The Organic Foods Production Act, the Process/Product Distinction, and a Case for More End Product Regulation in the Organic Foods Market

Congress passed the Organic Foods Production Act (the “OFPA”), and over a decade later, rules implementing the Act were finally promulgated in 2002. In the time between the Act’s passage and its implementation, the number of consumers purchasing organic food in the United States, and globally, increased dramatically. Since 1990, the market has grown approximately 20 percent per year. The consumer interest in organic food is particularly striking given the OFPA does not guarantee that food sold as “organic” will be free from toxins or pesticide residues. Indeed, the legislative history of the Act makes clear that Congress did not intend to guarantee that food labeled “organic” would be free from toxins or pesticide residues. Rather, the OFPA focuses intently on process rather than end product regulation. In this regard, the OFPA has a different focus than much of American business regulation, where the focus appears to be mainly on end product regulation. This paper asserts that regulation of organic food products should be more product-based for a number of reasons. The most important reason is that organic farming and marketing is unique. Not only does the process by which the food is produced matter to these particular consumers, but consumers also care deeply about the quality of the end product. Organic food buyers recognize that the process by which food is produced has moral and ethical implications. This process impacts farm workers, the environment, and ultimately the quality of the food itself. Given that concerns about farming methods and their relation to environmental health are on the rise, this paper will discuss consumer preferences for process and/or product information. Additionally, in analyzing this product/process distinction, this paper will discuss the “market for lemons” theory first espoused by Professor and economist, George A. Akerlof, in “‘The Market For ‘Lemons:’ Quality Uncertainty and the Market Mechanism.” In “Lemons,” Professor Akerlof analyzed a market where buyer and seller relied on asymmetric information. This market ultimately resulted in low quality goods, or “a lemons market.” This paper explores the application of the “Market for Lemons” theory to the organic foods market, and considers that while the organic market is one where asymmetric information exists between buyer and seller, the market for organic foods continues to flourish. Part I of this paper discusses the current regulation of organic food under the OFPA and the implementation of regulations, including recent changes to regulations effective January 2013. Part II discusses consumer perceptions about, and preferences for, organic food, analyzing whether those perceptions align with reality. Part II also explores factors that influence consumers’ reasons for buying in the organic food market. In light of these perceptions and preferences, Part III discusses the shortcomings of the OFPA. Finally, Part IV of this paper urges that the market for organic food ought to be more heavily regulated from a product perspective in spite of the fact that the market for organic food is not a “Lemons” market. This paper ultimately asserts that, despite asymmetric information about ultimate product quality, the reasons for purchasing organic food will remain sound, and the market for organic food will remain fundamentally strong. However, for a multitude of other reasons, including the religious and ethical concerns of consumers relative to health and environment, I propose a regulatory paradigm that would include stricter “organic specific” regulation, as well as thorough end product testing to support the continued expansion of this profitable market