A Brief History of Fraud Prevention in the Organic Industry
A Brief History of Fraud Prevention in the Organic Industry
By Joe Pedretti, Client Services Director
What price is compliance? How far do we go to prevent fraud? What has our industry and the USDA National Organic Program (NOP) done to protect the market and consumer trust that we all have worked so hard to achieve? A lot as it turns out. Even those of us that have been in the industry since the beginning of the USDA era, starting with the implementation of the National Organic Standards (NOS) in 2002, sometimes forget both our struggles and our successes to close loopholes, to clarify language, to prevent fraudulent activity, and to continually improve our voluntary regulatory system.
The key activities of the NOP, related specifically to continual improvement, fraud prevention and compliance are to:
Develop regulations and guidance on organic standards
Accredit certifying agents to certify organic producers and handlers
Provide training to certifying agents, USDA staff, and other stakeholders
Oversee international organic trade agreements and international organic certification agencies
Investigate alleged violations of the organic standards and bring violators to justice
Develop Regulations and Guidance on Organic Standards
The USDA NOP consults with, and manages the work of the National Organic Standards Board (NOSB). The NOSB provides recommendations on the implementation and amendments of the National Organic Standards. This is a very unique and highly unusual relationship. No other regulatory agency has a similar volunteer board that is responsible for suggesting changes to the rules and regulations, and has direct authority over recommending and reviewing materials established through the National List of Allowed and Prohibited Substances for use in organic production and handling.
The NOSB actively encourages public participation in meetings and through the comment process. NOSB meetings are open to the public and meeting agendas are published in the Federal Register. Meetings are held twice per year in the Spring and Fall. Many of the important NOS regulatory updates regarding fraud prevention, loophole closure, compliance, and language clarity have come from discussions with, and recommendations from, the NOSB influenced by public comment from stakeholders including farmers, processors, industry advocates, consumers and certification agencies.
The NOP is directly responsible for creating, proposing and implementing new rules and regulations that amend the National Organic Standards. The NOP has frequently acted upon suggestions from stakeholders in the organic industry. A proposed rule, or Notice of Proposed Rulemaking (NPRM), is the official document that announces and explains the agency’s plan to address a problem or accomplish a goal. All proposed rules must be published in the Federal Register to notify the public and to give them an opportunity to submit comments.
After considering public comments, the USDA may either amend the proposed rule, or move towards publishing a final rule. If the changes are major, they may publish a supplemental proposed rule and ask for more commentary. Because the USDA is required to consider whether the proposed rule will meet the stated goals, and whether the rule causes an undue economic impact on the regulated industry, they may also decide to withdraw the proposed rule.
All of the most significant rule changes intended to close loopholes and prevent fraud have been the result of our industry requesting, and sometimes demanding, these changes, often as a result of allegations, and proven examples of fraudulent activities. Let’s look at a historical timeline to see these rules changes, and their causes, in context.
Timeline to Increased Regulation & Fraud Prevention
2002 National Organic Standards become law and the USDA NOP is created
2002 42 Organic Certification Agencies are accredited by the USDA to enforce the new regulations
2002 Country Hen denied certification, determining that enclosed “porches” are not “outdoor access”
2002 Country Hen appealed and USDA repealed the certification denial. Allowed to certify despite protest
2005 Cornucopia Institute alleges multiple cases of pasture fraud at the 7000 cow Aurora dairy farm in CO
2005 New Pasture Guidance Language proposed to Clarify Pasture Requirement and to Close Loopholes
2005 NOSB Adopts Pasture Guidance but USDA Staff Rejects Changes and Asks for Further Review
2006 Lawsuit filed against the USDA regarding pasture requirement & enforcement
2006 Legal complaint filed against the 3000-5000 cow Aurora Dairy in Texas for violating pasture rules
2006 The “Harvey Rule” amends dairy herd transition from 80% to 100% organic feed following lawsuit
2007 10,000 cow Vander Eyk Dairy in CA suspended by certifier for “failing to meet regulatory standards”
2007 USDA cites 14 “willful violations” and threatens to revoke CO Aurora Dairy’s certification
2007 Aurora Dairy placed on a one year “probation” for willful violations of the NOS. Reduces herd size
2008 NOP grows to eight staff members
2008 NOP publishes proposed “Pasture Rule”
2010 The “Pasture Rule” final rule become law and sets 30% DMI for 120 days minimum
2010 Randy Constant of MO begins fraudulently selling conventional organic grain as organic
2017 Proposed Organic Livestock and Poultry Practices rule published. Establishes new criteria for space requirements, outdoor access, and humane treatment
2017 The USDA withdraws the Organic Livestock and Poultry Practices rule citing “undue burden”
2018 2018 Farm Bill expanded resources and authority for organic import oversight with $5 million in funding
2019 Randy Constant sentenced to 10 years and 2 months in Federal Prison for organic grain fraud scheme
2019 NOP grows to 37 employees
2021 Broker Kent Duane Anderson convicted of fraud. Made $25 million profit from fake organic grain sales
2022 USDA Publishes Origin of Livestock Final Rule. Eliminates continuing dairy animal transition
2022 Organic Livestock and Poultry Standards Proposed Rule published
2023 James Wolf of MN pleads guilty to $19 million organic grain fraud scheme
2023 NOP grows to 82 employees to meet increased compliance requirements
2023 Strengthening Organic Enforcement (SOE) Final Rule published. Reduces fraud, strengthens oversight, requires more operations to get certified, and increases traceability of imported product
2023 Organic Livestock and Poultry Standards Final Rule published. Establishes new criteria for space requirements, outdoor access, and humane treatment of animals
2024 SOE goes into effect
2025 OLPS goes into effect Jan 2
2029 OLPS exemptions go into full effect (outdoor access, soil and exits)
The Pasture Controversy: Vander Eyk and Aurora Dairies
In 2007, the 10,000 cow Vander Eyk Dairy in CA was suspended by their certifier for “failing to meet regulatory standards.” Complaints filed with the USDA alleged that Vander Eyk and two other large organic dairies confined their cows and did not allow “access to pasture.”
Also in 2007 the USDA cited 14 “willful violations” of organic standards and threatened to revoke Aurora Dairy (of Colorado) organic certification. Milking over 4000 cows, the USDA said that Aurora did not provide sufficient access to pasture and that cows fed conventional grain were introduced too quickly into the organic herd. Aurora settled without admitting any wrongdoing. Aurora was placed on a one year certification probation, and agreed to reduce the size of its herd from 4,200 to 1,000 cows. A complaint was also filed against the Aurora Dairy in Texas for violating the pasture rules.
The National Organic Standards in the years between 2002 and 2008 didn’t specify how much time a cow should spend grazing in a pasture, what percentage of feed should come from that pasture, or what specific conditions allowed for withholding ruminants from pasture.
Constant pressure from watchdogs like the Cornucopia Institute, farmer-member associations, consumer advocacy groups, certification agencies, the NOSB, and the organic dairy industry itself, resulted in repercussions for bad players, and ultimately, a new Pasture Rule that closed loopholes, established clear metrics for Dry Matter Intake from pasture (30%), established the length of the pasture season (min 120 days), and clarified reasons for withholding ruminants from pasture.
The Pasture Rule was the first example of a rule change, specifically to combat the willful abuse, and potentially fraudulent activity, of the National Organic Standards at the request of the organic industry. The new Pasture Rule, by necessity of verification, did have an impact on the review and inspection components of certification. All certification agencies were now required to verify DMI, days on pasture, and to review individual records for all ruminant animals to ensure access to pasture was not denied for reasons outside the exceptions allowed in the new rule. This level of verification and compliance meant new documents, more complexity in record-keeping, and longer review and on-farm inspections, but the result - an even playing field with clear metrics for exposing non-compliant pasture practices was worth the time and effort. The integrity of our organic label was strengthened through better, more stringent standards.
Organic Poultry Outdoor Access Controversy
One of the very first instances of controversy surrounding the new National Organic Standards was about what qualifies as “outdoor access” for poultry. In 2002, Country Hen, a large conventional egg operation, was denied certification. The certifier determined that the egg operation’s porches, with roofs and no access to the ground, did not constitute “outdoor access” for birds.
Country Hen appealed the decision and won. The judge ruled that poultry porches could be allowed because the organic rules did not adequately specify outdoor space requirements or conditions for organic poultry. The certifier was forced to grant organic certification, establishing a legal precedent that led to many large poultry operations, with no true outdoor access, to enter the organic market.
Clarifying the “outdoor access” rule, and also establishing specific rules for indoor and outdoor space requirements, and for humane treatment of animals, was the reason behind the original Organic Livestock and Poultry Practices proposed rule, published in 2017.
This rule, despite having gone through the appropriate rule making process, and overwhelming support from the industry, was withdrawn in 2018 by the USDA, citing that the OLPP rule exceeded their statutory authority; specifically that “the Organic Foods Production Act of 1990 (OFPA) does not authorize the animal welfare provisions of the OLPP.” This setback took four years of work and a new administration to rectify, resulting in the very similar Organic Livestock and Poultry Standards final rule, published in 2023. Finally, porches were abolished, outdoor access defined, and standards for space requirements and humane treatment established.
Organic Grain Fraud
From 2010 to 2017, certified organic farmer Randy Constant, admitted to selling $142 million of “organic” grain, 90% of it falsely labeled as certified organic. Constant sold over 11,500,000 bushels of mis-represented grain. Randy Constant was ultimately convicted in 2019 and sentenced to 10 years and 2 months in Federal Prison for this organic grain fraud scheme. He committed suicide just weeks before reporting to Federal prison.
In 2021, grain broker Kent Duane Anderson was convicted of fraud. Kent made $25 million profit from fake organic grain sales. In 2023, organic farmer James Wolf of MN pleaded guilty to a $19 million organic grain fraud scheme. The lucrative organic premium, high demand, and limited regulatory oversight of complex grain markets resulted in “too good to pass up” opportunities for fraud. The negative press from these high profile fraud cases damaged organic’s reputation and cast a negative light on the USDA’s ability to combat fraud.
In addition to domestic fraud, suspicions of import fraud increased as the demand for organic grain resulted in imports from countries with much less transparent supply chains. A big problem with the potential to wreck credibility and plunge domestic organic grain prices. Change was needed.
With pressure from the press and the organic community, the NOP responded with various efforts to improve their ability to prevent fraud. In 2018, with new funding from the Farm Bill, they began working more closely with Customs and Border Protection to identify issues and notify the NOP of concerns. The NOP also shared improved analytical tools that identify risky behavior and asked certifiers to implement more consistent complaint documentation and follow-through. They also began working on new regulations to prevent fraud.
Strengthening Organic Enforcement (SOE)
The USDA published a proposed rule, Strengthening Organic Enforcement, on August 4, 2020 to deal with the need to more effectively protect and enforce organic integrity. The proposed rule was created due to organic supply chains becoming increasingly complex, reduced transparency in the market, especially through imports, and documented cases of organic fraud. The final rule was published in March of 2023, with a full implementation and compliance date of March 19, 2024.
The SOE Rule amends the National Organic Standards to strengthen oversight and enforcement of the production, handling, and sale of organic agricultural products. This rule affects nearly all currently certified operations.
“Protecting and growing the organic sector and the trusted USDA organic seal is a key part of the USDA Food Systems Transformation initiative,” said Under Secretary for Marketing and Regulatory Programs Jenny Lester Moffitt. “The Strengthening Organic Enforcement rule is the biggest update to the organic regulations since the original Act in 1990, providing a significant increase in oversight and enforcement authority to reinforce the trust of consumers, farmers, and those transitioning to organic production. This success is another demonstration that USDA fully stands behind the organic brand.”
One of the most important changes in the new Strengthening Organic Enforcement (SOE) rule is the requirement that many previously exempt handlers must now be certified organic. These include importers and exporters, certain brokers, and traders of organic products, known collectively now as “non-processing handlers.” SOE also requires all certified operations to improve recordkeeping to show traceability, requires labeling of nonretail containers used to ship or store agricultural products, and strengthens the National Organic Program's oversight of certification agencies.
The Effects of Increased Fraud Prevention and Compliance Efforts
The Pasture Rule, the Organic Livestock and Poultry Standards, SOE, and the other changes to the standards to improve enforcement and compliance, are big wins for certified organic operations and for the organic consumers who support our industry. Critical press coverage of fraud, both real and alleged, damaged the reputation of our industry and called into question the integrity of all certified organic products. When a need for action and change was demanded, the USDA, certification agencies, and the entire organic industry came together to make that happen. It wasn’t always quick, and it wasn’t always easy, but change happened. Of course, increased oversight, increased compliance expectations, more complex audits, more investigations, and more thorough inspections and reviews all add to the complexity and time of the certification process. This increased complexity also demanded new skill sets and more uniform expectations of experience and training for inspectors and reviewers. Increased complexity, more time, and more skilled staff inevitably leads to a more costly certification process.
At MOSA, we updated our forms and processes to conform with the new SOE expectations starting in 2023, so all of our operations would be in compliance by March 19, 2024. We noticed, and many certified operators noticed, that on average, inspections took 30% longer due to new verification and audit expectations. Final reviews, where inspection reports, audit findings, and documentation are reviewed for compliance, also took longer than in previous years. This has led to higher inspection and certification fees.
We have also seen a vastly increased number of investigations into potential fraud. MOSA went from an average of three open investigations in the past few years, to twenty following SOE implementation. The USDA is acting on its stated purpose of “a significant increase in oversight and enforcement authority.” This is good for our organic label, and this is good for strengthening consumer trust in our products, but ultimately the cost of this enforcement will fall upon the organic certification agencies and the organic producers and handlers. It’s a price that we need to be willing to pay, lest we repeat our past and let the fraudsters win.
Thank you for all you do to promote organic integrity.