How a Proposed $10 Billion Dairy Industry Merger Will Impact Your Glass of Milk
The French dairy giant, Groupe Danone (Dannon in the U.S.) has announced the proposed acquisition of WhiteWave Foods for approximately $10 billion. The deal would combine the world’s largest organic yogurt brand, Stonyfield, with Wallaby, a rapidly growing yogurt label, and the nation’s largest brand of organic milk, Horizon. Groupe Danone holds an 85 percent stake in Stonyfield.
We at the Cornucopia Institute, an organic industry watchdog, are formally challenging the acquisition and have asked the Department of Justice and the Federal Trade Commission to scrutinize the deal. We argue that the merger would cause a serious erosion of competition in the consumer marketplace and would have a negative economic impact on U.S. organic dairy farmers.
“We are concerned that Danone will easily beat out any competition by lowering prices beyond what farmstead dairies, and more moderate size milk processors and marketers, can withstand,” said Marie Burcham, a livestock policy analyst with Cornucopia.
WhiteWave brands are the top sellers in their categories. Its Horizon organic milk controls nearly 25 percent of the organic milk market, while its Silk brand is a leader in plant-based beverages. Danone would potentially control a bigger piece of the organic dairy market than a single company has ever controlled.
Stonyfield already dominates the U.S. organic yogurt market. According to a respected industry insider, who requested anonymity, Stonyfield's brand accounts for 65 percent of all organic yogurt sales. One of its fastest growing domestic competitors is WhiteWave's Wallaby, which has a 3 percent market share. WhiteWave acquired the California-based Wallaby for $125 million late last year to complement its Horizon organic yogurt brand which possesses a 1 percent market share.
Dairy has long been considered a gateway organic food, being one of the first foods consumers associate with the organic label. In many households organic milk and yogurt are among the initial foods introduced to children. Following fruits and vegetables, organic dairy products comprise the second largest segment in the organic industry.
“Mergers like this one could eventually reduce options and raise prices for consumers without any positive impact on the quality of the products they are buying,” observed Mark A. Kastel, Cornucopia’s co-director. “It similarly raises serious questions about the future of the organic milk supply market as it will have a chilling impact on both competition in the consumer marketplace and the wholesale market for organic milk.”
Annual sales of all organic products now total $43 billion. The rising consumer hunger for organics has caught the watchful eye of Big Food leading to multiple mergers and acquisitions over the past decade as they gobble up competitors and grab their slice of the organic pie. A popular infographic by Phil Howard, an associate professor at Michigan State, details and tracks this ongoing activity.
WhiteWave and Groupe Danone officials, for their part, expressed their mutual delight when the merger was proposed in early July. WhiteWave CEO Gregg Engles called the announcement “an exciting next chapter… bringing together two leading companies with a shared mission of changing the way the world eats for the better.” Engles, who previously led the U.S. dairy giant Dean Foods, had shepherded the company's spinoff of WhiteWave in 2013. Engles then left Dean Foods to become WhiteWave's new CEO.
Groupe Danone's CEO Emmanuel Faber described the merger as a “perfect alliance” toward a healthier future. He added that it would help the company accelerate its path “towards strong sustainable and profitable growth by 2020” while positioning Danone to better “address tomorrow’s consumer trends.”
Cornucopia detailed its merger concerns in letters to the DoJ and FTC. We asked that the federal agencies treat the proposal as suspect. We further requested an investigation into possible monopolistic and antitrust violations. We have also established a petition drive on our website aimed at increasing pressure on federal regulators for a full and thorough review.
“The market for organic dairy already has less competition than other agricultural sectors and is more susceptible to monopolization,” explained Burcham. “We ask,” she said, “that federal authorities consider the organic dairy and organic yogurt markets in particular as different and already more concentrated markets in comparison to Danone’s other, non-organic market share.”
Burcham, who in addition to her expertise in livestock agriculture is trained as an attorney in environmental law, added, “These are important considerations for determining whether this acquisition violates the Sherman Act and the Clayton Act for anti-competitive and anti-trust reasons.”
We at Cornucopia are not alone in raising concerns about the merger. The law firm of Gainey McKenna & Egleston has filed a class action lawsuit against WhiteWave. Taking a different tack, the lawsuit alleges that WhiteWave's shareholders are not being fairly compensated for their holdings and that the proposal is “fundamentally unfair” to them. Other law firms have indicated they too are investigating potential lawsuits.
Thus far, corporate officials at Groupe Danone and WhiteWave have remained silent on the challenges to their proposed merger.
The full ripple effects of the Danone/WhiteWave union are unknown. The number-two brand of organic milk in the marketplace (after WhiteWave's Horizon organic milk) is produced by Organic Valley, a member-owned farmer cooperative. Organic Valley has been the longtime supplier of the raw milk Stonyfield uses for its yogurt brand.
If, after its acquisition, Danone decides to dump Organic Valley (currently a Horizon Organic competitor), as a supplier, it could leave only one major purchaser of organic milk from farmers in some regions of the U.S., such as New England.
“With less competition, big companies commonly underpay independent farmers for their products, undermining the economic viability of small, family-scale farms. We should be very wary of this merger,” said Cornucopia's Kastel, a longtime analyst on dairy policy issues and a former lobbyist with the Farmers Union.
Further complicating the matter, one of the other leading brands of fluid milk, marketed under the Stonyfield label, is actually produced and distributed by Organic Valley. “We are talking about the potential for a major disruption in the marketplace and erosion of true competition which has historically benefited farmers,” Kastel noted.
Under both Democratic and Republican administrations antitrust enforcement in the U.S. has been anemic, at best, over the past two decades. However, recent decisions by the DoJ to scrutinize the Staples/Office Depot merger, and major proposed consolidations in the beer and healthcare industries, leaves organic dairy farmers optimistic that closer analysis of the Danone/WhiteWave deal is possible.
“This merger represents a 'clash of cultures,'" stated Kastel. He explains that one of the companies, Stonyfield, built its reputation and brand on its imagery of supporting family-scale dairy farms, predominantly in the Northeast.
WhiteWave, the former division of Dean Foods, is the largest organic corporate dairy enterprise in the U.S. A substantial percentage of the milk used in Horizon products comes from factory-dairies, west of the Mississippi, many milking thousands of cows each. This “organic” production is taking place in states like Texas, Idaho, New Mexico, and eastern Oregon, where the center of conventional dairy production has shifted over the last two decades.
“Which production model will dominate,” asks Kastel. “If the management and infrastructure at Horizon takes charge, many of the smaller dairy farms will become expendable as more, cheaper milk, produced on industrial-scale western organic dairies, becomes available.”
Cornucopia is already investigating reports of several new giant organic dairies, each milking 2000-5000 cows, springing up in Oregon, Idaho and Texas. Cornucopia has previously filed complaints with the USDA alleging violations of federal organic rules on a number of factory farm livestock facilities. Some of these operations either lost their organic certification or were subsequently forced to change management practices.
Many of these new operations, according to Kastel, milk their cows three to four times per day, rather than twice, which is the standard on farms that actually move their cattle back and forth onto pasture each day. In addition, state regulatory documents indicate some of these dairies have as many as 10 cows per acre. Previous polling by Cornucopia indicated that the national average for family-scale organic producers was one cow per acre of pasture.
“Dairy farmers commercialized the organic industry, starting in the 1980s, because of the oppressive control of the conventional milk market by an increasingly concentrated group of companies allegedly manipulating the market,” said Peter Hardin, perennial industry observer and publisher of The Milkweed, an authoritative dairy publication.
“Ironically, Dean Foods, the original parent company of WhiteWave, was long viewed as the consummate industry ‘bad actor’ and was under scrutiny by the Justice Department for market manipulation,” added Hardin. “The corporate kingpins that run the company are still making billions at the expense of hard-working dairy families”—not to mention the health of the cows who make all of their profits possible.