Reducing Transaction Costs by Regulating Canada's Organic Industry

The regulation of Canada’s organic industry has been discussed for over a decade. Under the current voluntary system, organic producers and handlers are not required to obtain organic certification. Certifiers, in turn, are not required to obtain accreditation to Canada’s voluntary national organic standard. Participation in Canada’s national standard is low because certifiers feel that accreditation to the standard is too costly and does not provide access for their clients to foreign markets. At the same time, the federal government is having difficulty establishing equivalency agreements to enhance market access for Canadian organic products because participation in the national standard is low. This Catch-22 situation has meant that there is no minimum Canadian organic standard in place. The resultant proliferation of multiple regional certification standards results in high transaction costs for buyers and sellers of organic products (in both domestic and foreign markets), who must verify organic authenticity by evaluating regional standards on a case-by-case basis. Using a transaction cost framework, this paper examines the implications of regulating the Canadian organic industry through the creation of a mandatory minimum organic standard.