Wal-Mart accused of 'organic fraud'

NEW YORK (CNNMoney.com) -- A policy research group is accusing Wal-Mart of "organic fraud," the latest controversy to arise as the world's largest retailer pushes into the organic food industry.

The Cornucopia Institute, a Wisconsin-based advocacy group which promotes sustainable farming, claims Wal-Mart (Charts) is defrauding its customers by mislabeling non-organic products as organic.

Wal-Mart is trying to offer up a "greener" image by selling more organic food.

The policy group said it conducted checks of Wal-Mart stores in five states and discovered labeling violations in virtually all of the "dozens of stores" it visited.

Wal-Mart, which uses green signs to identify organic selections at its stores, said any shelf labeling mistakes are isolated events and that it often mixes organic and conventional products on its shelves to make it easer for customers to find organic options.

"Although Wal-Mart has more than 2,000 locations that may offer up to 200 organic selections in addition to thousands of non-organic offerings, we believe it to be an isolated incident should a green organic identifying tag be inadvertently placed by or accidentally shift in front of the wrong item," the company said in an e-mailed statement.

But Cornucopia claims the retail behemoth isn't doing enough to address the problem. The advocacy group said it notified Wal-Mart of the labeling problems in September of last year, but claims that problems continued to exist at the stores when it made checks again early this year.

"It's very disturbing that the company has known about this for months and hasn't done anything about it," Mark Kastel, co-director of Cornucopia, said. "There's no excuse for this."

In addition to notifying Wal-Mart of the problem, Cornucopia filed a complaint in November with the U.S. Department of Agriculture, the federal agency which regulates the marketing of organic foods.

The complaint refers to alleged violations, such as the labeling of all-natural yogurt as organic, on Wal-Mart shelves.

Wal-Mart said its stores are sent guidelines for placing identification tags and that it works with its stores to make sure the tags are accurate. The USDA certification label on the actual packaging of organic items also helps customers verify products as organic, the company said.

Joan Shaffer, a spokeswoman for the USDA, said Cornucopia's complaint has been received and is being reviewed. The agency is seeking more information and will determine whether an investigation is warranted after additional information is received, she said.

USDA regulations on the marketing of organic food are rigorous and carry stiff penalties - each violation of willful organic food misrepresentation can result in fines of up to $10,000.

Organic food regulations can be complex, and ignorance among food managers can result in labeling mistakes, said Samuel Fromartz, author of "Organic, Inc.," a book about the organic food industry.

But it's crucial for new players getting involved in the organic food industry - which is growing by 15 to 20 percent a year - to get the labeling regulations right, he said.

"Consumers are already confused about what organic food is so if they buy a product that they think is organic and it turns out to not be organic - it just adds to their confusion and adds to a sense of mistrust about what they're buying," Fromartz said.

Wal-Mart is the latest retailer to make a push into the approximately $15 billion organic food industry that has boosted the popularity of natural food stores like Whole Foods (Charts).

The company announced last year it would start selling more organic products, raising concerns among some organic farmers that the giant retailer would undercut prices.

Wal-Mart trashes garbage

The unending woes of Lee Scott