The Company That Made Silk Soy Milk Non-Organic Has Bought the Biggest Organic Salad Supplier -- What's in Store?
WhiteWave, maker of Silk soymilk, is purchasing San Juan Bautisa-based Earthbound Farm, the nation’s largest producer of organic produce. Organic industry observers are wondering what the fallout of this consolidation, announced December 9, will be. For WhiteWave CEO Gregg Engles, the road ahead is clear.
“With Horizon Organic and Earthbound Farm, WhiteWave will now provide the two most popular gateways for consumers to enter into the organic category — produce and dairy,” he stated in a press release.
The purchase comes barely a year after the Initial Public Offering of WhiteWave stock, after it was spun off from its parent company, Dean Foods. Perhaps “foster parent company” would be more accurate, as Dean Foods had purchased WhiteWave 10 years earlier, a move that resulted in a downgrade of its Silk products from certified organic to the meaningless label of "natural."
Earthbound Farm, which started in 1984 with a rented raspberry patch and a farm stand, went on to transform the way America eats salad. Today it controls 60 percent of the bagged organic salad market, which it helped pioneer. Along the way, Myra Goodman, who started the company with her husband Drew, has used her stature to further the cause of clean, fresh food. The first recipe in her first cookbook is for raspberry corn muffins, the wildly popular muffins she used to sell at the farm stand. The Goodmans’ success, from such humble roots and with such good intentions, sounds like a foodie fairy tale.
But some are forecasting dark clouds over the WhiteWave buyout, as it invokes the specter of Dean Foods, the nation’s largest dairy. Soon after purchasing WhiteWave in 2002, American organic soybean growers, who had been supplying Silk’s primary raw material, were told they had to meet the price of Chinese organic soy, which was lower. Organic soy is labor-intensive, American farmers couldn’t go that low, so Silk began sourcing from China. The company amassed a commanding share of the organic soy milk market, before pulling a stealth bail on organic.
Silk switched its supply again, back to the U.S., and to conventional soybeans. New product offerings from Silk were not organic, and the flagship product was downgraded as well, with “organic” being replaced by “natural.”
WhiteWave was, by this time, a division of Dean Foods, and another Dean Food holding, Horizon Organic Dairy, was transferred to WhiteWave. Horizon is the largest organic dairy in the nation, and the largest organic brand, period.
Dean Foods, and its executives, played key roles building Horizon, and similar principles and practices were used to those that made Dean Foods the nation’s largest dairy: gobbling up smaller dairies. In the case of Horizon, many of these small dairies saw their core organic principles get tossed.
Now WhiteWave has staked out on its own, and taken Horizon with it. These brands no longer are associated with Dean Foods, which has become a hated name among many in the organic community.
CEO Engles put the advantages this way: “The spin-off will provide WhiteWave with greater flexibility to build its portfolio of great-tasting, nutritious and responsibly produced products. We look forward to our future as an independent company with a clear strategy, a leading portfolio of trusted brands and a culture of continuous innovation.”
Organic watchdog Cornucopia Insitute codirector Mark Kastel fears that with the purchase of Earthbound Farm, WhiteWave is gaining undue influence in the industry. “This new acquisition even gives corporate lobbyists at the former Dean Foods/WhiteWave a direct conduit to the important National Organic Standards Board via John Foster, an employee of Earthbound and an NOSB member,” he wrote in a press release. Earthbound, however, has objected to the insinuation that WhiteWave will control John Foster.
Cornucopia raises important concerns about the new WhiteWave, but got it backwards in claiming that, “After [Dean Foods] were done pillaging they then jettisoned the WhiteWave division earlier this year.”
If anyone was jetissoned it was Dean Foods, which was left with its conventional dairy business, while WhiteWave got the hottest, most profitable brands, including Horizon, the biggest organic brand of any kind. Silk, love or hate the politics, is a damn good-tasting soy milk. WhiteWave also makes International Delight non-dairy creamer, which contains sodium caseinate, a milk derivative. The company is allowed to call its product non-dairy because of an FDA loophole that classifies it as “non-dairy” because of the process by which it is extracted.
Now, with the addition of America’s largest organic producer, WhiteWave has a lock on some of the most profitable, and growing, industries. Wall Street seams to agree. In the two days following the announcement WhiteWave’s stock price was up nine percent. Engles, who owns nearly three million shares of WhiteWave, still sat on the Dean Foods' board until May of this year.
WhiteWave says it plans to run Earthbound as a separate business unit, with no significant operational changes planned, and has expressed interest in keeping Myra and Drew Goodman on board as advisors. Similar promises were made to WhiteWave/Silk founder Steve Demos. He told Bullfrog Films,
“Dean Foods said ‘We agree you have a culture, and we agree with the principles.’ That’s how I agreed to stay with Dean Foods and run Silk after its acquisition. I was told one week that I was doing a brilliant job and everything was working great, and the next week it was ‘you’re not the right person for this job.’”
The Goodmans are planning to stay on, as advisors and brand ambassadors, but their remaining 10 percent stake in their company will be sold.
As the Monterey County Weekly reported, the process of selling out began in earnest in 2009 with a barely reported deal with HM Capital Partners, now known as Kainos Capital, which owns 80 percent of Earthbound Farm.
“HMCP describes itself as a Dallas-based private equity firm that primarily makes investments in the energy, food and media industries, using ‘a distinctive investment strategy that generates attractive returns,’” the Weekly wrote.
Private equity firms are often contracted with to orchestrate a public stock offering, allow owners to cash out, or pursue strategic expansion. In this case, HMCP orchestrated a buyout. And with the sale, the Goodmans might finally be out for good, 30 years in.
So the Goodmans finally sold out, and good for them. Myra Goodman started the company with her bare hands because babysitting didn’t pay enough to put herself through grad school. Her cookbooks are loved and respected, and solidify her cred as a sincere player in the organic movement. She’s certainly earned the right to wash her hands now. But is her company going to be whitewashed in the process?
Cornucopia’s Kastrel is afraid it will. In an email he told me that WhiteWave, "has a long record as a bad actor in its treatment of family farmers, both conventional and organic, and taking advantage of the goodwill of organic consumers. [Its] acquisition of another industrial-scale organic agribusiness further consolidates power in the marketplace.”
I asked Samantha Cabaluna, spokesperson for Earthbound Farm, if the company’s sale will mean, at the very least, big changes for Earthbound Farm.
“Absolutely not,” she told me by phone. “WhiteWave was interested in the purchase because they like what we do and want to expand on that.”