One of the cardinal rules of venture capitalists is to avoid investing in small companies starting up in industries with heavy government regulation. This rule has helped explain in the past why we didn’t see a lot of startup companies in areas like insurance, or see venture capitalists pursuing dairy farms. Investors don’t like to be involved with companies that have to justify price increases or where there are lots of officials rules, which can be changed by legislators who control the regulators.
But, of course, every rule is made to be broken, and when the possibilities for growth are so strong, or the potential profit margins so large…well, exceptions can be made.
All this is preamble to letting you know that Organic Pastures Dairy Co., the nation’s largest raw milk dairy, in California, is negotiating with private investors for a major cash investment.
Mark McAfee, the owner of Organic Pastures, says he is meeting next week with the principals of a $1.5 billion private equity investment firm “that wants to see raw milk change nutrition and illness patterns in the U.S. They also see that a great deal of market growth and smart money can be made.”
He doesn’t want to mention the firm he’s negotiating with, or possible details of a deal, since nothing has yet been finalized. But he says the firm’s principals are well aware of all the regulatory turmoil in the raw milk arena, and aren’t fazed.
Indeed, I take Mark’s openness about his disputes with the Food and Drug Administration and other agencies as evidence that the investors appreciate how FDA invective seems to stimulate sales—free advertising, as it were. Mark even sent along a photo one of his employees took of the license plate of an FDA car—cutely emblazoned with an Organic Pastures promo flyer–when Organic Pastures was visited by an inspector a couple weeks ago in connection with the recall of raw cream possibly containing listeria monocytogenes.
The private investors “see us as a market disrupter,” he says. Yes, I’d say Organic Pastures has been a market disrupter.
Mark views outside investment as a way to grow Organic Pastures much more quickly than it might otherwise–so significantly that there might eventually be a public offering, a sale of stock that he envisions as possibly “the world’s biggest cowshare.” He also sees it “as a way to energize and push the vision of true health forward in a time when this kind of vision is oppressed.
While it’s important to remember that no deal has happened yet, the fact that serious investors are sniffing around in the raw milk arena is significant. I wish there were a pastured-raw-milk commodity market I could invest in.
On another matter and speaking of OP, the ever-vigilant Kentucky Department for Public Health just yesterday issued a hyper-ventilating press release warning its citizens of the possible L. monocytogenes contaminated OP cream just in case anyone happened to hop a plane to California or mail-ordered one of the 21 shipped pints. Interestingly enough, the lead sentence is "Organic Pastures Brand Linked to Illness" while the final sentence states that "No illnesses have been reported to date." What was that Mark said about suing over deliberately mis-represented news stories…
http://www.kentucky.gov/Newsroom/chfs/Raw+cream+2007.htm
I am a newly certified organic dairy farmer (30 cows, 3rd generation farm) who doesn’t have a market for her milk. Creating a farm share and distributing healthful, clean raw milk to my owner/members is not only something that I believe in, but is also my last hope to save my farm. Once consumers link raw milk to corporate profits, I’m afraid that the whole market will suffer, just like it has with organics.
Cheryl
Wisconsin
Mark is also facing a situation where demand for his products is outstripping his ability to provide them – hence his need to out-source some of his cream production. He may soon be in a situation where he can’t continue to meet a growing demand without a significant capital infusion to increase his acreage, buy more cattle and equipment, etc. If his company remains the same size then demand may outstrip supply and his customers will face shortages in the stores, which causes resentment and blemishes his reputation. Given the fact that he’s talking to possible investors I would guess that his income from operations can’t finance his expansion, so in order to grow the company he needs to accept outside financing with all of its risks.
Given the fact that Mark has been so successful and is probably either having difficulty or foreseeing difficulty in meeting demand, there might be an opportunity here for other farms to introduce their own line of raw milk products and attempt to compete in California. If the market is there and the current leader can’t meet demand that opens the door for other people to make some money… (This may sound like crass opportunism, but at least it’s capitalism moving in the direction of traditional foods and healthy lifestyles for a change!)
I understand your argument that "wouldn’t it be nice to have a successful, large, politically and economically powerful company espousing the benefits and safety of raw milk from grass-fed cows? If Mark can thread the needle by growing his company while maintaining his commitment to safety and quality then he could very well pave the way for relaxing or over-turning the laws against raw milk sales in other states." However, I’m not convinced this would really work. Most companies that maintain a high degree of integrity remain small and family-owned. Can you name ANY company that has maintained this high degree of integrity after it partnered with corporate investors? Corporate investors rarely have your, or consumers, best interests at heart. Their biggest concern is the size of their wallets. Oftentimes, once investors see the dollar signs, there is a push to create MORE regulation to push out any competition. That’s what happened to the conventional dairy industry (processors hate the competition of on-farm, raw milk sales, that’s why raw milk is illegal to sell in many states), and now the organic dairy industry (corporate-owned Aurora Dairy intentionally misleads consumers while the USDA turns a blind eye to the corruption).
I think it’s a great theory to use corporate money to further the cause of raw milk and nutrient-dense foods. I just don’t see these two things as being compatable for any length of time. When integrity and quality go head-to-head with profits, profits usually win.
I don’t really know that morphing OP into an umbrella organization as in Organic Valley would really work since Mark’s commitment to quality might not be followed by the other independently operating farms under the umbrella, and a slip-up by one might irreparably tarnish the Organic Pastures brand name. I would think that the best solution is for competition in the California raw milk market, with OP being a leader simply by virtue of being first on the scene. I would think that the market is large enough for multiple producers, each being large enough to maintain profitability but not too large to sacrifice quality. Once you have some of these competitors up and running they could form a California Raw Milk Producer’s Association to pool resources and gain political muscle in the state capitol.
It will certainly be interesting to see how all of this plays out, and how it affects the rest of the country.
http://www.benjerry.com/our_company/about_us/our_history/timeline/
I think dairy should be as local as possible, for lots of reasons. In fact, it already bugs me that I am buying OPDC milk from so far away (100s of miles). I’s much rather my milk money went to a local farmer, to keep the dollars in my county. But there are no closer *practical* alternatives for raw cows milk, only goat and perhaps some sheep milk (I say practical because there are a few poeple who keep a dairy cow or two and sell their excess milk, but it would mean a lot of driving across the county, which seems impractical to me when I think about time, gas, traffic, etc. and OPDC products are 10 minutes away at my local store).
Longtime San Diego county residents tell me about days not too many years ago (15-30?) that numerous pasture-based dairy farms existed along the river valleys in San Diego County. Now those areas are completely paved over with commercial zones, auto malls, shopping malls, sports stadiums, and hotel circles, as well as suburban housing developments.
In Riverside County to the north, the dairies have confined their herds and feed with trucked in feed and alfalfa and sold their pastures to sod (lawn grass) companies or housing developers. Suitable pasture for dairy herds is now very scarce in So Cal due to expanding urbanization, cost of land and water, and other pressures. So most of the few remaining "local" dairy farms are non-pasture based herds (even those are disappearing along with other local crop farms). I’m sure this is happening in othere areas of the country, but in the parts of CA where the land prices are so high (and water is increasingly in short supply), farms are disappearing at a very fast pace.
Making raw milk available to the most people possible is sure a commendable thing, but I have my reservations that we need to employ the massive herd, bulk tank methodology to serve the demand.
The social change that can accompany the raw milk movement will be depreciated if we rely on the 100 cow dairies to supply the market. It would be better to encourage smaller farms, selling directly to consumers they get to know. Establishing a relationship with the farmer that produces your milk is more preferable to swinging into the supermarket for another gallon. It means more, and allows for better advantages for both sides of the transaction.
Personally, Id never buy my milk from a store.Id want to meet the farmer, see the pastures, inspect the cows. Id want to know that the people that are handling my most precious milk, have the level of responsibility that I know it demands. Hundred cow herds, being milked by minimum wage employees, and run by herd managers is not a recipe for success. This kind of approach will weaken the product behind this movement, and open the door for more setbacks.
Giving the consumer the opportunity to have a stake in a farm, a farmer and a herd is the best way to keep this movement at the level raw milk deserves. Its better served via the cowshare than it is by venture investors.
Sure that round peg might fit into the square hole now..but if that peg gets bigger, a lot bigger..
Mark might be high profile, and his heart is certainly in the right place..but his business model isnt something to be promotedif the milk is the most important thing. Instead we should be working towards legalizing cowshares in all 50 states!
http://www.buylocalpa.org/why.html
…and in addition to all that, consider this:
Those who think bigger is better because they like Mark’s energy and commitment to quality and want more of it, should realize that more growth means more distance between Mark and his end product. Public ownership will also work to dilute his influence, by creating a group of stakeholders that have basically purchased the right to throw their weight onto the business’s decision-making scales. That’s the short run picture. The long-term could be downright bleak, because public ownership means when Mark is gone, the business lives on, bigger and more powerful than ever, and pushed and steered by, well, whatever forces happen to be in place at the time.
Some believe that can all be controlled by force of will, or at least by carefully written by-laws. So believed America’s founders, as they crafted our once crystal clear constitution.
Ben & Jerry’s post-Unilever has reneged on many of the original owners’ commitments. Some of these included contracts with sustainable and social just suppliers, and a limit on the ratio of compensation for the highest vs. lowest paid employee.
Recently I have noticed in chain supermarkets they are selling
cheese advertised as ‘Farmers Market Cheese". This cheese is mass produced and never came anywhere near a farmers market. The big companies see the movement to local slow foods and will capitalize on the advertising to fool the public. Soon the LOCAL label will mean little.
Why O.P. thinks they have to become the General Motors of raw milk is beond me.
On a humorous note:
When I picked up my milk and eggs this morning, from Richard Hebron, he showed me a bottle cap he’d saved from a beverage that he bought. One of those caps with sayings on the inside. It said:
"It’s a free country, drink what you want."
Amen.
Joel, "local" is already meaningless. In my area, we had a small local family grocery store chain, initially called Boney’s, then called Henry’s when the family company divided, and finally renamed Henry’s Marketplace after Wild Oats acquired the Henry’s stores. In the last year or so I have noticed large banners practically covering the store name, proclaiming "farmer’s market". Additional adverts insinuates the store is a "farmer’s market".
In recent months the stores have ramped up their "local" campaign, with large and small conspicious blue "local" signage all over the store. But I noticed that there was no correlation to the placement of the "local" sticker or sign and the nearby product in most cases.
I asked about this several times and was given some sheepish answers, like the products have been relocated but the signs weren’t; the product wasn’t local, but the distributor was local; and the kicker, that if it comes from California, it is "local" because we are in San Diego County, CA! One employee was even bold enough to say that Oregon or Washington produce was local because it was the West Coast. Nest I suppose they will claim anything in the Western Hemisphere is local! LOL!
Ok, *I* can see through that load of baloney easily and assume other shoppers would, too. But just last week a highly-educated neighbor friend was gushing about how much more she shops at this "local" store now (owned by national chain Wild Oats) instead of at the conventional supermarket nearby. She was bowled over by how much "local" food Henry’s stocked and how easy they make finding it. I hated to disabuse her of her "local" fantasy, but suggested she pay more attention and put her consumer skeptic cap on. It really is quite easy to get most consumers to take the bait, I fear.
I have voiced my opinion of the "local" campaign to the store management, but the campaign continues, perhaps even more aggressively than before, so it must be generating exactly the response the store wants. Perhaps I need to picket?
If they don’t meet the deadline tomorrow night (Sept. 31), MDA is included in the report: "35,000 state workers get orders to stay home"
A bizarre twist – make of it what you will.
But certainly it makes it harder to justify the expense of tracking down and harassing small farmers.
Of course the tragedy is the educational, appeals court, police protection, and natural areas that will also be lacking state workers.
Will be interesting to see how long it takes for anyone to notice MDA isn’t around.
Anna,
I went through the same routine with a local Whole Foods that you describe. I have noticed on many occasions that food they label "locally grown" really isn’t. When I say something, I get the same excuse: oh, the produce was moved but the signs weren’t. I guess they must figure most people don’t care enough to check out the labels.