Organic Valley (Coulee Region Organic Produce Pool)

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Organic Valley (Coulee Region Organic Produce Pool)

507 West Main Street
La Farge, Wisconsin 54639
U.S.A.
Telephone: (608) 625-2602
Toll Free: (888) 444-6455
Fax: (608) 625-2600
Web site: http://www.organicvalley.com

Cooperative
Incorporated: 1988
Employees: 220
Sales: $125 million (2002)
NAIC: 112120 Dairy Cattle and Milk Production; 311512 Creamery Butter Manufacturing; 311513 Cheese Manufacturing; 112310 Chicken Egg Production; 112111 Beef Cattle Ranching and Farming; 112320 Broilers and Other Meat Type Chicken Production; 112210 Hog and Pig Farming; 111998 All Other Miscellaneous Crop Farming

Organic Valley, formally known as the Coulee Region Organic Produce Pool, or CROPP, is the nation’s largest cooperative in the United States made up solely of organic farmers. The cooperative is also the nation’s single largest source of organic milk. Marketing under the Organic Valley brand name, the cooperative sells organic milk both for primary consumption and as an ingredient in other foods. It also markets organic cream, butter, cultured cheese, eggs, and juice. Under the Valley Family of Farms brand, the cooperative also sells certified organic beef, pork, and chicken. The cooperative, headquartered in a small town in rural southwest Wisconsin, is made up of more than 500 farmer members in 17 states, representing all areas of the country from coast to coast. More than two-thirds are principally dairy farmers, and the rest raise meat, eggs, vegetables, or citrus crops. Organic Valley’s products are sold in all 50 states and in some overseas markets. The cooperative is a large player in what remains a very small niche market. Yet the market for organic foods grew enormously in the 1990s and is expected to continue in coming decades. Organic Valley saw sales increase dramatically in the late 1990s and early 2000s.

A Small Start

Organic Valley was founded as the Coulee Region Organic Produce Pool (CROPP) by seven farmers in 1988. Coulee is a geologic term for the small valleys that are common in southwest Wisconsin, where the original Organic Valley farmers were located. It was an area hit hard by drought in the mid-1980s, and many small family farms in the region were struggling to survive. George Siemon, currently chief executive of Organic Valley, was one of the founders of the cooperative. Siemon grew up in Florida, then took a bachelor’s degree in animal science from Colorado State University. He and his family began running an organic farm in Wisconsin in 1977. The Siemon farm used no pesticides or herbicides on its crops. Most conventional dairy farms treat their animals prophylactically with antibiotics. Siemon and other organic farmers eschewed preventive drugs, and only treated their animals if they were seriously ill. Siemon’s cows also grazed on pasture that was free of herbicides and pesticides. Siemon went on to become one of the nation’s premier spokesmen for organic methods of farming, and he was deeply committed to this method of agriculture. By the mid-1980s, however, he and other neighboring organic farmers felt that they were not getting a decent price for their milk and crops, and their livelihoods were in jeopardy. Siemon and the others first concentrated their efforts on marketing their organically grown vegetables. But dairy products represented a much bigger market, and the group soon focused on organic milk. The seven founders were all already members of a farming group called the National Farmers Organization). The NFO was founded in 1955 to give family farmers unified bargaining power. The nonprofit group pooled the interests of member farmers and negotiated prices for farm commodities. The seven coulee region farmers formed CROPP under the auspices of the NFO, hoping that their more specialized group would be able to raise the prominence of organic products. July 13, 1988 was the first day the group began shipping milk under the CROPP name.

In 1989 the small cooperative invested in an abandoned creamery in the small town of LaFarge, Wisconsin to serve as its headquarters. The group did not have its own milk processing facility, but used existing ones, with safeguards to keep its organic milk separate from conventional milk. To sell its milk, the group hired an outside marketer. But this arrangement did not work out, and CROPP soon developed its own marketing program and its own brand, Organic Valley. The Organic Valley brand debuted in 1989, and this name gradually became better known than CROPP.

For its first five years, the cooperative was able to sell only about half its milk for the premium prices organic milk fetched; the other half had to be sold on the conventional market. Gradually, the group picked up distributors on the East and West Coasts, where it sold primarily through natural food markets. Its products were more expensive than conventional dairy products. Its organic cheese, for example, sold for $6 to $7 a pound retail, about twice the price of other domestic cheese. But a growing number of consumers were willing to pay more for certified organic dairy products, and Organic Valley hung on. The organization’s philosophy was to do the best for its member farmers. So CROPP kept its overhead low, and offered high milk prices to members rather than aim to accumulate capital for expansion. The group also had a clear mission to preserve the family organic farm, believing that this was a method of agriculture that helped farmers, consumers, animals, and the land. As its brand became better known and its marketing and distribution more effective, the cooperative saw sales growth of around 20 percent a year. Sales for 1992 stood at around $2 million. Then in 1993 the organic dairy market took off, spurred by a new development in conventional farming.

Surge in Organic Market in the Mid-1990s

By the early 1990s, the overall dairy market in the United States was worth some $75 billion annually. Organic dairy products made up just a tiny slice of that, estimated at around. 3 percent. There were only a few nationally distributed brands of organic dairy. Besides Organic Valley, which had strong sales on the coasts, Stonyfield Farm and the Horizon Organic Holding Corporation also had nationwide sales of yogurt, milk, and other products. Some regional producers also had strong sales, such as the California organic dairy Straus Family Creamery. But the organic dairy market began to boom in 1993, the year the Food and Drug Administration approved an artificial growth hormone for cows called rBGH. rBGH was developed by the pharmaceutical company Monsanto. It was a genetically engineered hormone that stimulated milk production. Cows treated with rBGH were able to give as much as 25 percent more milk daily than cows that did not receive the hormone. The drug was hailed as a boon to farmers, but immediately met with criticism from consumer groups and raised animal rights concerns. Studies of the effects of milk from rBGH-treated cows had been done on rats, but some groups voiced fears that the milk’s safety to humans had not been adequately demonstrated. Studies showed that cows given rBGH were more prone to udder infections, which then raised the amount of antibiotics with which cows were treated. Already at that time half of all antibiotics prescribed in the United States went to farm animals. It seemed that rBGH might increase the amount of antibiotics given to cows, amplifying fears of antibiotic-resistant bacteria entering the human food chain.

rBGH caused a storm of controversy. Some states, including Wisconsin and Minnesota, passed legislation requiring that milk from cows treated with rBGH be labeled as such. Monsanto, on the other hand, sued some dairies for labeling their milk rBGH free, contending that the label misled consumers to think milk treated with rBGH was inferior. Milk sales declined more than 3 percent in the year after rBGH was introduced in the United States (though not necessarily because of rBGH fears). But organic milk products began to sell extremely well. Growth at Organic Valley picked up. The group had picked up new farmer members in its first half-dozen years, growing from seven members at its inception to 50 members by the mid-1990s. By the late 1990s, the group was taking in as many as 50 new members in a single year, and Organic Valley had to learn to cope with rapid expansion. Most of the group’s farmers ran dairies in Wisconsin, Illinois, Minnesota, and Iowa, but the group’s products were being sold in all 50 states and in Japan. By the late 1990s, organic products had moved beyond small natural food stores and were being sold in conventional supermarkets as well. This gave the cooperative many new opportunities. In 1998 Organic Valley reconfigured its marketing arm, adding three positions and splitting the country into three marketing regions. The cooperative also revised its legal structure slightly, to allow nonmembers to buy stock. The cooperative had sales of $28 million that year, a rise of 36 percent over 1997, and a huge jump over the $2 million the group brought in in 1992.

Company Perspectives:

We, the family farmers of Organic Valley are committed to: cooperatively market the finest in certified organic products produced exclusively by our family of farmers; market nutritious, wholesome food as directly as possible to the consumer; establish farmer-determined prices which provide the farmer with enough profit to sustain his family and his farm; encourage a farming future that emphasizes ecological diversity and economic sustainability; enable a healthy human livelihood by providing quality employment, cooperation, organic education, and community growth; practice environmental awareness and cooperative principles in all aspects of production, handling, marketing and operations; promote a respect for the dignity and interdependence of human, animal, plant, soil, and global life.

In 1998 the group made its second major capital expenditure, buying up an abandoned creamery in Chaseburg, Wisconsin. Within months of opening, the Chaseburg plant was making as much as 8,000 pounds of organic butter daily. Another new factor that year was Organic Valley’s introduction of a flash pasteurization process developed in Europe. The cooperative was the first in the United States to use the technology, which superheated and cooled milk in a one-second process, giving the treated milk a shelf life of 45 days. The Ultra High Temperature (UHT) pasteurizing process allowed Organic Valley to sell its milk in many markets, whereas earlier a shorter shelf life would have been a barrier. Sales continued to barrel ahead, hitting approximately $46 million in 1999. The group had grown to 135 farms, and milk sales were eight times what they were before the introduction of rBGH six years earlier.

Expanding the Product Line in the 2000s

George Siemon, Organic Valley’s CEO, was an active promoter of organic methods of farming. He served on the U.S. Department of Agriculture (USDA) committee on small farms and was key to the development of national standards for organic certification. Organic food was the fastest growing sector of the retail food market in the 1990s, growing by as much as 24 percent a year over the decade. Overall sales of organic food reached almost $7.7 billion by 2000. Up to 1999, the USDA had prohibited the marketing of meat as organic. But the USDA rescinded the restriction, and Organic Valley began selling a variety of beef, pork, and chicken products. In 2000 the USDA finally released National Organic Standards—a unified federal program for certifying organic foods, which had been ten years in development. The standards assured consumers that products labeled organic had been handled according to strict rules. The national regulations gave protection to organic farmers, since competitors could not claim their products were organic unless they complied with the USDA standards. By 2000 Organic Valley was distributing more than 100 different organic food products, and the group had more than doubled its membership from two years earlier, to more than 300 farmers. Sales for 2001 were slightly less than $100 million. The cooperative kept its profit to between 1 and 1.5 percent of revenue, which allowed it to give its farmers high prices. Although the group sold eggs, meats, and citrus products, Organic Valley continued to be heavily weighted toward dairy farmers. In 2002 Organic Valley was paying its dairy farmers almost twice what conventional farmers were getting for milk— $18.45 per hundred pounds in December 2002, for example, as against $9.74 per hundred pounds that conventional farmers received on the open market at the same time. Organic products, particularly milk, continued to be hot. An analysis quoted in the New York Times (August 1, 1999) predicted that organic dairy products would comprise 2 percent of the overall dairy market by 2005, and Organic Valley’s burgeoning sales seemed to bear this out. The group finished 2002 with more than 500 members and sales of $125 million. Revenue for 2003 was expected to top $155 million. The group contracted with 45 different processing plants across the country, and marketing was broken down into five regional groups handled by a sales force of 20. The cooperative’s plants in Wisconsin employed some 200 people, and for 2003 Organic Valley planned to spend $4 million on a new headquarters, having outgrown the old creamery it started out in.

Principal Competitors

Horizon Organic Holding Company; Stonyfield Farm, Inc.; Land O’ Lakes, Inc.

Key Dates:

1988:: A small group of organic farmers founds a cooperative.
1989:: The Organic Valley brand is launched.
1993:: Organic milk sales begin an upswing after the introduction of rBGH in conventional dairies.
1998:: The group reorganizes to allow nonmember stock ownership.
2003:: The group moves to new headquarters.