Is That $6 Gallon Of Organic Milk Really Organic?


The Cornucopia Institute, an aggressive watchdog of the organic industry has sued Dean Foods (NYSE: DF), the makers of Horizon Organic Milk, claiming that the world's largest dairy concern does not conform to the USDA's National Organic Standards. The Institute alleges that Dean's grazing and pasturing amount to a "dog and pony" show, which if true, means that all of those $6 gallons of milk were not truly organic. Considering that, in my town of Austin, TX, the non-organic brands go for less than $4, the 50 percent premium also amounts to outright theft. In my household, we have been buying organic milk for years, so this story hits close to home. However, if Cornucopia Institute is being too aggressive, it could scare off other large corporate players from entering organic agriculture.

According to the USDA's guidelines, organic milk must come from cows that are grazed in pasture. Additionally, there are guidelines about where, and how long cattle can be kept in confinement. Graze Magazine uncovered numerous ex-employees who say that proper grazing and pasturing techniques were used when VIP visitors, such as Whole Foods' (NASDAQ: WFMI) John Mackey, were touring the facilities. If true as alleged, then the milk should not have carried the organic label. The Cornucopia lawsuit is not the only black eye for Dean Foods. The Organic Consumers Association issued a boycott of Horizon products last year.

Such conflict in organic agriculture makes one apprehensive. Of course, we would hope that corporations would live by the honor system and not cross the line. On the other hand, one of the primary drivers for going organic is the ability to charge a premium and get a little positive PR value out of being Green (aside from the intrinsic, non-economic reward of doing the right thing). If going organic also carries the prospect of unrelenting scrutiny by activists, then large corporate concerns might decide that the venture would not be worth it. Up until now, Horizon has been THE most successful organic brand, with margins that the rest of the dairy business can only dream about. Clearly, the best hope to ensure organic quality is for the large organic grocers (think Whole Foods) to make it clear that crossing the line means losing shelf space. This, too, would be a difficult move for those companies, since they, too share in the fantastic margins. After all, John Mackey is the CEO of a publicly traded corporation. Clever marketing by his company has sort of made him the standard bearer, like it or not.

In any event, let's hope the allegations are not true. If they are true, I hope class action lawyers are paying attention.