Starting Up: Getting Certified Organic

From smSmallBiz

In 2007, 7.3% of Americans purchased organic-labeled products, up from 6.5% in 2006 and 2.7% in 2001, according to Mediamark Research & Intelligence, a consumer research firm in New York. Much of this growth is tied to an increased awareness of the health benefits of eating organic products. Wider availability of organic items in "regular" grocery stores is also helping to boost sales.

"There's no question that there is a cadre of individuals that care about electing healthier food options," says William Baker, a marketing professor at San Diego State University. "People are simply more concerned about their health," he says.

While an increasingly health-conscious public will likely continue to be a bright spot for health food purveyors, the high cost of organic products may be a hindrance. For example, organic produce, crops and animal products that don't contain pesticides, artificial fertilizers, antibiotics and growth hormones can cost double the price of nonorganic raw materials. Tack on a slowing economy and reluctance among some consumers to purchase more expensive goods, and owners of organic businesses may face lower returns.

That said, "if you can get organic products that are more price-competitive and more flavor-competitive, there's no question [businesses] will benefit," says Baker. Here are the basics for riding the organic bandwagon:

Learning More

Your first stop for going organic should be the Department of Agriculture's web site . There, business owners can learn more about the entire certification process, which is overseen by the National Organic Program.

At this point, figure out which type of certification is right for your business. Goods that use the "100 percent organic" label, for example, can only contain organically produced ingredients, while "organic" products may contain up to 5% of nonorganic materials. Processed foods pulling at least 70% of its materials from organic sources can use the "made with organic ingredients" label.

Really small manufactures or producers that sell less than $5,000 of organic products a year are exempt from the certification process. While such businesses can't use the "USDA Organic" seal, they can label their products as "Organic" as long as they follow the certification standards. Additionally, retail operations including grocery stores and restaurants don't have to be certified.

Getting Certified

For Stephen Moore, the founder of Helen's Foods , a frozen foods manufacturer in Irvine, Calif., the decision to go organic was clear long before he started producing products for the U.S. market in 2007. His reasoning: It's easier and cheaper to start up a facility using the USDA's organic standards rather than doing so down the road. Plus, he says, the demand is there.

In addition to consumers, Moore says, "store buyers from retail chains are looking for the organic label." He adds that having the organic label is often requisite for getting placed in certain stores. "Unless you're Kashi, it's very difficult to get on store shelves," says Moore.

For businesses like Helen's Foods, the certification process starts with an organic products manufacturing plan. It must lay out, among other things, what type of production methods you'll be using and what types of substances will be involved. For instance, only certain cleaning chemicals, which leave as little residue as possible on processing surfaces, may be used.

Additionally, if your facility manufactures nonorganic products, in the plan you'll need to include how you'll avoid commingling those products with those that are organic. Moore says that the process was, for him, a matter of shelving. "You always have to store organic ingredients above nonorganic stuff to avoid cross contamination," he says.

The plan should also incorporate procedures for keeping track of organic ingredients. Certification auditors, who are dispatched to organic processing facilities annually, will be checking to see that the organic raw materials you've purchased match up with the materials you've used. For example, says Moore, "they want to know how many soy beans we've gotten in and how many we've used in production." Then, he says, they add them up. Any sizable mismatches can result in the removal of those products from store shelves as well as hefty fines.

Choosing a Certifying Agency

Before the USDA came out with its national certification standards in 1990, many disparate certifications and certifying agencies were in use. Today, however, many of those certifying agencies are accredited by the NOP and are able to confer the various organic certifications.

There are a number of factors to consider when contemplating a certifying agency. For example, you may need international certification. If that's the case, you'll want to make sure the certifying agency you select has that capability.

Each USDA certification must be renewed annually. While every certification agency has its own cost structure, there usually is a certification fee, a charge for inspection and possibly a user fee, which is a percentage of a business's annual organic gross sales. These fees typically clock in at around $400 to $1,000 per year.

For more about certifiers in your region, check out HowtoGoOrganic.com's U.S. Regional Guide .

Getting Help

Next, figure out if you qualify for assistance. In certain states, including New York, Pennsylvania, Connecticut and Delaware, the USDA makes around $1 million in federal funds available to help defray the cost of becoming organic certified. For example, in Maryland producers and handlers certified by USDA are eligible to receive reimbursement for 75% of certification fees, up to a maximum of $500.

To see if your state offers to help subsidize the certification process, search for your state at HowtoGoOrganic.com , or go right to your state's Department of Agriculture.

The Natural Resources Conservation Service's Environmental Quality Incentive Program, has also been used to cover part of the costs of transitioning to organic production. For EQIP options by state click here .

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("Starting Up," a weekly column written by Diana Ransom for smSmallBiz.com, followsentrepreneurs through the early stages of launching a business. Write to her at dransom@smartmoney.com .)