Larry Hansen was dairy operations manager for milk quality and supply at Horizon Organic for four years before taking a similar job at Organic Valley, a dairy farmer cooperative that is the second largest supplier in the US.
Now the nation’s two biggest suppliers of organic milk are involved in a lawsuit. Horizon’s lawsuit alleges a breach of contract and the misappropriation of confidential information and trade secrets.
Horizon Organic, owned by Dean Foods, the biggest supplier of organic milk in the U.S., claims that Hansen had access to its supplier list, which it keeps confidential, as well as sales demand projections, which it also closely guards.
Hansen negotiated contracts with farmers and possessed highly confidential business information on operating margins, supply needs, and Horizon’s national database of suppliers.
Horizon says that because of the sensitive information he was privy to, Hansen had to sign a nondisclosure agreement.
“Horizon claims that the employee, who has been working in the dairy industry for years, must be prevented from working for any competitor in any capacity and that simply hiring the employee was misconduct,”Organic Valley spokeswoman Elizabeth Horton said.
“Quite a few farms shipping milk for their Horizon label, over the last couple of years, have jumped ship and joined the CROPP Co-op [Organic Valley],”said Mark A. Kastel, Senior Farm Policy Analyst at the Wisconsin-based Cornucopia Institute.
Kastel claims when there was a milk surplus in 2009, Dean Foods was accused of using strong-arm tactics against their Horizon farmers, forcing a number out of business, and forcing many to renegotiate their contracts with more advantageous terms.
Kastel added that the CROPP Cooperative, owned by family farmers, treated their suppliers better during the period of oversupply.
According to the USDA, sales of organic milk slowed during the recession, but during the first four months of 2012, sales increased by 5.7 percent from a year earlier.
The trade publication Dairy Star claims Horizon, a part of WhiteWave Foods owned by the $13-billion dairy giant Dean Foods, had sales of about $2 billion in 2011, and has a 35 percent to 40 percent share of the market.
Organic Valley had sales of about $700 million last year.
“We chose to take legal action because neither Larry Hansen nor his new employer, Organic Valley, would otherwise talk to us after repeated attempts,”Luana Hancock, a WhiteWave spokeswoman said.
“Their absolute unwillingness to enter into any substantive dialogue is puzzling, as we have worked amicably with Organic Valley on various organic issues over the years”
“Maybe one reason Horizon is being so aggressive is that organic milk is in short supply right now,”says Kastel, co-founder of the Cornucopia Institute.
Kastel suggests market share will be determined by who has the milk, and that this lawsuit is just a way for Horizon to intimidate the smaller company.
Two Companies Dominate Organic Milk Market
“Since these two companies dominate the market, if a farmer isn’t shipping to one, he’s most likely shipping to the other,” Kastel said.
According to the USDA’s National Dairy Retail’s July 2012 Report, the average price of a gallon of organic milk was $4.98, compared to $2.94 for conventional milk.
The cost of organic grain and hay to feed the cows has increased. “The margins are very constrained,”says Kastel. Which means that fewer farmers are converting their dairies to organic, a process that can take around three years.
Cornucopia claims CROPP/Organic Valley family farmers, who once supplied 100% of the milk for Horizon label in the early 1990s, have regularly lost market share to Horizon after the company shifted their purchasing to giant factory farms.
Dean/Horizon has added family-scale dairies around the country while continuing to invest in large Concentrated Animal Feeding Operations (CAFOs) producing organic milk.
“This lawsuit is certainly indicative of no love being lost between Dean Foods and the co-op that controls the Organic Valley brand,”according to Kastel.
“As the marketplace has now tightened, and organic milk has been in shorter supply, Dean obviously feels insecure about holding onto their patrons”
Kastel claims just 48 farms, supplying 35% of the milk supply for their Horizon label, is “emblematic of Dean Foods’ reliance on supersized dairies for their organic milk supply”
Kastel added that nationwide, it is thought that the average size organic dairy farm milks approximately 60-90 cows.