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Dean shareholders seek answers on organic

Laurie Budgar

April 24, 2008

4 Min Read
Dean shareholders seek answers on organic

Lobbing the latest salvo in the organic dairy wars, two socially conscious investment firms have filed a shareholder proposal asking Horizon Organic Dairy's parent company to make its organic practices more transparent.

Boston Common Asset Management and the Needmor Fund, based in Toledo, Ohio, asked Dean Food's board of directors to appoint an independent committee to review its policies and procedures for sourcing raw milk for its organic dairy products. The committee would also determine whether those procedures promote the spirit as well as the letter of the rules governed by the National Organic Program. There is "widespread concern," the proposal noted, that Horizon's practices "violate consumer trust, seriously jeopardizing share value."

"Since Dean Foods has owned Horizon, we've done nothing but increase the number of organic farms … and increase our commitment to [organic advocacy and trade groups] and increase the price we pay to farmers," said Kelly Shea, director of government and industry relations for Horizon.

But the criticism against Dean isn't new. Last year, the Cornucopia Institute, an organic watchdog group in Cornucopia, Wis., filed formal complaints with the U.S. Department of Agriculture against Horizon and Boulder, Colo.-based Aurora Organic Dairy. The complaints alleged that by virtue of their size, those dairies aren't complying with the NOP's access-to-pasture requirement. "It takes a long time to move the animals in and out, and if you have to rotate pastures—logically, you just can't move them to pasture," if a dairy has thousands of cows being milked three or four times a day, said Mark Kastel, senior farm policy analyst at Cornucopia, in an earlier interview.

In January, Cornucopia announced it had surveyed the dairy industry and would release a report rating U.S. organic dairy operations. The announcement provoked a media maelstrom, generating heated responses from large organic dairies, organic certifiers and the Organic Trade Association, and stirring up debate in the organic community.

As a result, Boston Common and Needmor have also asked Dean to report how the company intends to respond to increased public criticism of its large-scale dairy farms. "Concerns include environmental impact, humane animal husbandry practices and economic-justice issues pertaining to family farming," according to the shareholder proposal. Steve Heim, director of social research with Boston Common, which held 19,000 shares of Dean at the time the proposal was filed, said neither Kastel nor Cornucopia was involved in filing the proposal.

The proposal noted that media coverage has "damaged the reputation of Horizon products and caused some outlets to discontinue their distribution."

"What we were actually pressing with the proposal is the potential for [harm to] not just the share value of Dean Foods but the brand value of Horizon Organic," Heim said.

Shea said that any loss of distribution is a result of Kastel's media blitz and store visits, and that she was "stunned" when the proposal was issued, noting that the firms' concerns were "brought to their attention by Mr. Kastel" but that Horizon and Dean had since worked closely with the shareholders to address those issues.

"We've had a real open relationship with the shareholders. … We talked through it with them and really tried to educate them that the [NOP] standards are the toughest in the world, whether it's a 100-cow farm or a 1,000-cow farm. And they didn't know a lot of that, and we said, 'Let's continue this discussion.'"

Shea added, "I quite frankly don't know why they chose to do their press release because when we left [after a Feb. 17 meeting] it was quite cordial."

But Heim said Dean's response has been less than transparent. "They're objecting to putting [the shareholder proposal] in the proxy statement. We believe the information is important for shareholders to assess how Dean is responding to the situation and the potential harm to the Horizon Organic brand."

"I think that what [Dean] didn't want to put in was the call to have an outside independent group oversee all the procurement decisions," Shea said. "If you're not doing anything wrong and you're functioning with honor, why do you need to involve a group from the outside to oversee what you're doing? We're bound by the strictest rules in the world."

Natural Foods Merchandiser volume XXVII/number 4/p. 1, 12

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