Groupe Danone, multinational corporate owner of Horizon Organic, has announced that it is terminating its contracts with 89 small-to-medium-sized organic dairy producers in the Northeast as of August 2022.
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At that point, all of Horizon’s contracted organic dairy farms in Vermont, New Hampshire, Maine, and northern New York may well have no buyers for their milk and will likely face a very uncertain future. In July 2021, Beyond Pesticides covered a major contributor to this development — the failure of the NOP (National Organic Program) to protect the integrity of organic dairy, which failure has advantaged large producers over smaller operations (see more on this below). This development in a region with historically strong demand for organic dairy products is of concern on several fronts, not the least of which is the fate of these small producers.

A letter with the news was sent by Danone to 28 Vermont producers, 14 in Maine, 2 in New Hampshire, and 45 in New York State’s three northernmost counties. The company plans, instead, to source milk primarily from larger producers, including “organic” concentrated animal feeding operations (CAFOs) — in Ohio, Pennsylvania, the Midwest, and some Western states — that can produce milk at lower cost, leaving the Northeast region’s small and medium size organic dairy farms in the lurch.

In email communication between Danone and the Northeast Organic Dairy Producers Alliance (NODPA), the company cited “growing transportation and operational challenges in the dairy industry, particularly in the Northeast” as justification for the move. CBS Boston reports that,“The company told Vermont officials that it did not want to transport milk from the [Northeast] region to its plant in New York.” Marion Nestle’s “Food Politics” blog reports the company’s additional comment: “We will be supporting new partners that better align with our manufacturing footprint,” and translates those comments to the real reason — “organic milk in the Northeast costs more, so Danone is cutting its losses.”

As Dr. Nestle points out, the larger dairies, and CAFO operations in particular (especially in Texas) have huge herds and operate with the cost advantages of that scale. Danone indicates that it is cheaper to purchase milk from these producers and ship it East, despite their distance from the Western New York processing plant the company is choosing to use, than to buy from smaller, Northeast producers. Danone insists it did not make this decision lightly, adding that “We are committed to continuing to support organic dairy in the East, and in the last 12 months alone, we have onboarded more than 50 producers new to Horizon Organic that better fit our manufacturing footprint.”

In a Beyond Pesticides interview, NODPA Executive Director Ed Maltby explained Danone’s dropping of contracts with these 89 dairies and at the same time, entering into new contracts with 50 others in the region. This at first blush appears odd, and certainly it contradicts Danone’s comment about not wanting to transport milk from the Northeast to its processing plant near Buffalo. (This plant can process ultra-pasteurized milk, which is easily warehoused and transported, and has become a staple of the organic dairy sections of retail stores.)

But as Mr. Maltby set out, those 50 new suppliers are larger dairies (which mean fewer tanker stops to pick up milk) that are also located along more major routes, making pickup trips easier than visiting many small dairies that may be located in more outlying areas. Danone is looking to amplify savings associated with what it deems more-efficient milk collection.

Mr. Maltby adds that the impacts of Danone’s abandonment of smaller Northeast organic dairy farms will be felt throughout their rural communities. The potential damage extends beyond the potential shuttering of the affected dairy farms. Nicole Dehne, director of Vermont Organic Farmers, notes that if these dairy farms are forced to shut down, “the ripple effect[s] on the local economy would be notable. Producers employ breeders, vets and grain companies, for example. Organic farmers are also required to manage their farms so they’re hospitable to the local ecosystem. They have to improve soil health on their farms. They have to plan and manage for biodiversity. So it’s also kind of devastating to think that we might lose that acreage that’s being managed in that way.” Marion Nestle says in her “Food Politics” blog: “This is Big Organic Dairy in action, and it’s not pretty.”

The Portland Press Herald reports more of Ed Maltby’s commentary, which goes to Dr. Nestle’s point: “Danone is effectively consolidating their supply base. The way they’ve done it is (what) any large conglomerate company would do. They do it impersonally. It’s not as if they are holding meetings with farmers in the area and saying these are the challenges we’re having in transporting milk and can we work together.”

A bit of the relevant corporate consolidation history: Stonyfield Farm, a long-standing independent manufacturer based in New Hampshire, was fully acquired by Groupe Danone in 2014. Then, Danone announced its intention to sell the Stonyfield subsidiary to avoid antitrust claims and to clear the way for the acquisition of the organic food producer WhiteWave Foods (owner of Horizon Organics). In 2017, Lactalis bought Stonyfield. Antitrust claims have been leveled against Danone previously, including by NODPA, over concerns about monopsony — a market situation in which there is only one buyer.

The Portland Press Herald article notes that this move by Danone is the most recent in a pattern of consolidation that has happened in other agricultural sectors. When the demand for organic milk took off from the late 1990s through the first decade or so of the 2000s, the organic milk sector grew rapidly, by 10–15% annually. This was likely fueled, in part, by public reaction to the use of rBGH, recombinant growth hormone, on conventional dairy herds.

Mr. Maltby is quoted again: “The rocket-ship growth drew in smaller farmers who saw the potential to earn a more stable living while also taking better care of the land and their animals . . . especially in the Northeast, where the climate is friendly to growing the pasture grass that organic dairy thrives on. The stable price plus the more natural way of farming was very attractive. . . . (At one point) there were over 200 organic dairy farms in Vermont and up to 17 in Maine, and that was because the brand and the buyers at that time were looking for farms near to their major markets,” including Boston and the New York City region.

But the “consolidation” ethos that prevails in the corporate universe has come to much of the agricultural landscape, including organic dairy. Some have called this moment an inflection point for the industry. The aggregate forces of (1) rising and disparate production costs (which are higher for smaller operations and in the Northeast), and (2) slowing of demand as supply has increased, due to more “industrial/CAFO “organic” dairy coming on line, and (3) increased demand for non-milk, plant-based alternatives, are resulting in developments such as Danone’s bailing on small Northeast organic milk suppliers. Some consider that the decision signals a cooling of the organic dairy sector following 20 years of unrelenting growth.

An additional, and fairly invisible-to-the-public factor in this fraught landscape is the long-standing and unresolved “Origin of Livestock” issue. An ambiguity in the NOP definition of what constitutes an organic herd of cows has enabled very large dairy CAFOs to develop in the Midwest and parts of the West — the very suppliers to which Danone will turn.

Under NOP rules, milk sold or represented as organic must be from livestock that have been under continuous organic management for at least one year. But this one-year transition period was created for conversion of a conventional herd to organic — an important feature when the National Organic Standards were created and the certified organic program and label were just launching in the U.S. Once a herd has been converted to organic production, all dairy animals must be under organic management from the last third of gestation.

The Organic Trade Association offers this description of the problem: “Due to a lack of specificity in the regulations, some USDA-accredited certifiers allow dairies to routinely bring [cheaper,] non-organic animals into an organic operation, and transition them for one year, rather than raise their own replacement animals under organic management from the last third of gestation. . . . [This] is a violation of the organic standards and creates an economic disadvantage for organic farmers who raise their own organic replacement animals under organic management in accordance with the regulations.”

This ambiguity has been exploited by what Dr. Nestle calls “Big Organic” — industrial producers (e.g., “organic” CAFOs) and processors such as Danone. Beyond Pesticides has noted that this loophole allows large industrial operations to undercut dairy farmers who operate with integrity — raising and managing their calves from birth organically — and compromises the organic nature of the product the consumer buys, threatening the integrity of the certified organic standard.

The loophole should have been remedied years ago; a revised rule was proposed in 2015, but no Final Rule has yet been issued. Beyond Pesticides wrote in July 2021: “We need a Final Rule on the origin of livestock and we need it now. At the beginning of the organic dairy movement, one of the big drivers was economic justice for farmers. We have lost thousands of farmers since then. Organic production was a viable alternative for family-scale producers and it has worked. However, much of the growth in the industry has been usurped by industrial scale operations gaming the system. If it wasn’t for the factory farms there could have been thousands of additional dairies saved and converted to organic.” Beyond Pesticides wrote in July to the Deputy Administrator of the NOP with its recommendations, including that the sale of transitioned animals as certified organic should be prohibited, among others aimed at preventing abuse of the transition option.

The uphill slog for small Northeast organic dairy farmers trying to compete with large industrial operations is exacerbated by the relatively higher costs of production in the region. Ed Maltby notes that costs for labor, land, insurance, and taxes are all higher in the Northeast than in most other regions of the country. He compared the producer cost for production of 100 pounds of organic milk: $36 in the Northeast, compared to $27–32 in the Midwest and West.

Another exploited loophole in enforcement of NOP rules relates to the “Pasture Rule” — how dairy herds feed. The NOP’s Pasture Rule for Organic Ruminant Livestock (established in 2011) sets out requirements for the grazing season — a minimum of 120 days per year — during which cows should be on pasture. (There are also “dry matter” and documentation requirements in the rule.) The Pasture Rule explicitly says, “Organic producers should strive to maximize the number of days their animals are on pasture. The intent of the Pasture Rule is to ensure that organic ruminant operations are pasture-based systems, as well as to increase pasture productivity and pasture quality over time.”

This pasturing provision reflects a fundamental feature of organic dairy that distinguishes it from conventional dairy production. Yet, industrial “organic” dairy operations are using huge amounts of imported organic grain (corn and soy, in particular) to feed their herds. As the Cornucopia Institute documents in its 2018 report, The Industrialization of Organic Dairy, there have occurred many violations of the Pasture Rule during the past decade, particularly by industrial “organic” CAFOs. The report notes: “Large dairies have shifted from trying to justify their lack of grazing and pasture for their lactating dairy cows to creating the illusion of meeting the low standard set by the USDA. This illusion is made possible by a number of agreeable accredited organic certifying agents who are willing to collect large certification fees while looking the other way, facilitated by deficient oversight of these agents by the NOP.” Obviously, poor enforcement of standards via certifiers is also a wrench in the system.

Beyond Pesticides wrote, a few years ago: “We have ‘organic’ dairy CAFOs with 15,000 cows in a feedlot in a desert, with compelling evidence by an investigative reporter that the CAFO is not meeting the grazing rule — by a long shot.” The National Organic Coalition writes, “The lack of consistent enforcement with regard to dairy pasture requirements as well as origin of livestock rules have contributed to the oversupply of organic milk in the market. This has had a devastating effect on organic dairy prices to farmers, and left many organic farmers and those transitioning to organic with stranded investments because there are no buyers for their milk.”

What do Northeast dairy farmers and other make of this development? And what are they to do? This action by Danone is a very big deal in the region, and response from producers, advocates, and officials in the region has been more vociferous than the company may have been expecting. Damage to its public face and the goodwill of consumers may be at some risk.

Abbie Corse, an organic dairy farmer who sells to Organic Valley and is a board member of both the Northeast Organic Farming Association (NOFA) of Vermont and the Vermont Climate Council, had this to say: “Organic farms are beginning to follow the same consolidation trends as conventional farms. It’s attributable to loopholes in the National Organic Program. . . . Larger farms can now become certified, which has caused the market to become flooded. It’s allowing larger farms to enter into the marketplace where small farmers were. . . . I know that it has been an articulated priority of our congressional delegation to continue to push on the loopholes being closed, specifically for the origin of livestock and the pasture rule. . . . That would go a long way towards correcting for the equitable access in the marketplace for small farmers and their ability to thrive.”

Ms. Corse added that the mental stress of Danone’s action on producers is significant. “These aren’t just jobs. These aren’t just pieces of the economy. These are entire lives that are tied up in a farm. Even having to go through a process of receiving a letter like this . . . I don’t think the average person understands what that means for these folks.”

Maine Dairy farmer Lauren Webber called the move by Danone “perplexing,” given that Horizon had just “recently required that all of its Maine producers go through an extensive audit and documentation process for their operations, only to dump them a few weeks later.”

Officials in the affected states are working to call together stakeholders to try to address and solve this crisis. In Vermont, the Secretary of the Agency of Agriculture, Food and Markets, Anson Tebbets, is putting together a task force to address the problem; it is expected to include farmers, economic development officials, the Northeast Organic Farming Association (NOFA) of Vermont, the University of Vermont Extension, and the Vermont Farm Bureau. NOFA Vermont’s Policy Director Maddie Kempner commented, “Not having a buyer for your milk is a really severe position to be in for these farmers. So we’re doing our best to make sure we’re seeking solutions for alternative markets for their milk, but also, [to] make sure the farmers feel as individually supported as possible.”

According to Ed Maltby, these Northeast producers are really between a rock and a hard place, with few viable options. Some hope to find other buyers for their milk, such as Organic Valley/CROPP Cooperative, the largest remaining processor in the region, but as VTDigger reports, “Other buyers in the area, including Stonyfield Organic, Organic Valley and Upstate Niagara Cooperative, appear to have limited capacity to accept new producers.” Organic Valley CEO Bob Kirchoff said in a written statement that he does not yet know if the company will be able to help the Northeast farmers, adding that, “Organic farming is facing the same crisis we’ve seen in conventional agriculture — consolidation, industrialization, ‘get big or get out.’ It will take a lot of people working together to solve it, but we all must be bold enough to believe we can.”

Other producers will, as Ed Maltby suggests, likely switch to corn or hay production, or retire from farming and try to sell off their assets and reconcile their debt, which may leave them with relatively little cushion in the end. The ripple effects referred to earlier could include impacts on other rural businesses, and potentially, the sale of some valuable agricultural land to developers, which means more farmland loss (already a major problem, according to the American Farmland Trust).

As for potential solutions for Northeast organic producers, Mr. Maltby says there are few immediate ones, and refers readers to NODPA’s website coverage of the matter and actions the public can take to advocate for resolution. One of those is to communicate directly with USDA (the U.S. Department of Agriculture, under which the NOP operates) and Congressional representatives to ensure that the Origin of Livestock is a strong regulation that does not allow transitioned animals to retain organic certification when they are transferred or sold.

Mr. Maltby posits that one sensible approach would be for Danone to establish a processing plant near New York City — which it could easily afford to do. This would allow it to sell more easily to huge and critical markets in the greater New York City and Boston areas, but also, to service the milk supply it could buy from Northeast, some mid-Atlantic, and Pennsylvania producers. But he is not betting the farm on that outcome.

He also notes there may be some opportunity for Danone’s “B Corp” legal status to be challenged, given its behavior. (B Corporations are businesses whose legal classification requires them “to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment.”) Dr. Nestle apparently concurs, writing, “Danone proudly proclaims its B Corp status [and] cites its B Corp ambition: ‘an expression of our long-time commitment to sustainable business and to Danone’s dual project of economic success and social progress.’ Social progress, anyone?”

The squeezing out of small organic producers who operate with integrity is a major concern for the organic dairy sector, of course, but also, for the larger issue of organic integrity and the public’s trust in the meaning of the certified organic label. Is the milk that comes from an “organic” CAFO the same product as milk that comes from a small Vermont dairy whose herd is on pasture for half the year? Many believe it is not. In 2018, Beyond Pesticides wrote of “organic” CAFO-produced milk: “The Washington Post’s 2017 report found that Aurora Organic Dairy, a major milk supplier for big box retailers like Walmart and Safeway, is producing milk that was less nutrient dense compared to small-scale organic family farms. . . . The subsequent [report] . . . found that the living conditions indicated by the photos [of CAFOs] did result in cows producing nutritionally deficient milk.”

The NOP must clarify rules, tighten enforcement of standards, and level the playing field for small- and medium-sized producers, who are currently disadvantaged by the competitive perquisites the large conglomerate operations enjoy. Members of the public are encouraged to contact federal elected officials and the USDA itself to advocate for such changes. Meanwhile, consumers can consider their own dairy purchases and vote with their food dollars to support ethical, sustainable, and transparent organic brands that source from smaller, regional producers. For more information on why it is so important to not only protect, but strengthen the organic label, see Beyond Pesticides’ Keeping Organic Strong webpage.

Nominations are open for Fonterra’s board election but a repeat of the drama that rocked the vote three years ago can be ruled out.

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