Organic Milk Pours Into Mainstream

Fear and confusion about the health effects of antibiotics, pesticides and hormones used to treat and feed dairy cows have fueled a sales boom for producers of organic milk in the last two years.

Once relegated to the shelves of natural foods stores, organic milk has pushed into mainstream supermarkets and the homes of consumers who never before have sought out organic products.

“It’s one of the fastest-growing categories we have,” says Katherine DiMatteo, executive director of the Organic Trade Assn. in Greenfield, Mass. “Think about it: Just three years ago there was [virtually] no organic fluid milk on the market.”

A handful of organic dairies now have national distribution and are growing by double digits each year, despite retail prices averaging 50% to 70% more than for milk from conventional dairies. A half-gallon of Horizon Fat-Free Organic Milk, for example, was priced at $2.99 recently at a Vons supermarket in Glendale, compared with $1.98 for a half-gallon of conventional milk.

Sales data for organic milk is scant, because the category barely existed before 1996. Last year, sales of organic milk and cream reached $115 million, a new high for the industry that was reached largely on the 62% sales growth in mainstream grocery stores, according to SPINS/ACNielsen. Still, that’s just 1% of the $10.4-billion U.S. milk market.

Organic milk first began hitting a few supermarket shelves in the mid-1990s, but only recently has the product become available across the country.

A little more than half of organic milk is still sold by natural foods retailers such as Whole Foods Markets and Wild Oats.

Five-year-old Horizon Organic Dairy of Longmont, Colo., largest of the country’s organic milk producers, now sells its milk in almost a third of U.S. supermarkets. Sales were $3.4 million in 1994, the year of its introduction, then surged to $16 million in 1996 as the company began selling nationally, and reached $49.4 million last year.

To supply this growing network of stores, Horizon had to develop new dairies in Idaho and Maryland and purchase others, such as Vermont’s Organic Cow and Juniper Valley Farms, which buys milk from family farmers in New York state.

This year, Horizon also has struck deals to expand overseas, selling yogurt and dairy products in Japan and Britain. It plans to move into Western Europe next.

The company’s growth is coming not just from geographic expansion and increasing market share. Consumer awareness and demand for organic milk boosted the dollar volume of same-store sales by 53% between 1997 and 1998, according to Joe Langley, Horizon’s vice president for sales.

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This rising tide of consumer interest is occurring despite a lack of hard scientific evidence that conventional milk poses a threat to human health. But concern over the safety of a genetically engineered hormone known as bovine growth hormone (BGH) or bovine somatotropin (BST), used to stimulate milk production in a third of this country’s dairy herds, has helped steer customers to organic products.

Sold under the trade name Posilac, the drug manufactured by St. Louis-based Monsanto Co. is supposed to enable cows to produce an average of 10% to 15% more milk.

Although Posilac was approved by the Food and Drug Administration in 1993, it has since been banned from European markets until the end of the decade and was rejected by Canadian health officials in January.

Health Canada, the FDA’s counterpart in that country, banned the product because it thought the hormone posed a significant risk to the health of the cows.

Canadian health officials also worried that a greater number of bovine infections would have to be treated with antibiotics, which could in turn raise human tolerance to antibiotics.

Consumer activists in the U.S., meanwhile, have filed a petition with the FDA, asking the agency to rescind its approval of BGH. The petition is still under consideration and has not yet received a response, says Michael Hansen of the Consumer Policy Institute, a unit of Consumers Union.

Animal scientists in California, however, say consumers should not let the debate scare them away from conventional milk. They say the amount of hormone that winds up in the milk is the same as that found in organic products.

“The [BGH] compound is indistinguishable from what the cow already produces [naturally],” says John Bruhn, director of dairy research at UC Davis. “The concentration in milk is the same, whether you inject the cow or not.”

FDA Director Stephen Sundlof says the agency’s review of BGH showed no measurable risk to human health. And, he says, there have been no health problems reported to the FDA since the drug’s approval five years ago.

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For a growing number of consumers, however, the uncertainty is incentive enough to pay extra for organic milk.

Gaby Negulesco says she buys the organic variety because it contains no hormones or other unnatural ingredients. She says she wonders about the long-term effects that hormones might have and she doesn’t want to take any chances.

“I’m not 100% sure, but it would make sense that something not intended to be there, like BGH, might have repercussions down the line,” Negulesco said as she shopped for groceries at Vons on Los Feliz Boulevard in Glendale. “The idea is to go back to a lifestyle that is as natural as you can.”

Most other consumers surveyed informally at Vons were not familiar with the BGH research. Most didn’t know what risks, if any, the growth hormone posed, and many were not sure what the term “organic” meant when applied to milk.

“Isn’t all milk organic?” asked Frank Rodriguez of Glendale. “It comes from an animal, doesn’t it?”

Organic milk, defined under private and state guidelines, must come from cows not treated with hormones or antibiotics and that are not fed grain treated with pesticides.

Horizon Organic Dairy’s core customers are shoppers like Negulesco who are wary of food additives, even those that have passed government muster, says company founder Paul Repetto.

“People want high-quality foods that they can have confidence in,” Repetto says. “When you break it down on a cost-per-serving basis, we’re not talking about much money here.”

But unless prices for organic products come down significantly, analysts say, they will probably never be a serious threat to conventional milk producers.

Indeed, for many California dairies, including Alta Dena Certified Dairy and Clover-Stornetta Farms, organic is just a sideline.

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But organic milk has changed the landscape of the dairy business in just a few short years as companies such as Horizon have purchased smaller competitors and begun building up large dairy supplier networks around the country.

Family farms that had struggled to compete with large dairy cooperatives can now sell for a higher price to organic processors such as Horizon or Organic Valley or sell to local retailers themselves. Because of their organic status, they do not have to adhere to federal pricing guidelines.

“In the beginning, everyone thought we were crazy,” says Albert Straus, president of Straus Family Creamery, a 6-year-old organic dairy in Marshall, Calif., which sells its unhomogenized milk in old-fashioned glass bottles. “But now people are starting to realize that there’s all of this stuff in food they don’t know about. We’ve grown threefold since we started.”

The privately held company, which distributes mainly in Northern California, posted sales of $4 million last year and is establishing a presence in Southern California, Arizona and New Mexico.

Industry leader Horizon is attempting a much more ambitious expansion. Earlier this year, it launched a joint venture with one of Japan’s largest dairies, Takanashi Milk Products, to sell organic products in that country under the Horizon name. It also acquired Britain’s No. 2 organic yogurt producer, Rachel’s Dairy, with plans to expand across Europe.

“Horizon is extremely well-positioned to develop a national brand” in Britain, says Yudi Bahl, natural foods analyst with Minneapolis-based U.S. Bancorp Piper Jaffray. “A strong position in the U.K. could make it easier to launch into other European markets.”

In the U.S., Bahl says, sales growth for organic brands such as Horizon are likely to slow in the next few years. But, he says, prices should edge down 10% to 15% as the niche becomes more competitive. The greatest threat, Bahl says, will come not from new brands, but from the supermarkets themselves.

“When they look at these profitable organic products on their shelves, at some point they’re going to say, ‘Why don’t we put in our own private label?’ ”