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Organic Valley Capitulates on Raw Milk

Organic Valley started up in 1988 with a vision of being a different kind of milk cooperative, one that helped save small family dairies via promoting organic dairy products.

"It was an idealistic, mission-oriented place in those days, spreading the gospel about the benefits of organic dairy and founded on the premise of economic-justice for farmers," recalls Mark Kastel, who served as a consultant to Organic Valley a year after it launched. (He's currently head of the Cornucopia Institute, a watchdog organization that monitors dairy compliance with organic standards.)

That idealism and Americans' insatiable appetite for organic food helped propel Organic Valley onto a rapid growth path. Today it has more than 1,600 dairies and upwards of $500 million in annual sales, along with a premier brand in the organic-food marketplace with its line of milk, butter, yogurt, and cheese.

Unfortunately, at least some of the idealism has vanished, thanks to a bitter year-long struggle among the farmers about whether the co-op should allow its dairies to sell or distribute unpasteurized, or "raw," milk on the side.

Last week, the board voted four to three to prohibit its member dairies from selling raw milk. "It's not a fun issue here," says George Siemon, the CEO. "Everyone on the board drinks raw milk." It's been the most bitter dispute in the enterprise's 22-year history, he says.

The decision threatens to tear Organic Valley apart, or at least hamper its business effectiveness, by raising two major risks.

First, Organic Valley could lose a significant number of its dairy members. No one knows how many of its dairies sell raw milk, but 10% seems a conservative estimate, according to co-op insiders. That means 150 or 200 dairies, minimum, are selling raw milk. For those dairies, the business challenge is that raw milk fetches between $5 and $10 a gallon, while Organic Valley and other co-ops typically pay in the vicinity of $1.50 per gallon for bulk milk that then goes to pasteurization. But because most of the raw dairies are far from urban centers, where demand for raw milk is greatest, and are limited in most large states like Pennsylvania, New York, and Massachusetts to selling direct from the farm, it's difficult to sell all their milk unpasteurized.

With Organic Valley having taken its anti-raw-milk stand, those dairies have to choose between selling all their milk to the co-op, or complete a transition of selling all their milk directly to consumers, unpasteurized.