The following is a guest post from Erin Westbrook and Matthew Veenstra, who are both food, beverage and agribusiness attorneys at Saul Ewing Arnstein & Lehr.
Consumer demand for organic products has grown by double digits in almost every year since the 1990s. Organic-certified businesses have met that demand with almost 45,000 certified organic operations throughout the country and the world. Even during the recent strain on domestic food supply and challenges in the supply chain, organic products remained in high demand.
But with the increase in business comes a corresponding increase in attempts to circumvent the process and claim organic certification fraudulently. State and federal agencies were not designed to address the fraud that has followed in the wake of this enormous growth. As a result, the industry has taken measures to police itself while government agencies realign resources and systems to catch up.
Congress enacted the Organic Food Production Act (the OFPA) in 1990 at the behest of growers in an otherwise nascent industry. Before 1990, several states had established standards applicable only to their own production, and private certification programs that determined standards based on regional production practices were established. A handful of states defined “organic food” and “organic production” techniques but did not require certification. Substantial differences as to the permissible materials for use in production, the length of time required for a transition to organic acreage, and the allowable production practices existed without any harmony across state lines.
The result of the patchwork regulation was a lack of clarity about what organic meant from state to state. The industry pushed for a set of consistent national standards that would allow growers to market their products as organic throughout the country. The resulting OFPA legislation established three categories of labels: 100% organic, organic (containing at least 95% organic ingredients) and made with organic (containing 70% to 95% organic ingredients and must be used in conjunction with the purportedly organic ingredient).
At the time of the passage of the OFPA, the organic industry was just a fraction of its current size, totaling approximately $1 billion in sales in the United States. In 2019, annual retail sales of products certified as organic under the National Organic Program instituted by the OFPA have surpassed $50 billion and the industry only continues to grow. As the industry has grown, producers have increased in scale, and large companies focusing on the sale of processed organic products have emerged.
The organic supply chain today is massively more complex than it was in 1990. This complexity makes it more difficult to monitor quality control and best practices among suppliers. And because organic production is more costly and organic products command a premium over traditional products, the growth in the industry has increased the opportunity for unscrupulous actors to take advantage of the new supply chain complexity to pass off conventional grain and other commodities as organics.
Pursuant to the OFPA, the federal government set up a public-private partnership whereby the National Organic Program (NOP), a USDA program, relies on a network of accredited agents to certify operations as organic. Currently, the USDA has certified almost 45,000 organic operations throughout the country and the world. The agents conduct at least annual inspections — announced and unannounced — and confirm that samples do not contain prohibited pesticides or other substances.
The NOP oversees the certifying agents and attempts to supplement their efforts in enforcement. The partnership operates largely at the behest of organic farmers and businesses who — unlike businesses in many other industries — desire industry-wide uniformity. This requires a partnership with the federal government to not only establish standards, but also provide a regulatory framework to develop rules, ensure that regulations are maintained to obtain organic certification and provide the public with the assurances it demands for integrity in organic products.
Fraud in the organic industry has grown substantially in the United States. Fraud presents itself in two different ways. First, fraud can be an intentional misrepresentation of the product itself, for example, passing off non-GMO products as organic. It can also be selling product that would otherwise qualify as organic, but the grower, transloader, shipper, processor, seller or last mile distributor failed to take proper safeguards to maintain the integrity of the product. For example, roughly 40% of all organic food sold in America tests positive for prohibited pesticides, which, on its face, would disqualify the product from being labeled organic.
The consequences of fraudulent organic labeling can be severe, including criminal liability in the most extreme cases. But even in less serious instances, and perhaps even when the particular operation is not at fault, consequences may be significant even if one is only tied to a fraudulent operation. The USDA has the authority to investigate and impose significant penalties. These investigations can become public. For example, in August 2019, the USDA received a complaint alleging organic fraud against a South American supplier of one of the largest organic chicken farmers in the U.S. When the complaint came to light, the U.S. operation was left scrambling to highlight its auditing and inspection programs, presumably hoping to avoid the loss of consumer confidence.
In light of the reputational damages incumbent with using products that were believed to be organic — but in fact were not — it is important to confirm not only certification but also proper standard operating procedures and stringent certification standards (which often go above and beyond current NOP standards) before partnering with any supplier. The Organic Integrity Database provides certification status (including revocations and suspensions) for more than 60,000 certified and would-be certified organic operations. Organizations that want to have their products certified organic but get caught up in a supply chain that has a shadow of fraud are sure to suffer reputational harm. This is especially true with products that are entering U.S. ports from countries that do not have a profile for growing or handling organic products. The USDA currently does not have the resources to deploy to every port to inspect and test every shipment. As a result, the industry has embraced the necessity of maintaining its own standards and diligence enforcing them.
While the establishment of national standards for organic production and labeling was an essential step forward, the industry’s growth has rapidly outpaced the resources dedicated to enforcement by the USDA. In recent years, in recognition of the risk to the industry due to the rapid growth in organic fraud and the lack of tools to combat it, a group of producers and processors launched an initiative in association with the Organic Trade Association to study the problem and come up with potential solutions.
In 2019, the Organic Fraud Prevention Solutions (OFPS) program was launched. This is a voluntary quality assurance program that helps participating producers and processors assess their vulnerability to fraud and implement best practices to prevent and detect the introduction of non-organic products into their supply chain. The program requires participants to undergo training in organic fraud and vulnerabilities to fraud, undertake an assessment of the participants’ vulnerability and develop a prevention plan. Additionally, the program requires participants in the program to submit the organic fraud prevention program that it develops as part of the organic plan that it submits to its certifying body under the NOP.
Unlike organic certification, the OFPS program is not intended to be a customer-facing stamp of approval for marketing purposes. Rather, the goal of the program is to help foster an ecosystem of trusted suppliers for organic processors and strengthen the overall integrity of the organic supply chain to protect the value of the organic label in the eyes of consumers. With that said, the OFPS program is becoming recognized as a valuable program to be affiliated with as it gives the marketplace another element of assurance for those seeking to represent quality product integrity in the supply chain.
In a likely attempt to reckon with the fact that the NOP has been thus far unable to address the full scale of potential organic fraud, the USDA issued proposed guidance to expand NOP’s oversight and enforcement of the production, handling and sale of organic products. The proposed rules would, among other things, strengthen organic control systems, improve traceability throughout the supply chain and enhance current enforcement. It remains to be seen as to whether the new rules, if adopted, will be sufficient to serve the needs of the complex and ever-expanding industry.
Steps can be taken, whether your company is upstream or downstream, to verify product integrity in the organic market. Any operation participating in the organic ecosystem must consider the various public, private and industry-insider standards to understand and follow when partnering with others in the supply chain and avoiding the auspice of fraud. We expect that further development of the OPS, and hopefully further funding and support of the USDA’s efforts, as demand for organic products continues to grow.