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USDA tightens organic rules amid fraud cases like a $46 million alleged scheme by Minnesota farmers

Minnesota farmer James Wolf made $46 million selling what he promoted as organic grains to buyers in Pennsylvania and elsewhere. But the FBI says the crops he sold as organic were not.

Scams damage the credibility and integrity of the organic food industry, which relies largely on trust, and hurts consumers and legitimate organic farmers whose credibility is at stake.
REUTERS/Ilya Naymushin

WASHINGTON — James Wolf raised corn, soybeans and wheat on a family farm in Cottonwood County for decades when he did what many Minnesota farmers do – applied for certification to sell his crops as organic, which would command much more money per bushel.

From 2014, when he received his certification, to 2021, Wolf made $46 million selling what he promoted as organic grains to buyers in Pennsylvania and elsewhere. The money allowed Wolf, 65, to purchase a “winter home” in Arizona and two Chevy Corvette convertibles.  But the FBI says the crops Wolf sold as organic were not. 

The Minnesota farmer was indicted by the U.S. Attorney’s office in Minnesota last year for involvement in an increasingly common agricultural crime — organic fraud — which could result in jail time and millions of dollars in restitution. Wolf has pleaded not guilty. 

On Thursday, another farmer who is accused of conspiring with Wolf, Adam Clifford Olson, 45, will make his first court appearance in U.S. District Court in St. Paul on Thursday and is expected to plead not guilty. 

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The booming organic produce market is worth at least $63 billion per year. Increasing demands for organic grains have raised their prices to double or even triple the cost of grains grown conventionally with synthetic fertilizers, pesticides and herbicides. But for those who purchase grain, it’s difficult, if not impossible to tell organic grain from non-organic grain, making fraud hard to detect and prosecute.

And the temptation to sell crops at a much higher price is difficult for some to resist.  

“There are incentives to cheat,” said Kate Mendenhall, executive director of the Organic Farmers Association and an Iowa farmer.

That has led the USDA’s National Organic Program to release final rules this month that are aimed at curbing organic food crime. The USDA said the tighter regulations may have prevented much of the fraud Wolf is accused of.    

“This rule includes more robust traceability and verification practices that would have helped identify and stop this type of fraud earlier, preventing further sale of the fraudulent products and reducing the impact of the fraud,” the USDA said. 

Wolf’s is a high-profile organic fraud prosecution involving the FBI, the U.S. Attorney’s office in Minnesota and the U.S. Department of Agriculture. But it is not the largest case of this type of agricultural crime. 

In 2021, South Dakota grain broker Kent Duane Anderson was accused of buying conventionally grown grain and fraudulently selling it as organic at a huge profit, reaping about $71 million in proceeds, according to court documents.

Anderson, who used the gains from his fraud to finance a lavish lifestyle in Florida, pleaded guilty.

“I purchased thousands of tons of small grain and seed products from non-organic suppliers and then re-sold those products to wholesale distributors, brokers, and other buyers at marked-up prices, falsely representing the products were organic,” Anderson said in his guilty plea to the court. “Those buyers, who believed the grain I sold them to be organic, were defrauded.”

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Meanwhile Missouri grain broker Randy Constant was prosecuted for engaging in an even larger scam. Like Wolf, Constant sold bushels of conventionally grown grain and falsely labeled it as organic. The grain Constant sold between 2010 and 2017 was mainly used as feed for cattle and chickens to produce premium-priced meat and eggs that were marketed as organic.

Prosecutors said Constant used the proceeds of his fraud to travel more than 20 times to Las Vegas, where he stayed in luxury hotels, hired escorts and gambled. He died by suicide in 2019 after being sentenced to 11 years in prison.

Scams damage the credibility and integrity of the organic food industry, which relies largely on trust, and hurts consumers and legitimate organic farmers whose credibility is at stake. 

“There are a lot of farmers who are working real hard to produce good organic food,” Mendenhall said.

The dumping of non-organic grains and other foodstuff on the organic market also depresses prices for these farmers, she said.

USDA steps up fraud prevention efforts

Besides the temptation of earning a lot more money for conventionally grown crops, there is an opportunity to cheat that’s a result of the booming and complex organic food industry.

The USDA says the rapid growth of that industry “has attracted many businesses to the USDA organic label and increased the complexity of global organic supply chains.” It’s also overwhelmed organic food industry watchdogs.

“Complexity makes oversight and enforcement of the organic supply chains difficult because organic products are credence goods, which means that their organic attributes, or ‘integrity,’ cannot be easily verified by consumers or businesses who buy organic products for use or resale,” the USDA said in its release of new rules last week. “The elements needed to guarantee organic integrity — transparent supply chains, trusted interactions between businesses, and mechanisms to verify product legitimacy — are more difficult to achieve in the increasingly complex modern organic industry.”

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The USDA has accredited dozens of entities that issue organic certifications. They include for-profit companies, nonprofits and state-run agencies.

Mendenhall of the Organic Farmers Association said transitioning from conventional farming to organic farming usually takes three or four years. Once that is completed, an inspector from a certification agency usually visits the farm, checks fields, and audits invoices and receipts. But some inspections are more rigorous than others.

Wolf and Olson received their certifications from the Organic Crop Improvement Association, a certification company based in Lincoln, Nebraska.

The association revoked Wolf’s organic certification on June 2, 2020. Prosecutors allege Wolf continued to sell conventionally grown grain as organic, using Olson’s certification, which was revoked a little over a year later, on Aug. 9, 2021. The Organic Crop Improvement Association did not return requests for comment, but it’s likely it eventually notified the USDA of noncompliance at the Wolf and Olson farms and the USDA followed up by contacting federal law enforcement authorities.

The USDA’s new organic regulations tighten certifications for grain imports sold as organic and require certifiers to conduct unannounced inspections for a minimum of 5% of the operations they certify annually.

Record-keeping for organic farmers and their certifiers has also been beefed up, and there’s a new requirement for certifiers to develop fraud prevention plans and conduct “chain” audits of operations considered “high risk” of fraud.

The Strengthening Organic Enforcement rule is the biggest update to organic regulations in 30 years. The new regulations will take effect on March 20, and those impacted will have a year to comply with the changes.

In its public comments on the new regulations, the Organic Farmers Association said they were a “long overdue first step towards the robust enforcement we need to protect the integrity of the organic label and the viability of organic farms that rely on consumer trust in that label.”

Yet the association said “there is still more work to do to prevent fraud in the organic sector.”

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After Wolf was indicted for fraud last year, the FBI seized the farmer’s Corvette, a long list of farm equipment and more than $3 million in cash held in several accounts.

Yet Wolf, who is awaiting trial, wanted to continue to farm. His request to have his farm equipment returned temporarily so he could harvest his crops last year was rejected by the FBI, but an appeal was approved by a U.S. District Court judge.

“The court system let him farm until there is an adjudication of the case. It’s fair they do so,” said Paul Engh, who is Wolf’s attorney.

Engh also said he’s not surprised at the vigorous federal prosecution of Wolf and Olson.

“It’s a big case for them,” he said.