Posted: September 01, 2008
Planet-Profit Report: Organics Vs. Local
Dairy's battle reflects conflicting views as organic ‘locavore' movement gains groundMike Taylor
Forty miles north of Denver where residential real estate has yet to completely overrun agriculture, Mark Retzloff shows a visitor around his 400-acre Platteville facility. It’s the hub of Aurora Organic Dairy’s operations even though only about 1,000 of the company’s more than 12,000 milking cows are here.
"This is a landlocked farm," the Aurora Organic chairman says, referring to encroaching residential construction in the distance. "They’re not growing crops here anymore. They’re growing houses."
Retzloff founded Aurora Organic along with CEO Marc Peperzak in 2003. Retzloff is a self-described organic expansionist: Larger organic enterprises, he believes, allow for greater economies of scale, making organic foods affordable for more people and prompting more pesticide- and fertilizer-riddled farmland to be converted to organic.
Not everyone sees it this way, least of all Mark Kastel, the head of a family-farm nonprofit advocacy group in Wisconsin that has dogged Aurora Organic since the day Retzloff launched the dairy five years ago.
Based in Boulder, Aurora Organic Dairy boasts a $50 million state-of-the-art milk plant about 30 miles northeast of its headquarters, on its Platteville farm. Milk from some 11,000 cows on four other farms — two near Kersey, Colo., and two in Texas — arrives daily in 5,000-gallon insulated tanks. After pasteurizing and homogenizing, two computerized machines squirt the milk at a rate of 300 half-gallons per minute into private-label cartons that eventually make their way to Costco, Target, Safeway, Wal-Mart and roughly a dozen other retailers in all 50 states.
Retzloff is one of the pioneers of Boulder’s natural-foods industry, having co-founded the natural-foods store Alfalfa’s in 1983 and Horizon Organic Dairy in 1991. Both were bought out — Alfalfa’s by Wild Oats (which Whole Foods acquired last year), and Horizon by Dean Foods in 2003.
But Retzloff’s natural-foods exploits predate his arrival in Boulder. As a student at the University of Michigan majoring in conservation and resource planning in the late 1960s, Retzloff and his two roommates launched a co-op called Eden Foods with an initial supply order of $200. They traveled the Michigan countryside to find farmers who might be interested in becoming organic suppliers. The natural-food company is still in business today outside of Ann Arbor, Mich.
"I was a really big environmental activist," the 60-year-old Retzloff says of his college days. "The number one single point for environmental degradation in the United States at that time and still today, was agriculture: soil erosion, the types of chemical fertilizers they were putting in the sprays. My goal was to change what we were doing with agriculture. It didn’t matter to me if it was one acre at a time or 10,000 acres at a time."
The subject has come up on this cloudless July morning because Retzloff’s latest undertaking, the largest private-label organic milk producer in the country with annual revenues of $100 million, has come under fire from organic regulators and lawsuits alleging consumer fraud.
In April last year following complaints by the Cornucopia Institute — Kastel’s family-farm advocacy group in Wisconsin — the U.S. Department of Agriculture issued Aurora Organic a "notice of proposed revocation" of its organic certification for "willful" violations of federal organic standards. Ironically, Retzloff had lobbied for and helped draft proposed rules for the Organic Foods Production Act of 1990 years earlier.
The USDA listed 14 violations, among them that Aurora Organic had entered conventional cows into milk production before the required one-year period of continuous organic management, and had failed to establish and maintain cows’ access to pasture at its Platteville facility.
The fallout extended beyond Aurora Organic, to the Colorado Department of Agriculture, one of 95 certifying agents under the National Organic Program. The USDA reviewed that agency’s role as Aurora’s certifier and mandated that the agency increase its training and hire additional personnel, presumably to do a better job of monitoring organic operations in the future.
Aurora Organic settled with the USDA in August 2007, agreeing among other things to reduce the size of its herd at the Platteville farm from 4,200 to 1,000 cows and increase its grazing pastures by 75 acres.
But appeasing the USDA didn’t spell the end of Aurora’s travails. Class-action lawsuits on behalf of consumers have been filed against not only Aurora Organic but against retailers such as Costco, Wal-Mart and Safeway that carry Aurora Organic milk under various private labels.
Nineteen different lawsuits, representing plaintiffs in at least 40 states, have been consolidated in U.S. District Court in St. Louis.
Target has been one of the few retailers to comment. Noting that Aurora’s organic certification was never revoked, Target said in a statement, "It is disappointing that these types of lawsuits are attempting to override the USDA and regulate the organic industry and retailers with their own beliefs about what constitutes an organic product."
Aurora Organic has denied selling any non-organic milk and describes the numerous filings as "copycat complaints."
"The consolidated complaint was filed a few weeks ago, and now it is our turn to file and respond to this complaint," Aurora Organic’s Sonja Tuitele stated in early August. "So, it is moving through the legal process, and has yet to be resolved."
If class-action lawyers were quick to jump in, Mark Kastel was eager to help them find consumer victims. The co-director of the Cornucopia Institute admits he helped find potential plaintiffs to sue Aurora Organic, armed with the USDA’s statements about Aurora’s "willful" violations that to him mean the milk in the organic-certified cartons wasn’t organic. The lawsuits seek class-action status on behalf of the people who bought the milk, asking for their money back along with punitive damages and attorneys’ fees.
"We helped organize the lawsuit by reaching out to people who would be potential plaintiffs," Kastel says. "In some cases, the law firms contacted us and asked us for a lot of data, and some we helped connect with potential plaintiffs."
Kastel and Retzloff have been in conflict over their visions of what "organic" should be for years — since the early days of Horizon Organic Dairy, which Retzloff co-founded in 1991.
In 1989, when Retzloff was still at the natural-foods retailer Alfalfa's, there were no federal standards for organic. States could come up with their own rules for organic certification, which made interstate commerce a problem. The Organic Food Production Act, which Retzloff helped create standards for as chairman of the Organic Dairy Alliance, wouldn’t come about until 1990, and actual federal rules for USDA organic certification wouldn’t come about until 12 years later — 2002.
Horizon’s initial source for its first product — yogurt — came from the Wisconsin based CROPP, or the Coulee Regional Organic Producers Pool (later changed to Cooperative Regions of Organic Producers Pool). Back then it consisted of just seven dairy farmers. Today the cooperative goes by the name Organic Valley and has 1,266 farmer members.
Kastel worked for CROPP as a consultant before going on to form the family-farm advocacy group and industry watchdog, the Cornucopia Institute, which has relentlessly dogged Horizon, Aurora Organic, as well as large-scale organic dairies in Texas, Nebraska and California, pointing out perceived violations and accusing the dairies of ruining the intended organic model that was going to save the family farm by virtue of "economic justice" built into the higher prices.
But concern for family farms — and "the story behind the product" that Kastel says accounts for consumers’ willingness to pay higher prices for organic — isn’t what caused organic-milk demand to take off. In 1993, Monsanto introduced rBGH, or recombinant Bovine Growth Hormone, to boost cows’ milk production. Alarmed consumers, particularly those with children, demanded milk without rBGH.
"It was a huge tailwind for our business," says Retzloff, who was a year into building Horizon at the time. "We had every retailer in the country calling us, saying, ‘Can I get some organic milk from you?’ That’s how that whole thing started for us."
The argument of large-scale organic vs. small family-farm organics was just starting to heat up, too, when Horizon sought to satisfy consumer demand by converting a conventional dairy farm in Idaho owned by Peperzak into an organic farm of several thousands cows.
Kastel had operated a farm-equipment dealership in Michigan before making a "paradigm shift" and becoming a farm-policy consultant and lobbyist for the farmer’s union in the late 1980s. CROPP, the farmer’s cooperative now known as Organic Valley, was one of his first clients. In Kastel’s view, large-scale dairies were the co-op’s natural enemy.
"There are not enough farmers left in the United States — less than 2 percent of the population — to have any clout in Washington or the marketplace," he says. "Now after you get done with the primaries in Iowa where all the candidates in both parties are kissing the rear end of the ethanol lobby, you’re not going to hear much about farming anymore."
He sees Horizon and Aurora Organic and any of the other large-scale dairies as the antithesis of what organics should be. It might not be entirely coincidence that he launched the Cornucopia Institute about the same time Aurora Organic Dairy came online, five years ago.
"We could see that if Aurora was successful they could eventually drive family-scale farmers out of business," Kastel says. "We have a perfect precedent for this ... the conventional dairy industry. The organic dairy industry was founded as an alternative to this."
Retzloff and others, the organic "expansionists," cite different beneficiaries of their methods: consumers and the environment.
"We have 3,800 acres of organic pasture at our farms," says Sonja Tuitele, Aurora Organics’ vice president/public relations and communications. "Additionally, we’ve participated in the conversion of more than 50,000 acres with neighboring farmers, people we buy feed from, people we lease pasture from. That’s 50,000 acres of American farmland that would otherwise be treated with pesticides and chemicals.
"Our whole mission is to make organic milk more affordable and more accessible to more people so it’s not an elite beverage you can only afford to buy if you shop at Whole Foods," she says.
However the claims against Aurora Organic unfold from a legal standpoint, it’s safe to say Aurora Organic Dairy and the Cornucopia Institute will never agree on what organic means or what its future should look like.
"Some of the activists say, ‘We don’t like (large) scale, we don’t like big guys,’" Retzloff says. "So maybe they’re part of the problem. We’re not part of the problem. Believe me."
Colorado ranks second in the nation behind only California in acreage devoted to organics. But while organics has evolved from a "movement" to a mainstream industry, the new movement, some say, is to buy "local," with organic certification a secondary attraction.
Whole Foods was quick to seize upon the local movement two years ago when it began holding seminars for area producers to instruct them on how to become suppliers. The retailer even made loans available to small producers.
Nationwide, farmers’ markets have ridden the local wave, doubling in the past decade to about 4,400 according to the USDA. Colorado has an estimated 100 farmers’ markets, and that doesn’t include the countless farm stands that dot the countryside or markets not registered with any organization.
One prominent market vendor is the James Ranch outside of Durango, in the southwest corner of the state. The 450-acre ranch specializes in grass-fed-and-finished beef, artisan cheeses and vegetables. The products aren’t organically certified. Kay James, one of the ranch’s principals, says organic is not what’s important to their customers.
"We’re not even going after the government organic certification, because as far as we’re concerned, it’s meaningless," James says. "It’s expensive and it’s a lot of paperwork and red tape, and we would rather spend our money and time cementing our relationships with our local people. If we wanted to sell our beef or our cheese in the New York delis or in New York restaurants, we would have to be certified organic because they don’t know us."
But James doesn’t see large-scale organic as some kind of evil empire.
"Our philosophy is that Horizon milk and these other organic milk companies that are big, are better than non-organic," she says. "But I see it as two different markets. Your Wal-Marts and your King Soopers are carrying those brands because of the demand. We’ve had Albertson’s come to us and say, ‘Can we carry your meats?’ because now the buzzword is no longer organic, it’s ‘local.’"
No place in Colorado attracts more locavores — the Oxford English Dictionary’s "word of the year" in 2007 — than the Boulder County Farmers’ Market, now in its 23rd year on 13th Street and the largest farmer’s market in the state with about 120 vendors. Boulder’s is a growers-only market, allowing only direct sales from farmers themselves. Other markets, by contrast, allow vendors who are essentially brokers and who buy from farmers or vegetable wholesalers. The markets see that as a necessary concession given the increasing number of farmers’ markets and finite number of farmers with the time to personally staff the events.
Executive Director Mark Menagh says sales at the downtown Boulder County Farmers’ Market are up 30 percent over last year after improving 17 percent in 2007. And sales at its weekly Longmont market have doubled in the last three years. Menagh expects combined sales from his Boulder and Longmont markets to approach $4 million this year.
As it’s become apparent that consumers will support farmers’ markets, Menagh says that communities and business associations see the markets as a way to attract people and stimulate downtowns and shopping centers. Interest in organic often starts at the grocery store and leads to farmers’ markets as consumers become more concerned about the origin of their food.
Buying from farmers, Menagh says, "I can tell exactly how my food is grown, I can ask the tough questions and I can get a straight answer. You can go to the grocery and you can buy organic, but you really don’t know."
Becoming certified organic is a three-year process that requires an inspection by an organic certifying agent such as the Colorado Department of Agriculture. It also requires producers to keep records of every aspect of their operation, from seeds to harvesting history to compost sources. Some farmers find the paperwork and fees, which range from a few hundred dollars into the thousands depending on the size of the operation, as too much time and expense for the effort.
And then there’s the disinclination of many farmers, who tend to be independent sorts to begin with, to involve the government in their business if they don’t have to.
Joe Miller runs Miller Farms on 660 acres of land outside of Platteville. His parents started the farm in 1949.
With help from family members and friends, Miller says he sells produce at 42 farmers’ markets a week. When shoppers ask if his produce is organic, he says no, it’s pesticide free.
"We used to have some certified organic ground," says Miller, 45, who says his farm was saved when he introduced farm tours where people can pick their own produce, and other agritourism attractions like a corn maze. "I don’t even like dealing with the government on that deal," he says of organic certification. "It isn’t the expense; it’s just the headache of having to keep track of everything. And then at the end of the day it’s still your word that it’s organic or not.
"And the other thing is, we grow conventional corn, too, and then we rotate our ground with that. We do use chemicals on that. On our vegetables we don’t use anything."
Miller says his farm used to sell to grocery stores, back when he was a teenager. He remembers it as "just a big headache. You end up throwing away more than you actually sell. Everything has to be sized and sorted, the perfect size. If they were picking out a certain sized potato, they’d throw everything else away. Really a waste. We’re a real small operation compared to a farm that supplies for the grocery stores."
While Menagh, the Boulder market’s director, points out the tendency of large agricultural producers to become even larger through acquisitions and IPOs, he also sees some farming moving in the opposite direction.
"Where are we getting our new farmers?" he asks rhetorically. "Well, they’re actually coming out of our backyard gardens. They’re saying, ‘I really enjoy this, I want to develop it as a lifestyle,’ and they need some way to sell. Well, even Whole Foods can’t possibly handle that small amount of produce from a 2-acre farm. But a farmers’ market, these people will learn the skill and now we’re seeing the farms expand — to 20 acres, 40 acres."
Menagh points to Kipp Nash, a school-bus driver and self-described "sharecropper" in Boulder who farms about a dozen other people’s yards. Yard owners pay about $230 for sod removal, soil testing and amendments. In return they get a share of what Nash produces. His enterprise, Community Roots, is one of 26 USDA-documented CSA operations (Community Supported Agriculture) in the state.
Of course, all the farmers’ markets in Colorado and all the farm stands and CSAs are a drop in the milk bucket compared with Aurora Organic Dairy with its five farms in Colorado and Texas and its $100 million annual revenues. But even the organic dairy industry, mainstream as it’s become, represents only 2 percent or 3 percent of total milk sales.
Retzloff expects the organic milk market to keep growing at about 20 percent a year, possibly climbing to a market share of 10 percent in the next decade. He thinks there will be room for the small farmer.
"I think there’s plenty of room," he says. "The vast majority of processors with labels are buying from family farmers." He points to Horizon Organic, which still buys much of its milk from family farms, and Organic Valley, the Wisconsin-based farmers’ cooperative.
Kastel, despite the numerous complaints he has filed against large-scale organic dairies, says his outlook for the family farm is favorable.
"Industry-scale agriculture really only works with cheap oil," he says. "Moving commodities from coast to coast and shipping commodities across the seas only works with cheap oil. And the whole monoculture management practices only work with cheap petrochemicals, not only to run our tractors, but for the soil amendments and the pesticides.
"There will be great opportunities for farmers," Kastel predicts. "It used to be cities were ringed by farms, and we’ll end up with that again."
The opposite seems to be happening around Aurora Organic’s hub; the Platteville farm is becoming ringed by subdivisions. In recent years Weld County has been one of the fastest growing counties in the nation, with a 31 percent population increase since 2000. Hence, Retzloff’s description of the Platteville farm as "landlocked." He says Horizon proved the viability of large-scale organic dairies in the early 1990s, when it converted the conventional dairy in Idaho.
"When we had the opportunity back at Horizon to start a big organic dairy in Idaho where we were going to impact 50,000 or 60,000 acres by the feed that we were buying and so forth, I said, ‘Great. That’s a big chunk of agriculture that we’re changing.’
"Well, some of the activists began thinking, ‘That’s too big. That’s scale. You can’t really do it on that scale.’ And we proved that you could do it. We’re proving here today that you can do it."
Maybe, but USDA approval isn’t deterring Kastel. "There’s a higher authority in this country than the USDA," he says. "And that’s the consumer."
Mike Taylor is the managing editor of ColoradoBiz. He writes about small-business money issues and how startups are launched. Email him at email@example.com.