Procurement and Contracting by Organic Handlers: Documentation

Procurement and Contracting by Organic Handlers Procurement Data Contract Data List of Data Tables About This Product Documentation Download Data

Survey
Definitions
Scope of the Database
Data Items

Survey

The data are drawn from survey responses to a number of questions in the 2004 Nationwide Survey of Organic Manufacturers, Processors, and Distributors. The survey was developed by ERS in consultation with Washington State University (WSU), Social and Economic Sciences Research Center under a competitive grant from USDA's Risk Management Agency (survey OMB control number 0563-0078). Almost 60 survey questions fit into 8 broad categories, covering issues such as labeling practices, relationships with customers, relationships with suppliers, use of contracts for procurement, and basic firm characteristics.

WSU administered the survey, using the method described in Mail and Internet Surveys: The Tailored Design Method (TDM) by Don A. Dillman (John Wiley Company, 2000). In accordance with the TDM procedure, all firms holding certificates to handle organic products were prenotified by postcard of the survey. This was followed by a letter from ERS and USDA's Risk Management Agency, and a support letter from the Organic Trade Association and the Organic Farming Research Foundation. The survey was sent by first-class mail, with a $5 incentive, and was followed by multiple carefully timed contacts.

The survey was sent to the population of U.S. organic handlers (2,790). ERS in conjunction with University of Georgia researchers compiled a list of organic handlers by contacting 56 domestic accredited certifying agents to gather their lists of certified organic handlers. The actual number of organic handling facilities likely exceeds 2,790, mainly because certifying agents use different methods to record subcontracted or subsidiary organic facilities. Because most handlers hold their organic certificates at the facility level, each facility, whether it belonged to a larger company or was independent, was included in the population of organic handlers.

In time, 1,393 organic handlers returned a completed 16-page survey. Phone contacts were made with nonresponding firms to obtain information on firms' basic characteristics. However, that information is not included in these data.

Definitions

Certified organic means that agricultural products have been grown and processed according to USDA's National Organic Standards and certified by USDA-accredited State and private certification organizations. See USDA's National Organic Program (NOP) for more information.

Contracts include both formal and informal purchase arrangements that cover multiple transactions or ongoing relationships. Arrangements are made prior to delivery of the product or service, even if a price is not set in advance.

Organic handlers are firms in the middle portion of the supply chain, which includes packers and shippers, manufacturers and processors, brokers and distributors, as well as farmers that handle their own products. See NOP Standards for specific standards for organic handlers.

Procurement refers to the purchase of raw materials, agricultural commodities, and other products by handlers, who may be involved in packing and shipping, manufacturing and processing, and brokering, wholesaling, or distributing.

Scope of the Database

Disclosure rules. Individual responses of those answering the survey are not in the database. Summary information about individual responses is reported only when individual responses can not be identified. Generally, aggregate responses are reported for categories that have responses for three or more handlers.

Handler functions. Summary data are reported for (1) all organic handlers, (2) those organic handlers that reported manufacturing and/or processing as a function, and (3) those handlers that reported other functions related to distributing organic products (such as wholesaling, brokering, and packing/shipping).

Commodity and geographic coverage. The procurement data have information from 1,038 facilities on 9 commodity groups and 45 commodities at the national, regional, and/or State levels. The contracts data have information from 686 facilities that use contracts on 9 commodity groups and 39 commodities at the national level.

Because most procurement by organic handlers is of commodities, the data were categorized by commodity and commodity group. Only a small number of manufactured products were reported by handlers. Thus, manufactured products (such as orange juice) are included with their main ingredient (fruit).

Data Items

Procurement Database

The procurement database contains information at the national, regional, and State levels for commodity groups and individual commodities, subject to disclosure requirements. The regions are the crop reporting regions used by USDA's National Agricultural Statistics Service (NASS).

Information provided for each commodity/product group by location includes:

• Number of handlers (presented as a range, such as 3-10 or over 40).
• The percent of handlers that (1) are manufacturers/processors and/or (2) conduct other functions (usually brokering, wholesaling, packing/shipping or distributing).

Information on the following topics is provided for (1) all organic handlers (including firms that did not report their functional categories), (2) facilities that reported functioning as manufacturers and/or processors, and (3) facilities reporting other functions (usually brokering, wholesaling, packing/shipping or distributing). Firms often reported more than one function. Thus, responses from a single firm may be reported in both the "manuf/proc" and "other functions" columns.

• Identified themselves as small, medium, or large facilities.
• Converted or expanded to organic from conventional.
• Buy organic products locally, regionally, nationally, and/or internationally.
• Use formal or informal contracts and spot markets.
• Use different types of suppliers, such as growers, marketing or growers' cooperatives, manufacturers/wholesalers, and/or agents/brokers.
• Offer different forms of assistance to suppliers, such as providing technical advice on organic production.
• Require different attributes, such as organic certificates or testing to verify product claims, from suppliers.
• Consider specific supplier attributes important, such as a supplier being local or length of time certified organic.

These handler characteristics are reported as percentages. The numerator is the number of facilities responding to that individual item (medium size or handles only organic products, for example) and the denominator is the number of facilities in the functional category (all handlers, manuf/proc, or other functions) that responded to the characteristic (size of firm and operational characteristics, for example).

For many characteristics, the percentages will not sum to 100 percent. In some cases, the summary information reported in this data product, which is by functional category, is different than the survey responses. For instance, for geography, facilities reported the share of handling they carried out in each geographical category, summing their answers to 100 percent. For sales arrangements, facilities reported the share of contracts under each arrangement, summing their answers to 100 percent. In other instances, respondents could reply to multiple items, such as the type of suppliers, assistance offered to suppliers, supplier requirements, and ranking of supplier attributes.

For location of purchasing, it is important to note that the point of procurement (local, regional, national, or international) may not be the same as the location of farm production. In some cases, purchases represent procurement from another intermediary. For example, some processors may purchase ingredients from national traders that have purchased products internationally. Thus, the processor would report national procurement, and the trader would report international procurement.

Contracts Database

The contracts database provides information by commodity group and commodity. The following information is reported for all handlers, manufacturers and processors, and all other functions.

• Number of handlers (presented as a range, such as 3-10 or over 40).
• The percent of handlers that (1) are manufacturers/processors and/or (2) conduct other functions (usually brokering, wholesaling, packing/shipping or distributing).
• Percent of contracts that are written or verbal.
• Compensation method, such as markup over conventional prices or flat price.
• Whether there are quantity discounts or quality premiums.
• How quality is measured; for example, observing samples, testing samples, or third party certification.
• When suppliers are paid; for example, at harvest or at time of delivery.
• Average length of contract; for example, seasonal or yearly.
• Terms of standard contract, such as automatic renewal or minimum quality standards.

These handler characteristics are reported as percentages. The numerator is the number of facilities responding to that individual item (written contract or flat price, for example) and the denominator is the number of facilities in the functional category (all handlers, manuf/proc, or other functions) that responded to the characteristic (type of contract or compensation terms used most often, for example).

For some characteristics—such as the pricing mechanisms, method of quality measurement, and standard contract clauses—the percentages will not sum to 100 percent because respondents could reply to multiple items.