Are Wal-Mart's "Organics" Organic?

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The watchdog group that prompted the Wisconsin investigation is called The Cornucopia Institute and has been active in what it calls "family-scale" farming. It has produced photographs of items that are not certified organic or are only partially organic that appear on shelves at Wal-Mart with banners or signs that say "Wal-Mart Organics." The photos from Cornucopia show items that could be easily mistaken for organic. Many have descriptions such as "all natural" or "natural," including Stonyfield Farms All Natural Yogurt and Florida Crystals natural sugar.

Organics have been a booming business for food manufacturers and for retailers, growing 15% annually for the last five years. It's extremely lucrative: Supermarkets typically charge a 30% to 40% premium in price for organic food, compared with conventionally grown food (see BusinessWeek.com, 5/25/06, "Going Organic: The Profits and Pitfalls").

Diluting the Movement?

Retailers and farmers are anxious to protect this growing business. Lee, of PCC Natural Markets, says that if Wal-Mart is placing nonorganic items under its organic banner, then it will have a ripple effect on other national grocery chains. PCC and other organic retailers say that they train their employees and store managers rigorously to ensure high organic standards. They wonder how strong Wal-Mart's commitment to organics is. "Where is the USDA in all this?" asks Lee.

The USDA has come under fire in the past for not taking action on similar complaints. Two audits of its organic program, performed by the American National Standards Institute in 2004 and by the USDA's Office of Inspector General in 2005, were highly critical of how the USDA has handled complaints of potential violations of organic standards. The 2005 report states that "in fiscal year 2003, the eight complaints referred to the national organic program for a decision have not been resolved, one of which involved a possible prohibited substance being added to an organic product." The USDA counters by saying that complaints about organic food aren't treated like an emergency. "It's not like this is a food safety issue," says spokeswoman Schaffer.

Mark Kastel, co-director of The Cornucopia Institute, says that it launched its inquiry after a visit in September to Wal-Mart's prototype store in Plano, Tex. After noticing labeling problems in its organic offering, it sent off a letter to Wal-Mart's CEO Lee Scott suggesting that the company correct the problem. Kastel says that consecutive visits to Wal-Mart showed that the company hadn't heeded its advice, so Cornucopia filed a legal complaint with the U.S. Agriculture Dept. in November and followed up with a complaint with the Wisconsin Agriculture Dept. on Jan. 13. The latest assessment came after visiting stores and finding alleged violations in at least four states—Wisconsin, Illinois, Iowa, and Minnesota. "Wal-Mart is coming up with a different kind of organic for its consumers," says Kastel.

Gogoi is a contributing writer for BusinessWeek.com.