The Nuts & Bolts of Organic Dairy
The Nuts & Bolts of Organic Dairy
Chris Appel Vice President White Wave Foods Broomfield, Colorado Louise Hemstead COO Organic Valley Cooperative La Farge, Wisconsin Scott McGinty Executive Vice President Aurora Organic Dairy Boulder, Colorado
1
Welcome to Colorado! Aurora Organic Dairy Farms in Platteville & Kersey, CO; Dublin, TX
2
1
Aurora Organic Dairy Processes in Platteville, CO
Commissioned July 2004 3
Organic Product Industry Growth Organic Sales by Sales Category Total US: $17 Billion in 2006 Organic Retail Sales Growth ($ MM) 1997-2006
$18,000 $16,000
2006: +22%
$14,000 Sales ($ MM)
$12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source: OTA / NBJ
4
2
Organic as % of Grocery Sales Total Grocery Food Sales $557 Billion 97.5% Total Organic Sales $17 Billion
3% Source: Food Marketing Institute; OTA; NBJ
5
Strategic Growth Areas for Grocery Stores Top 5 Growth Categories in Grocery as Rated by Supermarket Retailers
% of respondents in agreement
90%
“This category is a good or excellent growth opportunity for supermarkets.”
85%
80%
71%
71% 65%
70%
59%
60% 50% 40% 30% 20% 10% 0%
Ethnic Foods Source: Supermarket News
Organic Foods
Private Label
Enhanced Waters
Frozen Foods 6
3
7
Organic Food Categories Organic Food Sales by Category 2005 - All Channels ($ million)
Frozen Foods, $605 , 4%
Meat / Fish / Eggs, $427 , 3%
Snack Foods, $683 , 5% Juice & Beverage, $926 , 7% Non-Dairy Beverage, $1,061 , 8%
Produce, $5,498 , 40%
Cereal, Breads & Grains, $1,393 , 10% Packaged Foods, $1,544 , 11%
Dairy, $1,695 , 12% Source: OTA / NBJ Survey 2006
8
4
Organic Dairy Dollar Sales by Category All Channels Organic Dairy Sales by Category 2006 (AOD estimate) Ice Cream, $21 , 1% Butter, $67 ,4% 4% Butter, $67,
Other Dairy *, $45 , 3% Milk, Milk, $900$900, , 53%53%
Cheese, $136 , 8%
$1,695 MM
Yogurt, $526 , 31%
* Other Dairy: Cream Cheese, Sour Cream, Cottage Cheese Sources: Estimates from IRI, OTA, NBJ
9
Fluid Dairy Utilization by Product Milk Utilization by Industry Organic v. Total Dairy Industry 100% 1.7%
90% 80%
Other Dairy 12.9%
31.1%
% of utilization
70%
Yogurt Ice Cream
2.9%
60%
Butter
32.8%
50%
Milk
40%
Cheese 53.1%
30% 20%
39.5%
10% 8.0%
0% Dairy Industry
Organic
Source: IDFA; IRI; SPINS
10
5
Organic Dairy % Sales by Channel
Mass / Club 7%
Food Serv / Other 2% Supermarkets/ Grocery 54%
Total Natural 37%
Total Organic Share by Channel: 931% in supermarkets (FDM) 924% in natural “chains” 922% in “independent” naturals 9Remainder = other retail, food service & export
Source: OTA; NBJ
11
Origins of Organic Food Definition Organic Food Production Act (1990 Farm Bill) Æ Chartered to develop & establish national standards for organically produced products Æ Created “citizens” advisory committee; National Organic Standards Board (NOSB) to USDA
USDA National Organic Program (NOP) Æ Rule making process thru Dec. 2000 Æ Implementation date: Oct. 21, 2001 for new products
USDA/NOP oversees certifier accreditation Æ To ensure consistent and impartial application of standards Æ To date: 55 domestic & 40 foreign accredited certifiers 12
6
Principles of Organic Agriculture Water & soil health Æ Removes synthetics from fertilization & run-off Æ Improve soil fertility & water tables
Biodiversity Æ Farming that enhance or support environmental species
Farmer health: No agrochemicals Vibrant agricultural centers Æ Less ‘technology’ returns value to labor Æ Organic systems foster new sharing & collaboration in communities
Animal health & welfare Æ Support of natural behaviors
13
Organic Certification in Dairy Livestock
Feed Crops
Documentatio n & Certifier Review
Processing
Organic System Plan 14
7
Organic Certification: Land & Crops Prohibited practices for organic crop land ÆNo use sewage sludge application ÆNo synthetic fertilizers or pesticides ÆNo GMOs ÆSignage & drift “buffer zones” around organic land
Minimum 3 years free of prohibited practices Organic System Plan (OSP) documents: ÆWhat, how, when you will produce ÆProcedures for pest control, rotation, security ÆHow you plan to ensure & track approved practices 15
Organic Certification: Livestock
Organic Dairy Herd Standards ÆOnly certified organic land, feed & pasture ÆRequires access to pasture & the outdoors. ÆNo synthetic hormones or antibiotics ÆAllows vaccines and some treatments for sick animals….PREVENTION is the CURE 2007: Pasture Standards may be changed to mandate a minimum % of diet from grazing
Herd conversion requirements: Æ Minimum 12 months on 100% organic feed & free of prohibited practices. Standards for replacement animals may change to require organic from last 3rd of gestation
16
8
Organic Certification: Processing
Organic Compliance: ÆOrganic product plans; what, how much, when ÆOrganic item lists, ingredients ÆPlans to isolate organic material / products ÆApproved pest control & sanitation tools
Manufacturing Documentation: ÆFacility equipment lists / schematics ÆHACCP and sanitation plans ÆRecall procedures & product traceability ÆQuality & food safety programs ÆRecord keeping (minimum 5 yrs) 17
USDA NOP: Organic Labeling
1. “100% Organic” – All certified organic ingredients excluding salt and water 2. “Organic” – 95+% certified organic ingredients, all non-organic ingredients must be consistent with the National List. Can use USDA logo and the certifying agent on PDP & ads
18
9
USDA NOP: Organic Labeling 3. “Made with Organic Ingredients” Must contain 70%+ organic ingredients Æ Æ
% of organic content and certifying agent may be used on PDP All non-organic materials must be consistent with the National List
4. Less than 70% organic ingredients Æ Æ
cannot use the term “organic” anywhere on the PDP Organic ingredients can be listed on the ingredient statement
USDA seal cannot be anywhere on the package 19
Challenges for Producers/Processors 1. Scarcity of inputs ?
Regular availability of organic feeds / milk
2. Transition Investment ? ? ?
Added cost prior to organic premium Rising conventional prices Regulatory change & uncertainty
3. Production inefficiencies ? ? ?
Isolation of organic production Balancing organic supply & components Run size inefficiencies
4. Conflict of Organic “comparison” ?
What does my organic brand say about my legacy brand?
20
10
RESOURCES Organic Trade Association www.ota.com
Hartman Group
www.hartman-group.com
Natural Marketing Institute www.nmisolutions.com
Datamonitor
www.datamonitor.com
New Hope Communications www.newhope.com
SPINS
www.spins.com
IRI; ACNielsen
www.infores.com www.acnielsen.com
USDA’s Economic Research Service
“Retail and Consumer Aspects of the Organic Milk Market” www.ers.usda.gov/publications/LDP/2007/05May/LDPM1550
21
11
Chris Appel Vice President White Wave Foods Broomfield, Colorado Louise Hemstead COO Organic Valley Cooperative La Farge, Wisconsin Scott McGinty Executive Vice President Aurora Organic Dairy Boulder, Colorado
1
Welcome to Colorado! Aurora Organic Dairy Farms in Platteville & Kersey, CO; Dublin, TX
2
1
Aurora Organic Dairy Processes in Platteville, CO
Commissioned July 2004 3
Organic Product Industry Growth Organic Sales by Sales Category Total US: $17 Billion in 2006 Organic Retail Sales Growth ($ MM) 1997-2006
$18,000 $16,000
2006: +22%
$14,000 Sales ($ MM)
$12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source: OTA / NBJ
4
2
Organic as % of Grocery Sales Total Grocery Food Sales $557 Billion 97.5% Total Organic Sales $17 Billion
3% Source: Food Marketing Institute; OTA; NBJ
5
Strategic Growth Areas for Grocery Stores Top 5 Growth Categories in Grocery as Rated by Supermarket Retailers
% of respondents in agreement
90%
“This category is a good or excellent growth opportunity for supermarkets.”
85%
80%
71%
71% 65%
70%
59%
60% 50% 40% 30% 20% 10% 0%
Ethnic Foods Source: Supermarket News
Organic Foods
Private Label
Enhanced Waters
Frozen Foods 6
3
7
Organic Food Categories Organic Food Sales by Category 2005 - All Channels ($ million)
Frozen Foods, $605 , 4%
Meat / Fish / Eggs, $427 , 3%
Snack Foods, $683 , 5% Juice & Beverage, $926 , 7% Non-Dairy Beverage, $1,061 , 8%
Produce, $5,498 , 40%
Cereal, Breads & Grains, $1,393 , 10% Packaged Foods, $1,544 , 11%
Dairy, $1,695 , 12% Source: OTA / NBJ Survey 2006
8
4
Organic Dairy Dollar Sales by Category All Channels Organic Dairy Sales by Category 2006 (AOD estimate) Ice Cream, $21 , 1% Butter, $67 ,4% 4% Butter, $67,
Other Dairy *, $45 , 3% Milk, Milk, $900$900, , 53%53%
Cheese, $136 , 8%
$1,695 MM
Yogurt, $526 , 31%
* Other Dairy: Cream Cheese, Sour Cream, Cottage Cheese Sources: Estimates from IRI, OTA, NBJ
9
Fluid Dairy Utilization by Product Milk Utilization by Industry Organic v. Total Dairy Industry 100% 1.7%
90% 80%
Other Dairy 12.9%
31.1%
% of utilization
70%
Yogurt Ice Cream
2.9%
60%
Butter
32.8%
50%
Milk
40%
Cheese 53.1%
30% 20%
39.5%
10% 8.0%
0% Dairy Industry
Organic
Source: IDFA; IRI; SPINS
10
5
Organic Dairy % Sales by Channel
Mass / Club 7%
Food Serv / Other 2% Supermarkets/ Grocery 54%
Total Natural 37%
Total Organic Share by Channel: 931% in supermarkets (FDM) 924% in natural “chains” 922% in “independent” naturals 9Remainder = other retail, food service & export
Source: OTA; NBJ
11
Origins of Organic Food Definition Organic Food Production Act (1990 Farm Bill) Æ Chartered to develop & establish national standards for organically produced products Æ Created “citizens” advisory committee; National Organic Standards Board (NOSB) to USDA
USDA National Organic Program (NOP) Æ Rule making process thru Dec. 2000 Æ Implementation date: Oct. 21, 2001 for new products
USDA/NOP oversees certifier accreditation Æ To ensure consistent and impartial application of standards Æ To date: 55 domestic & 40 foreign accredited certifiers 12
6
Principles of Organic Agriculture Water & soil health Æ Removes synthetics from fertilization & run-off Æ Improve soil fertility & water tables
Biodiversity Æ Farming that enhance or support environmental species
Farmer health: No agrochemicals Vibrant agricultural centers Æ Less ‘technology’ returns value to labor Æ Organic systems foster new sharing & collaboration in communities
Animal health & welfare Æ Support of natural behaviors
13
Organic Certification in Dairy Livestock
Feed Crops
Documentatio n & Certifier Review
Processing
Organic System Plan 14
7
Organic Certification: Land & Crops Prohibited practices for organic crop land ÆNo use sewage sludge application ÆNo synthetic fertilizers or pesticides ÆNo GMOs ÆSignage & drift “buffer zones” around organic land
Minimum 3 years free of prohibited practices Organic System Plan (OSP) documents: ÆWhat, how, when you will produce ÆProcedures for pest control, rotation, security ÆHow you plan to ensure & track approved practices 15
Organic Certification: Livestock
Organic Dairy Herd Standards ÆOnly certified organic land, feed & pasture ÆRequires access to pasture & the outdoors. ÆNo synthetic hormones or antibiotics ÆAllows vaccines and some treatments for sick animals….PREVENTION is the CURE 2007: Pasture Standards may be changed to mandate a minimum % of diet from grazing
Herd conversion requirements: Æ Minimum 12 months on 100% organic feed & free of prohibited practices. Standards for replacement animals may change to require organic from last 3rd of gestation
16
8
Organic Certification: Processing
Organic Compliance: ÆOrganic product plans; what, how much, when ÆOrganic item lists, ingredients ÆPlans to isolate organic material / products ÆApproved pest control & sanitation tools
Manufacturing Documentation: ÆFacility equipment lists / schematics ÆHACCP and sanitation plans ÆRecall procedures & product traceability ÆQuality & food safety programs ÆRecord keeping (minimum 5 yrs) 17
USDA NOP: Organic Labeling
1. “100% Organic” – All certified organic ingredients excluding salt and water 2. “Organic” – 95+% certified organic ingredients, all non-organic ingredients must be consistent with the National List. Can use USDA logo and the certifying agent on PDP & ads
18
9
USDA NOP: Organic Labeling 3. “Made with Organic Ingredients” Must contain 70%+ organic ingredients Æ Æ
% of organic content and certifying agent may be used on PDP All non-organic materials must be consistent with the National List
4. Less than 70% organic ingredients Æ Æ
cannot use the term “organic” anywhere on the PDP Organic ingredients can be listed on the ingredient statement
USDA seal cannot be anywhere on the package 19
Challenges for Producers/Processors 1. Scarcity of inputs ?
Regular availability of organic feeds / milk
2. Transition Investment ? ? ?
Added cost prior to organic premium Rising conventional prices Regulatory change & uncertainty
3. Production inefficiencies ? ? ?
Isolation of organic production Balancing organic supply & components Run size inefficiencies
4. Conflict of Organic “comparison” ?
What does my organic brand say about my legacy brand?
20
10
RESOURCES Organic Trade Association www.ota.com
Hartman Group
www.hartman-group.com
Natural Marketing Institute www.nmisolutions.com
Datamonitor
www.datamonitor.com
New Hope Communications www.newhope.com
SPINS
www.spins.com
IRI; ACNielsen
www.infores.com www.acnielsen.com
USDA’s Economic Research Service
“Retail and Consumer Aspects of the Organic Milk Market” www.ers.usda.gov/publications/LDP/2007/05May/LDPM1550
21
11
