and reiterate the reasons that support the use of material in their organic processing operation.

Hopefully, by the time this interview is published, the formal sunset process will have been published in the Federal Register so that we can begin the process. If the sunset provision process is not complete as required by the statute, materials not reauthorized for inclusion on the National List will essentially revert to their pre-list status.

The current thinking on the sunset provision process is that it may take up to a year before being published in the Federal Register, which may or may not require an additional comment period. Without getting into too many speculative details, I believe that the clock is certainly ticking and we do need to do what we can to move this process forward as soon as possible. Of course, this timetable and the scenario I’ve indicated doesn’t take into account the impact of the Harvey decision on any sunset provision process as it relates to any synthetics allowed in 95%+ claim category. However, since the current iteration is that Harvey doesn’t apply to “made with” products, these materials will still need to be reviewed in the sunset process for the 70% category.

Ultimately, I think it is important to realize that the organic industry has always tried to manufacture products using the least amount of “synthetics” possible but that the realities of manufacturing frequently do require that various harmless items of this kind, like baking powder, be used in the production of a wide range of products. And, of course, if we are successful in recrafting the National List to eliminate various sanitizers and processing aids, some of the bulk of this process would be eliminated in the future and might make organic processing more in line with what consumers and others perceive as a “synthetic” ingredient.

OP: What’s the next big trend in the evolution of the organic industry and its distribution supply chain?

Margolis: The distribution supply chain will be ultimately defined by the areas in which the industry grows. Because so many consumers want organic products, there will be more demand for these items by different end users, which will probably include more foodservice providers, club stores, big box food stores, pharmacies, theaters, vending machines, fast food outlets—virtually every outlet where consumers can buy food products. Historically, this has driven the food distribution supply chain, so that if my predictions are accurate, this would mean that virtually all distributors and manufacturers would have some organic offering of products in their stable.

Of course, this will require that new distributors of these kind of products maintain their organic integrity. In anticipation of this trend, OTA is in the final stages of completing guidelines for distributors on the proper handling of organic products in order to better assure that organic integrity is maintained while these products are under the control of the distributors.

References
1. USDA NOP. www.ams.usda.gov/nop/NationalList/ListHome.html.

2. USDA NOP. www.ams.usda.gov/nop/NationalList/PetitionedSubstancesDatabase.htm.

3. Givens, Holly. “How Harvey v. Veneman Could Change the Organic Industry.” Organic Processing Magazine, April-June 2005, p. 10.

4. Organic Trade Association. www.ota.com.

5. USDA NOP. www.ams.usda.gov/nosb/meetingbooks/Oct2004/tableofcontents.htm.

6. USDA NOP. Press releases, April 22, 2005. www.ams.usda.gov/nop/TodaysNews.html.