Investors Question Dean Foods at Stockholders Meeting: Horizon Organic Milk Brand Faces Consumer Boycott Over Factory Farms

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Socially concerned investors, who filed a shareholder proposal with Dean Foods, today questioned the company's management at its Annual Meeting of Stockholders in Dallas as its marquee organic brand faces a growing consumer backlash over its reliance on factory-farm milk production. Investors believe the large-scale dairy operations are damaging the Horizon Organics brand and threaten shareholder value.

Socially concerned investors, who filed a shareholder proposal with Dean Foods, today questioned the company's management at its Annual Meeting of Stockholders in Dallas as its marquee organic brand faces a growing consumer backlash over its reliance on factory-farm milk production. Investors believe the large-scale dairy operations are damaging the Horizon Organics brand and threaten shareholder value.

Because of their concern, shareholders filed a proposal in December 2005 asking Dean Foods’ management to report to investors on how it is responding to widespread public criticism that industrial-scale organic dairies, supplying milk for its Horizon brand, violate consumer trust and seriously jeopardize share value.

Company management responded to the proposal by having its attorneys file a formal protest with the U.S. Securities and Exchange Commission asking for permission to omit the proposal from Dean’s 2006 proxy statement on a series of legal technicalities. Proponents withdrew the proposal in March in response to the challenge but brought their concerns to today’s annual shareholders meeting.

The shareholder proposal is a by-product of the five-year debate raging in the organic industry over the introduction of large-scale factory-style dairy farms, milking as many as 10,000 cows each. A growing number of public interest, environmental, and farming groups are suggesting that these farms violate current USDA regulations by labeling their products as organic.

The shareholders, led by Boston Common Asset Management, are asking for greater transparency from Dean Foods in terms of its organic milk suppliers and its plans for meeting the high consumer expectations for ethics and integrity in the rapidly growing organic milk market.

“Even though Dean Foods and its Horizon brand procure at least half of their organic milk from family farms, we think management needs to rethink its sourcing of milk from these controversial mega-dairies, or this ongoing practice will drag down the Horizon brand and harm shareholder value,” said Steven Heim, Director of Social Research of Boston Common Asset Management.

Last year, The Cornucopia Institute, a Wisconsin-based farm policy group, filed formal complaints with the USDA against three industrial dairies, including one owned by Dean Foods and another dairy from which it purchases organic milk for its Horizon label. The complaints allege that these mega-farms are violating the law by confining their cattle to feedlots and sheds rather than grazing the animals on pasture. The Institute is preparing to seek court intervention in order to force a full investigation of the alleged improprieties.

In March the Cornucopia Institute published a report (available at http://www.cornucopia.org) profiling the ethical and farm management practices of the nation’s organic dairy product suppliers. The Horizon brand ranked poorly relative to most of the 67 other branded organic dairy products.

“We find this a credible report, and we are disturbed by its implications for Dean Foods,” Heim said.

Dean Foods is the nation's largest milk marketer and has also become the biggest U.S. marketer of organic dairy products with its acquisitions of the Horizon Organic, Alta Dena, and Organic Cow of Vermont brands. The company’s core business has been somewhat stagnant in recent years, and it has recently been touting its investments in the organic milk labels and the country's leading soy milk brand, Silk, as vehicles to make its stock more attractive on Wall Street.

But negative press surrounding Dean’s organic milk procurement practices has already led to some retailers dropping the Horizon brand. And members of the Organic Consumers Association recently voted in favor of a boycott.

"It is very important for Dean to address the core concerns articulated in our shareholder resolution,” said Margaret Weber, Coordinator of Corporate Responsibility with the Adrian Dominican Sisters. “Transparency regarding organic practices has business implications for the company."

Weber explained that the shareholder proposal asked the company to appoint an independent committee of the board to review its policies and procedures for sourcing raw milk for its organic dairy products, and whether its current practices conform to the spirit as well as the letter of the official rules defining organic dairy products.

The investor groups also want to know how the company intends to respond to increasing consumer and media scrutiny, and whether a proposed $10 million investment in an additional large-scale dairy farm in Idaho will mitigate or exacerbate the criticism.

Horizon has also been criticized for disposing of calves born at its organic farms and replacing them with yearling heifers that were not raised organically – a practice that was disclosed and verified by Horizon senior management during direct discussions with The Cornucopia Institute concerning their procurement of the brand’s organic milk.

To replenish the farm’s milking herd, commercially raised replacement cattle are then brought onto the Horizon farm. These animals may have been raised on feed treated with pesticides and mixed with additives including blood products recovered from slaughtering operations.

"We are concerned that Dean Foods' lack of transparency to its shareholders betrays a similar attitude toward its core consumers, particularly consumers of its Horizon brand products,” said Daniel Stranahan of the Needmor Fund, another investor-sponsor of the resolution. “Industrial dairies with 2,000 to 10,000 cows are antithetical to the concept of organic farming, which supports family-scale production with sound environmental policies.”

And Leslie Lowe, director of the environment program at the Interfaith Center for Corporate Responsibility in New York, said, “Dean Foods has an excellent opportunity to return value to its shareholders through its investments in the organic industry. But they must respect the ethical beliefs of their organic customers, a very loyal and sophisticated market segment. Otherwise these investments could end up damaging their brand and costing investors dearly."

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EDITOR’S NOTE: A Representative of the shareholders’ groups will be in Dallas for the Dean Foods Annual Meeting of Stockholders being held Friday May 19th at the Dallas Museum of Art, located at 1717 North Harwood. Steven Heim is available for interviews before and after the meeting and can be reached at 617-720-5557 or 617-785-9527 (c).

Mark Kastel, of The Cornucopia Institute, is also attending Friday’s shareholders’ meeting. Mr. Kastel can be contacted at 608-385-3803. The Cornucopia Institute acts as a technical adviser to investment groups regarding organic dairy production issues, USDA organic standards, and their policy/marketing implications.

More criticism of Dean Food’s organic brand management is also being raised concerning the use of commercially raised replacement cattle being brought onto their Idaho 4,000-head dairy. These commercial replacement cattle may have been raised on feed treated with pesticides, weaned on milk replacer containing blood products recovered from slaughtering operations, and been injected with hormones and antibiotics. All of these practices are unacceptable to organic consumers. At issue is how this affects the company’s representation of its Horizon milk products as produced without antibiotics, hormones or toxic pesticides.

Contact:

Steven Heim, Director of Social Research, Boston Common Asset Management, LLC, 84 State Street, Suite 1000, Boston, MA 02109 Tel. 617-720-5557 Fax 617-720-5665, email sheim @ bostoncommonasset.com

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