Expeditors International of Washington, Inc. (EXPD) Earnings Call Transcript & Summary

Hello, everybody. I just want to warmly welcome you to this webinar that we have the pleasure of cohosting with the USDA division of Agriculture Marketing Service, and we're going to be specifically talking about their new organic import program and how it specifically is going to impact us in imports. So we thank you for joining us. I don't have a whole lot to say as a -- in this introduction. I guess I should have told you my name, I'm Stephanie Holloway. I'm from Expeditors, and I help support our customs product in the United States. So thank you all for coming. Just a few housekeeping items. On your screen, there's a Q&A box. Go ahead and put your questions in there, and our skilled team of presenters will be responding to those either through written responses throughout the presentation or at the end or as it makes sense during the presentation. So feel free to start putting your questions in there whenever you would like. We will be able to share the slides, so you don't need to frantically take screen shots or anything like that. We'll be able to share those. At the end, you'll -- we'll send you a survey. And once you complete that, you'll be able to download the slide deck. So I think that's all I have. Jonathan, I'll go ahead and toss it over to you. And thank you again for coming with your team.

Great. Thanks for having us. We really appreciate the opportunity to be here and talk a little bit about the National Organic Program and the new regulations in organics that will be coming out in March. So I'd like to introduce our Deputy Administrator for the Agricultural Marketing Services, National Organic Program, Dr. Jenny Tucker. And Dr. Tucker will be leading the overview today, and we'll take questions at the end. So Jenny, I'll turn it over to you to kick us off.

All right. Hello, everybody. My name is Jennifer Tucker. And I have now shared my side. Could somebody on the panelists just chat back that you can see them to -- chat yes, if you can see the slides. Okay. I'm seeing some thumbs up loading up my screen. So that's always a good sign. So thank you very much. And so I thank you all for being here. We have a very, very large audience today, which is great. I appreciate you all being here to learn about this and for inviting us today. I only use one monitor, and so I am not going to go into slide share mode. That's why you can see some of the surrounding to the slide because I want to be able to keep an eye on the question-and-answer box as I'm presenting. So often, I'll see a chat in saying, "Can you go into a slide view mode and -- slide show mode?" And that's actually why I don't. I think I've sized it, so you should be able to mostly see the -- you should mostly be able to see the slides as we're going through. So as the introduction said, we're going to run through some slides to give an overview of this rule, and then we're going to open it up for some Q&A. Let's start at the very beginning because we know we may have folks on this call who might be, in fact, new to the organic market and new to the structure of organic, this may be kind of the first conversation you've heard about this. So we do like to sort of start at the very beginning because understanding the structure of the organic marketplace can help you understand how our rule works. And so this slide here walks through what we call the organic public private-partnership. It's actually a very decentralized but closely managed program. And so it's called a public-private partnership, whereby at the beginning here, we have the National Organic Program, that's who we are, the Agricultural Marketing Services, an agency within USDA, and then within that is the program of the National Organic Program. And so we, here in National Organic Program, accredit third-party certifiers. So these are all different types of organizations, about 75 of them. Those certifiers are credited by us to actually go out and certify organic businesses. So we're not doing direct certification of organic farms and businesses. Instead, we oversee a network of certifiers who do that. The other interesting part of this is that we have a lot of trade arrangements with other countries, other governments. So for example, Canada, EU, Japan, New Zealand. They are all examples of our trade partners, where those governments are overseeing their organic system. So for example, they have their own certifiers, and some of them have the same certifiers as we have, but some of them are different. And so it really is a whole network of accreditation and certification that operates around the world. It is those operations that do business directly with retailers and consumers. And then there's a whole feedback process through our National Organic Standards Board, our advisory board, to give us feedback. So last year, organic sales in the United States were $66 billion that continues to be an increasingly growing industry. Right now, there are about 45,700 operations worldwide. USDA seal is an international program and that businesses can be certified to the USDA Organic Standards outside the United States. And there are about 27,000 businesses in the United States who are certified. So last January, we updated the organic rules. So the USDA organic regulations have been in place for actually more than 20 years. But last year, we did a fundamental refresh of the rules to reflect the kind of growing intricacies of supply chain. So I automatically see a question come up, I'm going to go ahead and answer it because I was walking through the trade partners, I'm going to go back to that, trade partners. So who are our trade partners? A question came up as "Is there an equivalency arrangement with Mexico?" And the answer is no. We do not have an equivalence arrangement with Mexico and are right now, not in active discussions. So if you are in Mexico, you're not operating as part of an equivalence arrangement, you are operating outside of equivalence. We do not have equivalence with Mexico. So in January, we updated our [ rule ]. And so USDA organic regulations got updated to -- with a final rule called Strengthening Organic Enforcement. So that was the name of the rule that amended the broader set of USDA organic regulations. And the goal was to protect organic integrity and bolster confidence in the organic seal. So the key elements of the role is increasing the number of certified entities. There had been some -- a pretty broad list of entities that did not need to be certified under the original organic regulations, so we call them uncertified handlers. So people are handling, often that meant exporting or importing that did not need to be certified, that now do. And so that's a big part of this rule. Import certificates, I know there's a lot of interest in import certificates on the line today. That was another big provision of the rule. We're also strengthening recordkeeping and supply chain traceability across certified operations and strengthening our oversight of those third-party accredit certifiers. So this rule has been out now for more than a year, more than a year. It is fully implemented on March 19 of this year. So what does this rule do? The point of the rule is to deter fraud using risk-based provisions. This is a very risk-aware, risk-sensitive rule and that it targets the high-risk parts of supply chains. So organic supply chain, as it's grown, it has become increasingly complex, and there have been documented cases of organic fraud and oversight gaps. And so the 2018 Farm Bill, which is the tool that Congress uses to update our Act, the Organic Foods Production Act, that's the act that enables our regulations; the 2018 farm bill included a number of provisions that Congress said, "We want to tighten up these organic rules." And so Strengthening Organic Enforcement rule really implements a lot of those Farm Bill provisions. Our advisory board also had a number of recommendations that are implemented by this rule. Again, the rule takes a risk-based approach and that it targets the high-risk activities in parts of the supply chain. So often, that's the middle of the supply chain, all of the handoffs that occur between farm to table. So who does it affect? It affects our accredit certifiers, organic inspectors, commodity brokers, traders, exporters to the United States and importers who are not currently certified organic. That also impacts any organic producers, processors. And ultimately, the point of the rule was protect consumer trust in the organic seal because fraud hurts us all. Now organic control systems around the world are already strong. So I mentioned at the very beginning, the organic regulations have actually been in place since 2001. And so this rule simply builds upon a very, very solid base of organic oversight. That includes the standards themselves, our oversight through accreditation of our third-party certifiers certification, so that's the work certifiers do to overseas farms and businesses. We have an entire enforcement team that has been enforcing the rules, and we'll continue to enforce the rules to protect compliant businesses. The Trade Systems group, so Jon introduced me, he runs the Trade Systems group, where we're using data like -- for example, generated by our new import certificates, to drive and inform oversight and surveillance and then ultimately, those trade arrangements that I mentioned, equivalence, which helps facilitate growth and protection, so facilitate both the growth of the market by eliminating the need for redundant certification but also to protect it. And in fact, we only enter into equivalence arrangements with governments where we know their system can protect the system as well as ours. Here are all the provisions of Strengthening Organic Enforcement. We show this mainly to give kind of a broad-brush look at all the things that this rule does. Again, you'll be getting the slides after the [ fact ], so you'll be able to take a look more closely. Again, the big 3 are at the top, reducing the types of uncertified entities or increasing the types that do need to be certified, requiring the import certificate and then clarifying our authority to oversee a certification activity. So there are a lot of different requirements for certified operations, clarifications on how they do business in the organic market, a lot of requirements for our certifiers related to certificate issuances. Today, we're going to talk about two different kinds of certificates. We're talking about the operation-level certificate, which is really an operations license to sell as organic. And then we'll be talking about the import certificate, which relates to particular imports of products. So again, lots of provisions in this role, all designed to close loopholes or to respond in a risk-aware way of where there has been documented fraud in the system. So I want to hit the high points of this rule, the ones that have the biggest -- both impact on the market and are designed to mitigate risk the most. So I mentioned it already, we want to keep on saying this, that more types of businesses in the organic supply chain must be certified organic under this rule. So that includes a very long list of activities, and we talk in terms of verbs. So it's not a business type, it's not a noun. It's a verb. It's the activity. No matter what type of business you call yourself, if you're doing certain activities, you need to be certified. So it includes businesses that are engaged in buying, selling or negotiating the sale of organic products. So whereas commodity brokers used to not have to be certified, traders used to not have to be certified because in order to follow the money, we need a continuous chain of certification, they now need to be certified. In order to do rapid traceability from market back to farm, we need to be able to trace certification through all of these folks who are buying, selling and negotiating. So it also includes importers into the United States and exporters to the United States. So let's go into that a little bit more. Yes, the new role expands the types of operations that must be certified. There are some limited exemptions. So any operation that produces and handles organic products must be certified, again, unless they're exempt. Handle does include trading, exporting, importing or facilitating the sale or trade of an organic product. So that means that some supply chain intermediaries that didn't formally require certification must become certified. So you've now heard that message. It's only about 14 minutes after, and you've heard me say this now several times. It's a real key part of the rule, is that continuous chain of certification in order to protect the market from fraud. And so exporting to the United States, importing to the United States are not exempt activities. Regardless of packaging, we need a certification handshake across the border. So one of the key drivers for this rule was this observation and was in an office of Inspector General report about our program, National Organic Program, saying essentially that National Organic Program was not able to track organic product across the border. So this rule was designed to solve that problem of having a certification handshake across the border, so we can take it from the market back to the importer, then easily back to the exporter and then back to the farm. I got another question in there, does a warehouse that only stores organic products need to be certified? The rule has a very specific section on storage. So it really does come down to the activity that an entity is doing and whether you're handling or not. So I'm going to give an example here because it's a good timing with that particular question that came in. Does a warehouse that stores only organic products needs to be certified? Maybe, maybe not. So one question is, for example, are you handling bananas? So even if you're just storing bananas, if you are doing any kind of treatment, for example, in the ripening of bananas, you're handling. So even though it's a storage facility, if you are doing any treatment activity, then yes, even though you're a warehouse or just storing, you think you're just storing, you're really not, you're actually doing handling. And this is why it is so important to read the rule to know what activities are covered and why we talk about the rule in terms of verbs, not nouns because if we answer "Oh, a warehouse does or does not need to be certified," it really depends on what that warehouse is doing, what are the verbs, the activities that, that warehouse is doing because a warehouse that's also an importer is different from a warehouse that might not be an importer. So we are being very careful in saying, "Read the rule to determine whether you need to be certified or not." The answer is most entities in the supply chain need to be certified. There are actually very few exceptions. So let's take a look at those limited exemptions for some low-risk businesses. So we're talking about, for example, an operation with annual sales less than $5,000, a retail establishment, so where consumer goes, for example, that does not process the organic products or only processes them at the point of final sale. So think [ of Sam ] would shop within a grocery store, for example, some shipping and handling operations under incredibly limited conditions. So for example, they only handle products sealed in tamper-evident packaging, and they're not importing or exporting and the very specialized rule of licensed customs brokers. And so exempt businesses are only exempt from certification. They do still have handling and record-keeping requirements. So one of the things we're finding is that even businesses that are exempt, are choosing to get certified because, frankly, they're going to have to maintain all these records anyway, so they might as well get certified. So I see another kind of scenario, based on warehouse that's just for finished goods, as apparel or finished goods, only import. That only import, if it is importing, import is not an exempt activity. So it's actually a good scenario there. If you are importing, that's a verb, you need to be certified. Okay. So why get certified? So often when people hear about the rule, they're kind of searching for the, "Oh, I really want to be exempt, how do I get to be exempt?" We are encouraging certification of class of supply chain. And in fact, there are many buyers out there who are saying, "You know what, I am going to distribute my risk across the market." So anyone I am buying from, you've got to be certified. So even if you think you can claim the exemption as a buyer, I'm telling you, contractually, you need to be certified. And so getting certified is a good business. It's effective risk management because being in the system protects you when there are problems. So when you're certified by one of those third-party certifiers, they share some of that risk with you. So if you're doing something wrong, but the certifiers approved it, you have some coverage there, where you might -- if you're all by yourself, you're not certified, then you're dealing directly with USDA. You don't have the coverage or support of that third-party certifier, who can really guide you through everything through their paperwork process of what you need to do. Uncertified operations, again, still need to comply and provide records, and having a certifier helps that process. We find that well-run organizations, you actually already have processes in place for certification. You may just not know it yet. But once people start looking at, "Oh, it's this part of my business that is running organic business." So it might not -- doesn't have to be your entire business. It might be one small part of your business that's dealing with organic products. That's the part of the business that would need to be certified, and they generally already have processes in place with inventory management, supply management, keeping organic products separate from nonorganic products. Those processes are actually in place already. So that added step of getting certification provides that assurance and protection and actually isn't that hard. So once people get into it, "Well, yes, it's one more certification," it's actually not that hard. And the benefit of it does mitigate risk. So we have seen that certification also helps with supplier management, so that you're not buying product from an uncertified entity and opening yourself to risk as, "Oh, gosh, I thought they were certified," but it turns out they're not, and they're handling organic product, then all of a sudden, you're in a noncompliant supply chain. And that could be a problem. So the big picture is protecting the organic market, this is a premium, organic. Your organic products do come with a premium, and protecting that consumer trust takes the whole market. And so while any individual business may want to try and claim an exemption, so they don't have to go through it, in the end, we are stronger together. And protecting the organic market really takes the full market, which is why we are stressing the importance of certification across supply chains. And now let's talk about the import certificates. So this is the next big part of the rule, relates to import certificates. So certifiers and operations must use an electronic NOP Import Certificate for organic products imported into the United States. Now again, I want to emphasize, this is a different certificate than an operation-level certificate. So when an operation, a farm or a business, like an import or an exporter, when they become certified, they get a certificate. It's an operation certificate that shows their license to sell is organic. When we're talking about an import certificate, that's a different level of certificate. These import certificates are associated with product and are different from operation or farmer business certificate. So the point of the import certificate has -- is to provide traceability to the port of entry and ensures an auditable record trail. Again, our purpose in the import certificate is that handshake across the border of being able to trace that -- from the importer back to the exporter, so we have a solid chain of accountability across the supply chain. So it is actually the certifier of the exporter to the United States that generates the import certificate. So it's called an import certificate because it's delivered to importers, but it's actually the responsibility of the exporter to the United States who gets that import certificate from their certifiers. So one of the first things that businesses are doing once they get off of webinar with us is if you're an importer, call in the exporter that you're buying from in finding out, are you certified? Because under the rule, they will need to be certified, and then they will need to get import certificates. And so you'll need to trace back to the last certified entity to get an import certificate. It is the certifier of the exporter to the United States that generates the import certificate, and that is generated out of our, here at the National Organic Program, Organic INTEGRITY Database. Our Organic INTEGRITY Database is a tool that has been live since 2015. So it's a very well-established public tool, it's a public index of certified operations. It is that tool that will be used to generate the import certificate. So that is generated by the certifier of the exporter to the United States, who then provides the import certificate to the importer in the -- the importer to enter into the import system. So it becomes part of the filing package in the CBP, Customs importer protection import system. So the organic import certificate is part of a standard filing package that Customs -- brokers are already very, very familiar with, this will be an added certificate number as part of that package. So we're going to go into that in a little bit more detail here. So again, why are we doing this? We need to provide information that helps certifiers and the National Organic Program to effectively trace imports back to the exporters and beyond. The certifiers again will generate the certificate in our database using requests provided by the exporter to the United States. Now, other governments -- back to our equivalency arrangements, other governments are adding their certifiers and certified business under other -- what we call them schemes, other certification programs in the Organic INTEGRITY Database. Now, those certifiers and certified businesses can't be added to the system unless they have an equivalent arrangement with us. So if you go to the Organic INTEGRITY Database, it's one of the top things when you search in Google, you'll actually see a tab called Trade Partner that is the section of the database that covers all our international trade arrangements. So certificates, the import certificates can be issued to cover a single or multiple shipments or a time period. Issuances are going to depend on the certifiers' oversight system. So for example, let's take the instance of a particular kind of berry. Somebody asked about Mexico earlier. So for example, it might be a berry season that's actually quite short. And there is a known productive capacity from a certain farm, and that gets aggregated with other farm inputs, where the aggregate volume is known. And then that aggregator can report up, "I can trace all of these berries for this season back to all of these certified farms. I can vouch for the fact that the acreage of those farms have the productive capacity that yields X pounds, X tons of berries." That exporter certifier could issue a season pass that takes care of that. But that certifier is really on the line because if it turns out one of those farms is fraudulently reporting conventional product as organic, that certifier could lose their ability to certify, and then all of those operations would have to find a different certifier. So the stakes are high. The stakes are high for those exporters and for the certifiers of those exporters. So they're being very careful to make sure they have the control system, so that we're not introducing conventional product into an organic system and giving a certificate against it. So if you are working, and I think many of you are working in these complex supply chains, it's vital to consult with the supply chain to determine kind of which entities belong in the different sections of the import certificate. Again, our goal is to enable faster, more effective follow-ups to verify integrity. So let's take a look at the kind of the key features of the NOP Import Certificate. Again, it can be valid for a period of time, initially 12 months, so that would cover, for example, berry season, with an extension as determined by the certifiers but the certifiers to be comfortable with that. Only one import certificate per commodity or HTS code, but it is easy to copy. So if you're doing multiple commodities, is easy for the certifier in the system to copy, duplicate a certificate, updated for each separate commodity. The import certificate has 21 digits. There's the country code. There is the exporter 10-digit operation ID, that's a certified entity's code, ID and then the certificate number itself. So we have a whole scheme for how that 21 digits is created. Here's what it looks like. And in fact, this form has been on our website for years. And anyone working under an equivalence arrangement right now is already familiar with these imports certificates, they've already been part of our equivalence arrangement. So there may be some of you on the line that say, "Hey, old news, we've been using the import certificate for years." What's really different is it's now required for all imports, not just under equivalence arrangements. And it's no longer just a PDF form, it is built into the Organic INTEGRITY Database. And that's where the number that you see on the screen is issued, and it's the number that is given to Customs to enter into the system. So that way, we have our number, certificate number, in the Organic INTEGRITY Database that the certifiers vouched for. That number gets entered with a filing paperwork. And then we get Fed data from Customs daily, so that we are going to be able to match up what got put into the Customs system is coming into the United States, we'll be able to match that up with the original amount of certifier time frame that the certifier had approved. And so all of a sudden, we're seeing imports that dramatically exceed the approved amount or they are from an invalid operation, so it's a suspended operation, for example, that continues to ship to the United States, we'll be able to catch that. And that's the point, so that is the point. I see a -- I'm very quickly trying to sort of scan questions. It was a pretty basic question about -- and a person sort of acknowledged they were new to this. It's sort of, what exactly are the commodities that we're talking about? So farmed table, what commodities? And what's unique about organic is it really does cover food and fiber. So for example, cotton, food, fruits and vegetables, grains, feed. So the rule, it's called the Organic Foods Production Act. It is a broad -- it's a pretty broad rule. And so if you can get certified to the USDA organic standards, you are covered by this rule. Okay. Let's take -- so that was the import certificate. So let's take a look at kind of where we are in the timeline. This rule, I mentioned, was grounded in the 2018 Farm Bill. So it was actually about 5 years in the making, we identified the need, the Congress identified the need. We went through a proposed rule phase, and we got a lot of public comment. And in fact, the bit about you can get, I call it, "the season pass," if your certifier will approval it and you get a season pass for -- like for berries that are coming across the border in high volumes and very quickly, we extended the ability to have kind of that season pass based on public comment to the rule. So trade was very, very helpful in shaping the final rule. Once the final rule was published last January, we moved into communication and implementation period. We have been doing webinars just like this with a lot of different commodity groups. And then in March, the rule will be finally implemented, which also is when we shift from this communication phase into an enforcement phase. So let's talk about what kind of -- what does enforcement kind of look like starting in March. I want to review some of our kind of key priorities for day 1. Because of the structure of the organic public-private partnerships, our first priority is going to be reviewing our certifier control systems. So for example, I have been mentioning, this is going to be very important, that any certifier who is approving import certificates has a system for verifying that, that import certificate only covers product that is truly certified organic and can be traced back to the farm that there is a way of making sure that organic product is truly organic. And so one of the very first things we're going to be doing is reviewing the certifier systems to make sure that they have done that. Our another key priority on day 1 will be starting to investigate invalid import certificate numbers. So that 21 digit code that comes out of our database, if codes come back to us from Customs and Border Protection that aren't valid, we'll be investigating those. We'll be sending out letters saying, "You've got an invalid number here. Is this a typo or are you not certified, did you make it up?" And so following up on those invalid import certificate numbers. We will also, at that point, start a warning process for uncertified importers and exporters. I'm going to talk a little bit more about that in a moment. So the natural question that would likely come, if somebody has already typed it in, is, "Oh, wait, what if I'm not certified by that March deadline, what happens?" I'm going to talk about that in a second. So we will start a warning process to uncertified importers and exporters at that time. After that, we will be implementing a risk-based approach to enforcing the regulations with our noncompliant certifiers. We'll expand our import certificate flags, do follow-ups, for example, on a volume basis or time basis, based on the certificate, assess the broader implementation of all the different provisions, again, this was a big rule; work with our partner organic programs to assess their systems, are they still equivalent? So once this rule is put in place, this was a big overhaul of our rules, and we'll need to look at other partner governments, organic programs to see whether actually they still align with ours or if we need to renegotiate those arrangements. We'll also be conducting surveillance at the certifier and operation level, and we'll be taking enforcement action where we needed. So that's what enforcement looks like. Another question I'm just kind of picking up as I can and as I see it, can an exporter be different from a manufacturing producer? And I would say, often, the answer is yes. And so I think I gave a question -- I gave an example of you may have farms that are generating fruits and vegetables, deliver them to a consolidator that puts them all together into their handling so they need to be certified. So the producer provides it to a consolidator, the consolidator who's handling must be certified. But then actually, that consolidated product is provided to an exporter, who also needs to be certified, who then sends it to the United States. So it is actually that supply chain where the risk lies, is all of those hands, there might be a broker somewhere in there that's arranging these deals, they all need to be certified within that supply chain. And often, the exporter will be different from the producer. But if you're new to this, that's a really important question to ask, what are my supply chains? Yes. It looks like there was a follow-up question, is on the import certificate. So on the import certificate, the fields, we're really looking for that handshake between the export and the importers, so the producer may or may not be on that certificate. We're looking for that handshake on the certificate. And this is why we get a lot of questions about, "Well, what do I put in this box on the form?" And our answer back is you know your supply chain best, you and your certifier will need to determine who goes in which box on the form as your certifier. Ultimately, that issues that certificate, but they're going to be asking for information from you as to what goes in that boxes. So those boxes -- and those are not questions we can answer because we don't know what your supply chain is. Okay. So if you're asking, if I -- a business needs to be certified, do I need to be certified? If the answer is yes, and many businesses find actually, the answer is yes, they need to be certified; our advice is start the process now. So if you are buying from an uncertified exporter, in March, they're not going to be able to get an import certificate because they're not certified. They're not in the Organic INTEGRITY Database. So they're not going to be able to give you an export -- import certificate. So folks need to get into the pipeline now. There is a 5-step process for certification. Again, it doesn't need to be the entire business. It can be the part of the business that handles organic products, so that may be a discrete part of the business that is handling organic product within a much larger entity. So I know we have some retailers on the line. So it may be that what we're talking about is that your retail store doesn't need to be certified. But your retail distribution center, if you're handling organic product, does. So for example, if a retail distribution center is moving things like bananas or open water melons or big containers of fruits and vegetables that are broken up and split into different [ lots ] to go to different grocery stores, chances are very high that they actually need to be certified. So you have to adopt organic practices, select a certifier and apply. Application review, the certifier reviews the application to determine compliance with the regulations. There's then an on-site inspection. A full review, certifier conducts a full review for compliance to see if that business is compliant. And then the certification is approved or denied. Now in some cases, this can be completed in a matter of weeks. Sometimes it takes longer, depending on the intricacies of the business and where the certifier is. You won't be denied certification without knowing that you've got some problems. So once you do an application review and an on-site inspection, you'll know where you stand. It's a transparent process. So it isn't like this huge surprise at the end. If you get a denial, you'll have gotten opportunities to correct things along the way. So we do appreciate the fact that people are still hearing about this rule. Then, there may be people on this line who are realizing, "Oh, wow, a lot of my supply chain needs to get certified, and I didn't know that, and I better get started." So what I do want to say is the rule was published more than a year ago. And there are many, many, many businesses that have already started or have even completed certification. That said, we do understand not all operations may have completed the certification process before the March deadline. So you may, for example, be an importer that is importing products you're not quite yet certified. You will still need an import certificate. So your exporter will need to be certified. That is absolutely key. That import certificate is a vital tool for protecting the market. And so you do need to start looking, in fact, at your supply chains to find that last certified exporter so that you have an import certificate number. We do understand not all operations may complete the process before the March deadline. And we are going to consider the progress in operation is made against the goal when considering possible enforcement actions. So I said, for example, on day 1, we're going to start sending out, "Okay, you're an uncertified importer that is bringing product in the United States." We're going to send a letter saying, "You're uncertified. What is your status?" And it's going to be really different if that importer says, "Yes, I know I need to be certified. I applied for certification with a certifier on this date. Here's where I am in the process, I'm not quite done, but here's where I am." That's a really different answer than, "Oh, certification. What do you mean? What does certification mean?" That's a really different answer. And so I do encourage you, if you've not yet started, start the process now because the further you are along in the pipeline, the more of a good-faith effort you've demonstrated to take action against the rule. Again, we've been doing a lot of outreach on this for the last year, and so we do believe there are many, many entities that are already in the process. And so the degree to which people are through the process or started the process will drive how we consider some of those enforcement actions. I do want to emphasize, compliance and enforcement for us includes both education and capability development but also enforcement. So training and outreach to build capabilities, there is a training in our Organic Integrity Learning Center about strengthening organic enforcement. If you go to our website and find the rule page, kind of describes that training. It's a 24/7 online training that anyone can take out in the public. We do surveillance operations at the certifier, sector and country level. We send alerts and warning letters to industry buyers. So for example, if an industry buyer, if we believe they bought product that is not organic, it's not authentic organic, we send warning letter saying, "Hey, be aware that a consumer could pay a premium on a nonorganic product, and that's not okay." So alert -- warning letters. We do compliance investigations and take resulting enforcement actions. We also do directives to certifiers, residue testing, inspections and related types of actions. Certified operations can lose their certification. So for example, you might have a certified organic operation that is supplementing their organic product with nonorganic product, kind of boosting those volumes illegally, they can lose their ability, lose their license to sell as organic at all as a result of doing that. There are also legal penalties covered by trademark protection. So our organic seal is protected by our U.S. Trademark rules. And in fact, Customers and Border Protection has stopped packaged products at the border and held it for investigation because of trademark violations. So these are uncertified operations, so the product was never certified, and that is breaking Trademark Law. It's an illegal use of our mark. And that can lead not only to civil penalties from us, but it can lead to holding fees from Customs and Border protection while that investigation is going underway, which can really add up. And then ultimately, people have gone to jail for organic fraud. These have been publicized in the general press, where people have received prison time for selling product as organic that wasn't. We work with many, many other federal agencies to implement the rules. We have an Inspector General here at USDA that supports us, as well as other USDA agencies. We have a wonderful partnership with Customs and Border Protection. They've been enormously helpful in building the organic import certificate, the message set into the automated commercial environment within Customs and Border Protection. And then the Department of Justice supports us with large-scale and high-impact instances of fraud. So we are a federal family in protecting the seal. So I do want to close by emphasizing why this rule is so important, why this rule is so important? It's important because organic is a choice. It is an optional food label for producers who adopt a wide range of organic standards that emphasize climate-smart agriculture on natural processes, natural materials. It's a choice for handlers, who choose to broker or to process those products, and ultimately, a choice for consumers, who choose to pick that organic product and often pay a premium to do so. And so anyone in the organic market plays a role in protecting the seal. And so we appreciate you having us here today to talk about the rule and what it means. So I know that we have a lot of questions coming, and I've tried to answer some of them as we've been going along. But I'm going to stop sharing and take a glass of water, and then we'll move into the Q&A here. I have a wonderful team with me today to help with that Q&A. So NOP folks, if you could come on screen to kind of help take over some of the Q&A here. I see some applause floating over the screens. Thank you very much. That's very generous of you. Again, NOP team, come on screen, if you're going to be part of the Q&A answer. And -- so for the folks running this, would you prefer us to kind of pick these off the list? Would you prefer to curate? How would you prefer to go here?

Thanks for asking, why don't you go ahead and answer them in the order you want. I would love for you, though, to prioritize the question on textiles because I know that's a very popular one, and we have a bunch of retailers on here who are going to wonder about that.

Okay. And that one, should be able to give the answer to this, but I'm going to pull up because we get this question enough that I do want to make sure that I'm answering it the same way for everybody. So do give me just a moment to pull up that, the answer on textile. I promise it will literally take another 10 seconds or so. I'm not sharing the screen right now, right?

Correct, yes.

Jenny, while you're looking for that, there's a couple of questions that keep coming in about the Organic INTEGRITY Database. Will industry have access to it? Well, first of all, it's a public database now to look up certifiers either in the U.S. or around the world. However, when it comes to import certificates, only the certifiers our USDA-accredited certifiers and our trade partner certifiers will have access to the portion, where they can issue certificates. So you'll have to reach out to your -- the certifier to obtain the copy of the imports certificate. The other thing we -- that Jenny mentioned, I just also want to stress, we're seeing a lot of questions about not being able to obtain certificates. And that's very important as well. We do expect there to be situations where you won't be able to obtain an import certificate because the operation was never certified before and they certainly can't get access to the database. So that's a challenge right now that we're starting to see pop up periodically.

And that's why it's so important to assess your supply chain. If you're an importer, again, many importers once they get off a call from us, one of their very first steps is to start working their supply chain back to find the last certified entity. And unfortunately, we are concerned that there are some entities that, frankly, should have been certified all along and didn't realize it. And we did not have visibility into that. And so strength in organic enforcement is going to give us a whole lot of visibility into operations, who might have needed to be certified and if they've gotten away with it for like 20 years. And now, they really need to make sure that they are covered. Okay. I'm going to give the textiles answer now. Is that okay?

Yes, that would be great. Thank you, Jenny.

Okay. So the way I'm going to address this is we're talking about an end product. So let's take -- the common example I'm going to use is a garment. Let's try a ball cap that is made of -- has, for example, organic cotton, so certified organic product, or like a T-shirt or a polo shirt that's made of an organic product or organic sheets or something like that. And so what's the status of import certificates for imported products that have certified organic ingredients, so for example, like that organic cotton, that are not certified as an end product? So again, uncertified clothing, for example, made with organic cotton. Personal care is also kind of covered under this. So products that are not certified by USDA but do include certified ingredients. And so the food and fiber certified to the USDA organic regulations, are under an organic trade arrangement, are covered by the import certificate requirement. But import certificates are only available for USDA-certified products. So if your a product is not certified organic, you won't have an import certificate. But if you're not claiming the end product as organic, you don't need one. So if you're bringing in, for example, garments, where you're not calling the polo shirt or the ball cap, you're not saying the ball cap is organic, you're not saying the polo shirt is organic, you're not claiming that to be a USDA organic product, you don't actually need an import certificate because you're not claiming it as organic under the USDA standard. So it does mean that there might be certified ingredients within it that actually won't -- they simply won't be -- they won't be accounted for because they are a subcomponent of an uncertified product. The question is really representation of the product being sold. So that product can't be sold as USDA organic unless it's certified. And in order to call it USDA organic and to be labeled as with that seal and called USDA organic, it needs to have an import certificate. So I want to make sure I give an opportunity to anyone on my team that want to jump in because I've been talking a lot and clarify anything I just said or say it in a different way because I -- we've gotten that question from a lot -- and that's a lot of folks. So if an end product is not a labeled as certified organic, USDA organic, it will not have an import certificate.

And a good way to think of that is just a seal, right? If you're not putting that seal on, you can say this is an organic, kids [ put GMS ], that's okay. But if you put the seal on, then you're associating your requirements with that product, correct?

It's not just about the seal. It's also about calling it USDA organic or representing it as a certified product. Now I do want to careful here, so I will go into this in a little bit more detail here, these are -- we call these scope questions. We're talking about food and fiber here. And so there are things that are outside scope that are not considered kind of food or fiber. And so there were some -- a couple of questions about like chemicals. Well, is the chemical considered food? Or is it considered fiber? A chemical that I'm drinking is considered functionally food that's different from like a chemical that I'm using for like cleaning, dry cleaning, for example. It is -- there is -- and we have fact sheets online about this, personal care -- that personal care products, there are personal care products out that are labeled as organic, that don't refer to USDA certification and that don't use the USDA seal. So it's not just about the seal, it's also referring to USDA. If you are dealing with food and fiber though, that is considered in scope. We do have a textiles memo on the NOP website that does go into, for example, our acknowledgment of [ GOPs ] products. And so I think people can take a look at that. But again, you can only get an import certificate for certified organic products. And so if you can't get an import certificate, don't call it a certified -- USDA organic-certified product or USDA [ sales ]. So not just about this [ deal ], but also referring to USDA. Jon, do you want to jump in there or anyone else on my team? Because this is important.

Not on that. I just -- there's some recurring themes on the questions I wanted to address.

Okay. Then I'm going to stop talking about textiles.

Okay. We've had several questions on cost for certification. There is a cost. Again, is there a specific cost? We don't specifically have a one-size-fits-all. Robert can talk through that. There's many certification firms, globally. They're no different than a customs broker has different fees associated with them or tax preparers. They're all at different sliding scale, so you'd have to reach out directly for certification. It also is dependent on the size and scope of the business as well. We have a question about where to find certifiers. And again, that's the Organic INTEGRITY Database, has a list of all of them, from USDA [ accredited ] certifiers to our trade partner certifiers as well. They are all listed within the database, and you can go in and [ follow ] a report to see who is listed in there, too. Some have talked a little bit about import certificates and date ranges. Jenny talked about date ranges. It can be issued for up to a year at first. However, the important part to note is not necessarily all certifiers are going to grant an import certificate for a year, right? This is risk based. So it's going to depend by operation. It's a max of 18 months. So after 18 months, the certificate will expire and a new one will have to be obtained. So I just wanted to clarify a little bit about how certificates will work. And it will replace the certificates that are out there today, the transaction certificates, this will be -- and the import certificate will be the new certificate. Okay. There still will be -- and I know this always comes up a lot, too, as far as questions. Jenny talked a little bit about operation certificates, the operation is approved to sell organic commodities. I just want to make sure that when we talk about operation certificates, we're not confusing them with import certificates. So there are two. Operations certificates will still remain. And those -- for the importers around the call, a lot of times, there's confusion, and they will send you a copy of their operation certificate.

Let's open it up to other NOP staff, who on the call. Do you see a question that you're able to grab and answer? Bridget, you want to off mic -- off mute? Not hearing you. Bridget is in charge of our international agreements question. So I assume she's going to take -- I see we have a couple of questions about Canada in there. In the meantime, while she's trying to get hooked up, I will say, what are some of the approved licensed organic certifiers? I just pasted in the link in the chat to the certifier locator and the Organic INTEGRITY Database control union. This is one of the questions. Are they one of the certifiers? Yes. That's one example. And there are certifiers that are certified under multiple schemes. So for example, a certifier may be authorized both under the U.S. scheme and also under, for example, the Canadian scheme or the EU scheme. So okay. It seems like we may be having technical difficulty. Bridget, you want to try again?

Yes, can you hear me now?

Yes. Please go ahead.

Okay. Perfect. I see one question. Are there -- are the requirements processes for imports from countries with equivalent agreements the same as for countries without such an agreement? And the answer to that is that they are essentially the same. Import certificates are required regardless of whether there's an equivalent arrangement in place or not. And we've been working really closely with those other government partners to help their certifiers understand the process for issuing import certificates. There may be slight differences in procedural bits, but essentially, it's the same. And certifiers in those countries will know how to comply -- should know how to comply. And we'll continue working with them. The other question is, I'm part of the supply chain in Canada, we sell manufacturing -- we sell to manufacturing customers in Canada who export to the U.S., to Canadian intermediaries and supply chain need certification. Traders, including exporters and importers, are able to be certified under the core, the Canadian organic scheme. Therefore, Canadian traders exporting or importing core, which is the Canada organic regime, organic products to the U.S., do need to be certified. And Canada's Canadian Food Inspection Agency, who's the authority for organics, has provided the same information to their certifiers in industry, and so there should be awareness there. But we are also continuing to work closely with them to get the word out.

I'm going to take the question on transactions certificates. Thank you, Bridget, very, very much. So there's a question on transaction certificates. Will the import certificate eventually place the TC or do we still need both documents? The transaction certificate is a tool used by the organic market. It's actually not acquired under the regulations, transactional certificates are not required under regulations. So it is a tool that certifiers do require as part of their operations, they are allowed to ask for whatever information they need to confirm compliance. So I do think in some cases, the import -- certificate will likely replace the import certificate. But in some cases, it won't. So as we're talking about, for example, in other countries, where there are long supply chains, before it actually gets to the certifier exporter, certifiers along that supply chain may, in fact, still require transaction certificates in order to provide traceability across the supply chain. And if they choose to do that as part of their control system to make sure they're getting authenticated product to the point where they're willing to issue an import certificate, that will continue to be allowed. So in some cases, the import certificate may replace transaction certificates. But because the import certificate is just across the border and doesn't cover all those other steps, transition -- transaction certificates may, in fact, still be part of the paperwork requirements.

Thank you, Jenny. I'm going to cut us off here. This was outstanding. And if somebody from AMS wouldn't mind throwing your e-mail, like the generic e-mail box, I know you guys have one for organic, if people have follow-up questions, the best place to send those into the chatbox, that would be great. But really, really, really thank you to your entire team. You guys are very knowledgeable on this product and on this rule and appreciate your support as we complete this transition. As said in the beginning, we will be sending out a survey that will have some basic questions. If you answer that, we'll go ahead and send you the slides as well as the certification for [ NCIS ]. So if you participate in that program, we'll have that code for you, as always, and this will be certified. Thank you for the -- in the chat box, there is the link if you are the e-mail, if you have follow-up questions for the team here. I think that's all. You can get the recording, Nicole will include that when she sends it out as well. So thank you. Thank you, everybody, for joining. Thank you, team, for getting word out on a continued basis and the support. I think the trade really feels the support from your team in trying to make this happen within the time frame. So much appreciated. Have a good afternoon.

Thank you for having us. We enjoyed being here. Thank you, everybody.

Look at these hearts and claps, they're just coming, left and right. Bye, everybody.

Take care.