March 26, 2007

US dairy firm questioned over organic approach
 

Investors have filed a shareholder proposal, its second in a row, asking Dean Foods Co (NYSE: DF) to report to its shareholders how it is responding to widespread concern that industrial-scale organic dairies, supplying milk for its Horizon Organic brand, violate consumer trust, seriously jeopardizing share value.

The shareholder proposal has been in the centre of a seven-year debate in the organic industry on the introduction of large-scale factory-farms, milking as many as 2,000 to 10,000 cows each. It has been the contention of a growing number of public interest, environmental, and farming groups that some of these farms are violating current USDA regulations by labelling their products as organic.

The Cornucopia Institute, a Wisconsin-based farm policy group has already filed complaints in 2005 and 2006 against a number of industrial dairies that are allegedly violating the law by confining their cattle to feedlots and sheds rather than grazing as the federal organic regulations require.

The dairy farms in question include two owned by Dean Foods in Idaho and Maryland and another farm in California shipping milk for distribution under Dean's Horizon Organic label.

According to Steven Heim, director of social research with Boston Common Asset Management, consumers pay a premium for organic milk when they generally have expectation that cows have access to pasture and gain a sizeable percentage of its nutrients from grass.

Dean Foods, the nation's largest milk processor, also became the largest US marketer of organic dairy products when it acquired the Horizon Organic, Alta Dena, and Organic Cow of Vermont brands.

The shareholder proposal is also asking for an independent committee of Dean's board to review its policies and procedures for its organic dairy products, and report to shareholders on their adequacy to protect the company's organic dairy brands and its reputation with organic food consumers. The investor groups also want to know how the company intends to respond to increasing consumer and media criticism.