Tracking the Corporate Takeovers in the Organic Industry

>From the Sept. 2004 Issue of the Cooperative Grocer

Corporate Ownership
Tracking the shifting sands of the organic industry
by Mark Kastel <www.cornucopia.org>

A thoughtful question came in from an observer of the natural foods industry
regarding my article in the July-August Cooperative Grocer, "Reclaiming the
True Meaning of Organic." She wanted to know about some of the corporate
ownership stakes in familiar organic brands. Are megacorporations,
including Heinz, General Foods, Dean, Campbell's, and others, simply acting
as investors, holding minority equity positions in independent corporations,
or do they actually own, control, and set policy, for some of the biggest
names in organic food?

I will take two different examples of corporate investment in organic
food and show how they are playing out.

Dean Foods, the largest milk bottler in the United states, with 29,000
employees and sales in excess of $9 billion, purchased White Wave and
Horizon over the past two-and-a-half years. In early August they announced
that their ownership would be anything but passive. In a management
shake-up and corporate realignment, they have relocated the headquarters for
Silk to Boulder, Colorado, where Horizon has always been located, and they
combined these two entities manufacturers of products which are, in the
words of company Chariman Gregg Engler, "authentic and nutritious"--with
other specialty foods including international Delight coffee creamers,
Hershey's milk/milkshakes, and Dean's dips.

Dean has lopped off some of the upper management at Horizon and has
brought in a new corporate team. The labeling on Silk or Horizon brand
products will not allude to their corporate ownership and will not talk
about their 3,000-4,000 cow "organic" farms or soybeans imported from
Brazil. Consumers looking for true integrity and authenticity are
handicapped, while retail buyers have the opportunity to help discerning
purchase decisions.

Another example of corporate investment in organic food marketing is the
H.J. Heinz Co. of Pittsburgh. About the same size as Dean at just under $10
billion in sales, the company is known for its flagship line of tomato
products and other consumer favorites such as Kibbles n' Bits. In the field
of organics, they've taken a wholly different tack.

First, the made a major investment in Hain, which would later acquire
and merge with Celestial Seasonings to form Hain/Celestial. Hain/Celestial
controls a multitude of major brands including Walnut Acres, Arrowwhead
Mills, Health Valley, and many others. Heinz originally purchased 20% of
the stock in Hain/Celestial and then transferred the assets to a number of
their product lines, including Earth's best baby food and Ethnic Gourmet.
It is not easy tracking the labyrinth of corporate investment,
transfers, and control of these large publicly held corporations, but under
Securities and Exchange Commission law we can do a certain amount of
research. Also, some corporation are more open than others. As with Dean
or Dannon (Stonyfield), observers can debate the level of influence the
corporate managers have and whether this type of investment is good for
organic consumers and farmers.

According to a top corporate communications offer at Heinz, Jack
Kennedy, their stake at Hain/Celestial, after all the transfers and
additional equity growth, stands at approximately 16%. Heinz also has two
officers on the Hain/Celestial board of directors. When asked, after their
substantial investments, whether they had the right to purchase additional
stock or wholly acquire the company, Mr. Kennedy said he was not at liberty
to discuss their future plans.

The second thrust of the Heinz involvement in organics is much more
transparent. They have made major investments and are an organic leader in
England and the EU, marketing tomato products, baked beans, and other family
fare. In the United States, on the other hand, they have only one organic
SKU, their brand and category leader, ketchup. Heinz weighed associating
their name with the credibility of an organic label and decided, based on
market research, that there was a strong audience for an organic version
that could deliver the familiar Heinz ketchup taste. According to Robin
Teets, with the Heinz North American group, in the first 12 months after
their product launch there was a 60% growth in the organic ketchup category,
and Heinz accounted for a majority of that volume. Rank-and-file organic
consumers are certainly voting in favor of some corporate involvement.
However, not only is Heinz proud to use its name on organic products and
not concerned about devaluing its conventional offerings, they are also
producing this product with a high level of integrity. Instead of choosing
an organic certifier that would be more common with corporate organic
players, or importing concentrated tomato products, their fresh tomatoes are
grown on California farms and certified by Oregon Tilth.

The Cornucopia Institute has suggested that measuring corporate behavior
in terms of organic integrity should be scale neutral. Operating
2,000-5,000 cow factory farms, scoffing at the federal law requiring
pasture, or importing vegetables from China with dubious environmental
pedigrees are unacceptable, whether the products are generated by a large
international corporation or a mom-and-pop enterprise. Corporations that
truly subscribe to maintaining a high standard for organics, as opposed to
paying lip service, should be applauded and welcomed as part of our
community.

The Cornucopia Institute is conducting research in order to provide
co-op buyers and members with a web-based tool to evaluate the practices of
major players in the organic arena. The Institute is starting with organic
dairy but will also do comparisons of meat, poultry, egg and vegetable
production, among other product categories. More information can be found
at www.cornucopia.org.