Big firms crave taste of organic milk's success

Dairy farmer Robert Howe was on the fence about selling his milk to another company. But that decision became much easier - a "yes" - when he learned that his sole buyer, the Horizon Organic milk company, had been bought by Dean Foods.

Dean, the nation's largest milk producer, purchased Horizon, the nation's largest organic-milk producer, for $216 million. The acquisition is the latest example of the evolution of the organic-food industry.

Beginning as a hodgepodge of small cooperatives from across the country, Horizon has evolved from simple and idealistic roots into a key enterprise of one of the largest publicly traded food companies in the country.

The move will undoubtedly fuel a marketing boom behind the Horizon label, and usher its products into hundreds of supermarkets and thousands, perhaps millions, of new homes.

But for some in the organic-food industry, the ascendance of Horizon to the top shelf of mainstream consumerism heralds a distressing future. Their worry: As giant food manufacturers buy up organic-food companies, the niche-food movement's ethic of supporting small farmers and selling locally grown foods may be stomped out by the profit motives of large corporations.

"As a company gets bigger and bigger, it becomes less concerned about small producers," says Mr. Howe, who began producing organic milk in 1995.

Howe had been one of the first dairymen in New England to produce organic milk. At the time, the Tunbridge, Vt., farmer sold his milk to The Organic Cow of Vermont, a small co-op that paid its suppliers a sustainable wage by keeping production to a minimum. But a few years later, Horizon bought The Organic Cow and began distributing Howe's milk down the entire East Coast.

With more organic dairy farmers joining the industry, Horizon began reducing payments to many of its dairy contractors. Just a few weeks ago, Howe received a letter from Horizon explaining that he would receive less money for the milk he gets from his 40 Holstein cows.

Price reductions happen, says Howe, when big corporations gain control of what was once a farmer-run industry. "As they bring more farms on line, and larger farms, they probably don't have as much need for my milk."

Dean's purchase of Horizon is but one example of a larger effort by giant food manufacturers to gain a foothold in the organics market. General Mills, Danone, H.J. Heinz, Kraft, Kellogg, and Nestlé have all purchased small- to mid-size organic-food labels over the past four years.

They have been drawn by average sales in the organic industry that have grown 20 percent annually, compared with a 2 to 4 percent growth among mainstream food products.

Giant foodmakers also don't produce organic food themselves, say experts, because they lack the expertise in working with organic farmers, and would have a hard time gaining the trust of old-line consumers of organic products. As a result, the large companies do not often lend their brand to the niche product. What they do offer is marketing muscle.

"The horsepower of these larger food companies in terms of distribution is much higher," says Patrick Rea, research director of the Nutrition Business Journal in San Diego. "Next year, Horizon milk will probably be in most grocery stores in the US."

When big food companies buy smaller ones, they almost always try to cut production costs, directing more money toward marketing. One result: a lower-quality product, say some observers.

"What they tend to know and understand is the model of acquiring new customers through advertising rather than loyalty," says Gary Hirshberg, president of Stonyfield Farm, an organic dairy firm in Londonderry, N.H.

Horizon defends its ability to maintain a fair environment. "We are profoundly committed to our farmer partners and family farms and will continue to be, regardless of who owns our company," says Kelly Shea, Horizon's director of organic agriculture. "We help provide our farmers with a long-term sustainable price for their milk and often enable them to maintain their economic independence."

Others in the industry are concerned that a big food company will have less interest in promoting aspects of organic agriculture that do not necessarily contribute to the bottom line.

"When these companies come into the organic industry, they often don't realize that the rules are different," says Mr. Hirshberg, whose firm will have ceded more than 50 percent of its ownership to the French giant Danone by the end of this year.

Some observers hold out hope that at least some big firms will respect the organic industry's ethic. "They're not interested in changing the products too much after they've worked so well," says Mr. Rea. Horizon points out its farmers still have to abide by strict federal standards for organic milk. And the company has partly followed the organic-producer model of signing up new farmers only if it can pay them the same rate as its existing farmers. But many dairy farmers worry the influence of an even bigger player could change that.

"Dean's goal is to maximize shareholder value," says George Sieman, president of Organic Valley, the La Farge, Wis., cooperative to which dairyman Howe now sells. "That's not the same as maximizing farmer value."