December 17, 2010
On Monday, December 13, USDA’s Economic Research Service (ERS) published a new report, “The Role of Contracts in the Organic Supply Chain: 2004 and 2007,” examining the extent and rationale behind contracting in the organic sector.
The report, which is based on data collected from nationwide surveys of certified organic processors, manufacturers, and distributors, found that contracting between organic handlers (i.e., processors, distributors, manufacturers, repackers) and suppliers (i.e., producers or other handlers) is widespread in the organic sector. With the current high consumer demand for quality organic products, it comes as no surprise that the contracts are generally used to secure high quality products in short supply.
The contracts encompassed in the surveys varied widely in the methods used to ensure delivery of high quality products and to determine the price paid to suppliers. Some contracts offered premiums for high quality items, while others imposed penalties for delivering low quality goods. Contract-specified pricing methods varied from flat prices – for products such as onions/garlic, poultry, and grains – to market-determined prices for products including apples/pears, coffee, and seeds.
Contractors rarely offered assistance for obtaining organic certification or for transitioning to organic, though proof of certification was required in the majority of contracts.
For more information, download a .pdf version of the report here.