Investigating Organic Fraud in U.S. Grain and Oilseed Imports

The United States and many other countries seek to expand the production and consumption of organic products as a pathway to achieving their agricultural sustainability goals. However, organic fraud, mislabeling conventional products as organic, presents a significant threat to achieving these goals. It can result in the classic adverse selection problem, reducing price premiums for organic products and dissipating farmers’ incentives to convert land to organic production. This paper explicates concerns regarding organic fraud and presents an econometric test in the context of international shipments of organic commodities that can help identify instances of organic fraud. We apply the empirical framework to organic shipments of grains and oilseeds to the United States. Using data from multiple sources, we estimate econometric models to explain organic grain and oilseed shipments as a function of the conventional–organic price spread, the EU–US organic price spread, and control variables to test the hypothesis that the magnitude of the conventional–organic spread incentivizes mislabeling of conventional product as organic and, thus, creates organic fraud. Preliminary results reveal a positive correlation between shipments labeled as organic and the conventional–organic price spread, supporting the main hypothesis of the paper. We conclude that significant opportunities exist to commit organic fraud, especially in the context of international trade. Such fraud, as it becomes more widely known, can threaten efforts to expand production and consumption of genuine organic foods.