Jim Dudlicek : What do you make of the incredible growth in organics?

Gary Hirshberg : Here's how I'm viewing things these days, and what I'm about to say I'll say with a little bit of humility because I realize that for the first 18 years of my business life, it was, “What's organic?”

I always joke that organic used to mean you had to chew extra. Organic was this sort of hippie food and you could find it in these kind of dark and dirty natural food stores. People thought it meant you maybe had dirt in your food or something. So I know where I come from as I say what I'm about to say, because I don't want it to sound arrogant.

If you stop and just think about milk and dairy — the essential value of milk to the consumers has always been its purity — it's natural, it's straight from the earth, practically straight from the fields. It gives people peace of mind to have their glass of milk or yogurt or cheese, to know that it came from — it's a connection to nature. It's something wholesome and pure, and really, how much could be wrong with it? Whereas many of the other foods in modern-day life, people wonder with good reason.

Organic is just the logical and ultimate fulfillment of that perception and expectation. It's always seemed logical to me, and yet it was sort of a mountain to climb over many, many years. I also try to remind people — I had a luncheon yesterday with the editor in chief of Forbes magazine, which is not something I would have ever expected to have happen in my lifetime, from the seven cows to Forbes . But he's very curious about the organic question, too, and what's going on with the whole BST thing. I feel obligated to remind people that all food was organic, certainly all dairy was organic, until just before World War II.

In fact, in many people's lifetimes — I had dinner Saturday night with Daniel Carasso, who's the 100, now almost 101-year-old son of the founder of Danone. In fact, it was named for — Danone is Spanish for “little Daniel.” He was the first to say, “ Gary , I've eaten organic half my life. Only organic.” So I think that what's happened is that we're just — the chapter we're in now is in some sense rediscovering our roots.

Certainly one of the big drivers of organic from the industry point of view is that everyone seems to win. The farmers, obviously, win with better margins — in many cases, the only margins they can get. The retailers win with a happier consumer and bigger penny profit and rapid growth in a segment that has been healthy, but not vibrant. Processors like us win because it's a huge growth area. And suppliers of all sorts — cocoa, fruit, sweeteners — win. And the consumer, of course, wins because she's looking for a more pure food. It's a pretty happy set of circumstances. And, of course, ultimately as an environmentalist, I'm happy. I believe deeply that this is, as with climate change, I think toxins in our food, in our ecosystem and in our climate are the ultimate issues that will face my children in their lifetime, and I think this is only good news on that count.

By the way, there are probably some positive ramifications regarding climate change. By putting more carbon into the soil at the place crops are grown and food is produced, you're A, shipping less fertilizers all over the planet, B, using less petroleum in their production, C, although we don't have the hard data yet, but there's some early studies in the U.K. on this, organic dairy cows that by definition must consume more grass than grain actually have less flatulence, and that's not an insignificant factor to climate change. And dairy cows have generally less than beef cows, which are getting all grain. That story will unfold in the next five to 10 years as we get some science behind it. So, I see nothing but continuation of the trends we've seen in the last couple of years. For Stonyfield, our focus has been of necessity, almost completely on the supply end. I'm not going to say we're not always working hard to boost demand, but as a proportion of activity for the last two years, I would say that the enormous weight of our activities here has been placed on finding supply.

That includes building solutions for the farmers to transition quicker, as well as outright sourcing other ingredients, as well as increasing our plant capacity to meet the demand. But just when you come over to the plant, you'll see every single function in our company, we've had to double the capacity. Nothing's been left untouched, from milk receiving, which has literally doubled, to our MIS systems to everything in between — processing, filling, chilling, waste. Nothing has been able to be untouched because, again, coming from where I came from, we never really were up to the capacity of — we dreamt that this moment would come, but we never actually had planned for it because the capital ramifications were pretty severe. But as we sit right now, we'll have put about $61 million into the facility between the time we started this project about a year ago and when we finish it about nine months from now, and that's only the first phase — there's another phase coming.

JD : Are you concerned that the industry's efforts to keep up with demand will deter organic from staying true to its mission?

GH : I had this debate with a retail partner just last week who was contending that organics moving into Wal-Mart and Costco is commodifying organics, and my participation or support of that is somehow not being true to the roots of organic.

JD : Because being organic has been a point of differentiation …

GH: What I said to him was the same thing I told Forbes : If you're sincere about wanting to create a better world — and by that I mean eliminating toxins not just from applications to farms and animals but also even the manufacturer of them — you can only view the increased interest on the part of major retailers in organics as a dream come true. Is there some concern that the standards could be diluted? I think it's worth keeping our ears and eyes open for that possibility.

But I hasten to remind you that the organic industry may be the only industry on the planet Earth that has fought for more government regulation. Why is that? Because it's all about consumer peace of mind. At the end of the day, the consumer is our master. If that's what she wants, that's what we need to get her, and being quasi- or partly or sort-of organic ain't gonna cut it. So, I think standards have withstood — the standards took about 10 years to become law, and they've withstood a number of challenges, the notorious one being when Congressman Diehl from Georgia attached a rider to an appropriations bill that allowed poultry producers in his district to use non-organic feed if the premium for organic feed went up too high. And it was quickly beaten back by a bipartisan coalition of leading senators on all sides of the issue whose constituents — the businesses, the consumers — said don't mess with this. We've all worked hard to create something that means something.

Obviously, it's up to the consumer — if she doesn't want organic, fine. But if she does want it, let's not dilute the meaning of it. I doubt you're going to see lobbying efforts. This is a cash cow for everyone — pun intended — and I can't imagine that any smart business person at this time would want to kill that one. So then the question becomes — price pressure, what's that going to do? There's no secret that Wal-Mart has an enormously efficient system that enables them to convert even a high-cost input into their system into a very affordable price to the consumer. Costco has the same, Trader Joe's has the same. Locally, we're proud partners of Hannaford, the supermarket chain, they have the same. They do a fabulous job. Maine is a beautiful place, but it's not a wealthy place. They do a wonderful job with their everyday low price program of providing Stonyfield at very affordable prices. Our price to them and to bodegas in New York City is exactly the same, but you'll see our yogurt at 79 cents on the shelves at Hannaford and $1.09 on the streets of Manhattan . That's just the nature of the business model. Different retailers are working on the balance of high-low pricing and everyday low price.

Clearly, the efficiencies — and I didn't even mention Whole Foods, which of course has done a brilliant job at managing pricing to provide a balance of affordable options and they're growing even more so.

I do think that there will always be price competition. Organics is not immune to that. But I don't actually feel any pressure myself to reduce. It doesn't matter if I did get it. Part of the commitment of organic is we've committed to our farmers to pay a floor price. Of course, in this supply environment, where demand is much ahead of supply, actually the prices are going in the other direction. We're all competing for the milk and coming up with clever ways to stimulate production and incentivize farmers. So I don't see for the near term that milk pricing is going to come down at all. Organic Valley has a chart where they show the milk price they're been paying to their farmers over time in relation to the conventional milk price. The conventional milk price has been like this [up and down motion with hands], but it's essentially been hovering around a mean that has really been unchanged for over 30 years. Right now, it's a terribly low price time. I think it was $10.50 in August for conventional milk in New England .

JD : After having been incredibly high less than two years ago.

GH : Exactly. Pity those farmers who have no idea what they're going to see until it shows up in their mailbox at the end of the month, and $10.50, I don't care where you are, that's below anybody's production costs. Yet, in relation to this oscillation that has essentially not gone up, even with inflation, you've got this steadily inflating price to farmers.

Now, I'll tell you what is happening. What is happening as a result of that price increase is that we, as a processor, have had to become much more efficient. We've had to — there's no question that at the gross margin line, I'm at a deficiency relative to, say, Yoplait or Dannon, by a measure that would raise eyebrows of anybody. The rule of thumb in dairy processing is you make all your money in your plant. Certainly that's true, but when you have ingredients with as costly premiums as we've had, it's difficult. But what you end up having to do is get much, much more efficient everywhere else in your business.

For example, much of the capacity increase here is about efficiency. We're obsessed with operating efficiency on the line. It's become the holy grail of the plant, maximizing utilization, because a penny saved there really offsets an increase in cocoa prices or milk or whatever. Similarly, our marketing budgets have just been ravaged. We've had to dramatically drop what we can spend on marketing. The reality is that the net line, we do a wonderful job. Our net profits have doubled as a percentage of sales in the four years since we're with Danone — not, by the way, due to Danone necessarily, although we've gotten some benefits, but primarily due to volume and us getting smart and being motivated in this environment where the ingredient pricing's gone up. Also, I know it's among the better upper-tier of Danone's companies worldwide — we're right up there. So what happens is we make up for the higher ingredient costs by finding efficiencies elsewhere in the business, and there's going to be more pressure to do that. Obviously, when I add $61 million of cap ex, I also take a gigantic depreciation hit, and I have to afford that somewhere, and volume growth alone isn't going to do it.

JD : Have you found that Stonyfield's reputation and brand recognition to be enough to make up for a lull in marketing efforts?

GH : You don't ever want to be too cocky about that. I would say, in core markets, we have a lot of loyalty, for sure. The organic formula — which I'll summarize for you in a second because people I think have not understood it fully, and it's worth saying — does rely on boosting loyalty. At the same time, it's important to point out in Stonyfield's case, I think we're at 75 percent ACV right now. As you know, ACV is a poor measure, because I could have one item on a shelf in Idaho and I would have a point of ACV. So I still have a huge upside ahead in terms of expansion.

As you pointed out in your summary, having a beachhead now in the West with Brown Cow is a way to take advantage and avoid transportation costs and so on, and we're working hard on a western production strategy.

But when I go into a new market and it's, “Stonyfield who?” I have as much marketing pressure on me as Yoplait or Dannon. What ends up happening is I have to employ different techniques. I have to use more guerilla style, lower cost, more hand-to-hand street warfare, less advertising. The formula I was alluding to a second ago goes like this: Maybe the easiest way to describe it is to talk about Coke and Pepsi. If you think about the traditional formula for consumer product goods, it's make your product as cheap as you possibly can so you have a lot of money to spend on marketing, then use those marketing funds to make it as sexy as you possibly can. Gatorade, PowerAde, Coke, Pepsi — these are basically extremely inexpensive ingredients: sugar, water, corn syrup — there isn't anything a whole lot cheaper other than maybe air.

JD : That's the battle milk has been having for the last two or three decades.

GH : Precisely — to carbonation, ingredients you can't even charge for. The thing is, that works — to a point. But where it doesn't work is ultimately you don't obtain loyalty that way. What happens is, you get awareness, you get trial and you get spikes. Depending on who is in the Super Bowl, who has Britney Spears, who has Pete Sampras, you can get a little lift. But in the net, you're fighting for hundredths of a point of share, and nobody necessarily wins. In the end, you still have consumers who are, ‘Eh.' Their advertising's good, THEIR advertising's good. It doesn't ultimately go at the consumer need.

Organic — as you say, this is dairy's challenge, but organic is really the solution to the challenge because organic is on the exact opposite end of the spectrum. Our approach is that we invest in the product. We pay the farmers more money to produce what is arguably a better product. I would argue that; I realize others in my trade might not. Organic wines from Tuscany this summer, Robert Parker has said they're the best organic reds in the world. Organic foods at Whole Foods are widely seen as gourmet, as the best of the crop. Our yogurts and ice creams win taste tests routinely. People do perceive there's a better quality here. Our milk, by the way, has also been winning on taste. I think there's reasons for that and we could talk about that. But the point nevertheless is that the consumer perceives a higher value, and then if you employ guerilla-type activities to identify yourself with issues in the community — climate change or supporting public transportation or healthy vending in schools, or our efforts — we have this Mooville tour that travels around the country and we educate people. I was at a folk festival in Boston last week — the thing was packed. Parents just love their kids interested in healthy food. The cow was belching and burping and producing organic potting soil out its rear end every eight minutes —

JD : That's how you grab the young consumer!

GH : Right. Right. And we let them pot the soil in — [stands up to get mini herb pots, returns to table] — we give these out all over the country. These are made from the waste plastic from our form, fill and seal line. We make little pots, and there's a basil seed and some potting soil in there. The kids take the potting soil out the back of the cow, which they of course loved, and what happens is we put a smile on the consumer's face. We make them feel good inside when they learn more about our cultures and inulin and the other investments we've made. The net result is, we didn't go through that whole advertising curve, but on the other end, we have very, very high loyalty.

Retailers still to this day, if I show up in a store — I was just in a Meijer store in Michigan and I heard the same thing at a Publix in Florida — retailers routinely tell me that if Dannon or Yoplait or Breyers are out of stock, consumers will shift. But if Stonyfield is out of stock, they just come to him and ask for it. They're not there to buy yogurt; they're there to buy organic yogurt, or Stonyfield. So, this is a long-winded way of saying that I don't think we can afford to rely on that. I think we've got to be smart marketers. I think we've got to be aggressive. But there are different ways to market.

At the end, I come back to my first point to you, which is, we're paddling with the waters. Dairy — particularly organic dairy, and particularly organic yogurt, which is on the rise — it's going where the consumer wants to go, and that helps us a lot. It would be a whole other thing if I was trying to sell organic office furniture, that maybe people aren't necessarily concerned about. But here, a very interesting thing happened in the 1990s. Consumers — who, of course, always wanted their food to be as pure as possible, and as untainted and as unprocessed as possible — discovered that it also tastes really good, and that's because we processors got our acts together. Now, they want it all. They want it to be delicious, pure and affordable. The happy news is we're getting there.

Just to say one other quick thing: I do think there are some efficiencies ahead on the supply side that will also bring costs a little bit more in line. We've seen it with sugar, we've seen it with cocoa. Again, with milk, we're paying a floor price. We're in a very competitive bidding situation right now, but sanity will eventually prevail here and we'll get a reasonable middle ground where farmers will get what they need but we processors — and more importantly, the consumers — will get what they need and want as well. So we'll get some — it can't continue at this furious rate, at this inflating rate indefinitely. Certainly the veterans out there, the big guys I know in the dairy industry, have long predicted that we'll eventually we'll get a little bit more rationality. Right now, it's like a hurricane.

JD : Discuss Stonyfield's expansion of the past few years, from Brown Cow in California to Europe .

GH : This is the brand we launched two weeks ago in France . [shows packaging] It's called Les 2 [Deux] Vaches. We're already at 65 percent distribution throughout France and it's selling very well. It's exciting. That's two down and many more to go.

Of course, when I did the partnership — just a quick background: In 1999, I realized that I needed to provide an exit to my shareholders. At that time, I had 297 shareholders, 100 of whom were my employees. They needed an exit, and although I didn't have a legal obligation — I never promised one — nevertheless I had a moral one, so I sought different strategies. Our board — actually this goes back to '97 — our board convened meetings with investment bankers and we thought about going public. Of course, Ben & Jerry's went through their whole thing, and I had a front-row seat for that. I was very involved in introducing Unilever to Ben & Jerry's, actually.

But I didn't want to go public because I knew that meant selling the company; that's ultimately what we learned from the Ben & Jerry's episode, and my friend Steve Demos [founder of Horizon Organic] went through the same thing. So, I came upon the idea of looking for a strategic partner who would provide some resources, some know-how and so on, and also at the same time respect our difference and allow us to remain independent. That was the theory going into the discussion. I wound up talking to about 22 or 23 major players, all of whom you would know. Very few shared my vision. [laughter] Most saw it as a great consolidation deal, a chance to find efficiency, combine this plant and that, get rid of “overhead,” which is a euphemism for “my people.” It was actually a kind of a sobering set of discussions. But a few of them — Danone among them — showed a surprising amount of vision. They obviously kicked my tires at first to figure out how desperate I was, and I wasn't desperate — I didn't have to do anything.

JD : But it was a very novel idea. You were basically saying, “Buy a majority share of my company but leave me in complete charge of it —

GH : Right.

JD : — and you'll win in the end.

GH : Yeah. To paraphrase my investment banker, he said, “ Gary , that's a wonderful pipe dream. It will never happen, but I'll be happy to help you try.” Well, at the very end of the deal, that's what happened. As a matter of fact, the first M&A person from Danone who came to see me was this wonderful woman who I really liked. She looked at me right in the eye and said, [in French accent] “ Gary , do you mean to tell me we may buy 80 percent of your company but you'll still be in control?' And I laughed, and she laughed, and I said, ‘Yes, actually, I do.” And she went, [expression of mock contempt], you know, it's not going to happen. Well, at the end of the deal — she was out of the company by then — I called her and said, [French accent] “Fannie, zat is what happened.”

And I give Franck Riboud [chairman of Groupe Danone] himself a whole lot of credit for this. He's a free thinker, and what he realized is what I described to you earlier. It is such a different business model that he knew I was probably, that what we've now seen happen to quite a few of my fellow organic entrepreneurs' brands, would probably happen to us if they came in here and tried to manage this thing with their advertising approach.

Anyway, I then spent about two years negotiating with him, and at different points along the way, he would say things to me that I didn't understand. I knew what he was saying, but I wasn't sure that I believed it. He'd say, “You don't seem to understand this, but I actually need you more than you need me.” And what he was saying was, he saw that the battle with Nestlé, with Kraft, with Unilever, the global battle was such that there was continued profit and growth pressure. Obviously, Danone has weathered it very well; in terms of year-on-year, they're at the very pinnacle of the industry. But obviously, they want to remain independent, too, and to do so, he knew that he had to grow and incubate new solutions — new sources of profit and revenue, but also different approached that would require less overhead. Stonyfield really is that. I know our net bottom line is better than most Danone business units.

Anyhow, to cut to your answer — one of the things that we evolved in that discussion is that in addition to me getting my independence, what Franck welcomed me doing was, he was happy to peel open his whole company and allow me to look at places where organic could expand within Danone. And obviously, for the first several years — we closed the deal in December of '01 — and for the first couple of years I was very internally focused on taking advantage on some of the know-how. It was interesting — it was the first time we ever had indices. What should be the controllable cost per 10? What should be labor cost per 10? What should be reasonable shrinkage and losses? I had hired people who knew some of that stuff, but know we could look at, you know, on a given Wednesday I can look at 90 plants around the world to compare myself to. That's pretty exciting stuff.

And, of course, I had a talent pool, so I was very fixed on that. But, I started showing up at conventions, and a bunch of the Danone people — managers from different countries — started saying, “Come visit, let's talk, is there a possibility here?” To make a long story short, we've announced two joint ventures, but we actually are in the midst of — we'll very soon announce a third that's launching next spring. We have an organic acceleration meeting that I host — this is our second annual coming up in November — and I'll have representatives from about 20-plus different Danone business units, not just in dairy, by the way. Because what you and I have been talking about, they see — they see it as inevitable, they see it as coming.

By the way, we're not exporting. That's not the organic way. That's not what I'm trying to do and I don't have the capacity to do it anyway. We're creating, we're replicating the Stonyfield model in different places. So, we've got a long way to go in the U.S. We have a number of very exciting new products that's we're announcing for next year. We have a number of new markets that's we're pushing. We're working very hard on our western manufacturing strategy. And I'm not in any way letting up here. At the same time, as the company's grown, I've gotten better and better management, many of whom I guess you're meeting. That has allowed me the ability to develop these teams elsewhere. In Europe now we have a full-time CEO of Stonyfield Europe. We have senior marketing and sales and purchasing people in Ireland and France . We have discussions going on about creating similar teams in other parts of the world as far away as Asia and even in places in Africa .

So, same answer as the first question, I think the sky's the limit here. For me, it's the realization of a dream. When we started out with seven cows and an organic farming school, we deeply believed there needed to be solutions that would save family farmers. We really believed that there needed to be solutions that would ensure healthy water tables and less fossil fuels being consumed and less toxins being used. But we had no idea how to turn that into a business strategy; it was our hypothesis when we started Stonyfield that it could be. Knock on wood, it looks like we're proving it pretty well.

JD : But aren't there two sides to that coin, with expansion abroad? On the one hand, they're hip to organic, but over there, Stonyfield is the new kid on the block.

GH : Yeah, “Stonyfield who?” For sure. Actually, it's interesting. You have, in Europe , the highest per capita consumers of organics, and you have the lowest, in the world. You have Austria , Germany , the U.K. , increasingly Ireland , who really value organic. Scandinavia . And then you have France , Spain and Italy , who are saying, “Why do we need organic? We have the finest foods in the world.” And it's hard to argue with their tastes. But they just assume the food is pure because they celebrate the role of the farmer. So in fact, it's not a slam dunk even in Europe ; it depends very much on the country. The U.K. , for example, will be one of the slower places to get started because there's so much competition there already. France , there's only one competitor. In the U.K. , we would be the fourth or fifth or sixth, but in France , we're only number two. So your point about Stonyfield the name — absolutely. We're not launching a Stonyfield. The company is called Stonyfield Europe because that's what keeps us distinct from Danone and has us on a different management structure, and to be honest I don't follow all the Danone rules and I get into some trouble with all those guys.

JD : So the French brand is —

GH : It's Les 2 Vaches, and if you'll notice on the very back here, in tiny little print, here's the Danone logo. Because Danone is obviously a hugely respected name in France . Franck did not actually want this to be a Danone product, but the marketers argue that we're crazy not to take advantage of the parentage. But you certainly don't see the name Stonyfield anywhere.

JD: But the packaging is reminiscent of Stonyfield. It sort of has that Stonyfield feel …

GH : Well, yeeaahhh, but Glenisk, which is an existing family dairy, you won't see a hint of Stonyfield or Danone. In other words, what we're doing is we're incubating local enterprises that will reflect the market conditions locally. I can assure you, it won't be called Les 2 Vaches or Glenisk or Stonyfield or Danone in Germany , if we go to Germany , and certainly not in Russia or China . And by the way, this is not unusual for Danone. Danone has hundred and hundreds of brands around the world, from Clover in South Africa to Robust in China , and there's no real connection. Some of it is because they partner with existing firms; some of it is they use a name that's local.

What we're doing is, forget about Stonyfield the brand — this is a methodology. This is a business approach, and we think it's applicable here. The French assembly next week is going to vote on whether to ban smoking in public places. Can you imagine? Sartre would fall over and die. I mean, the dangling cigarette in the café, it's like … But they're recognizing that second-hand smoke kills people. We see a growing consciousness. And yes, obesity is creeping into the French vocabulary and their reality. We think France is where the U.S. was a decade ago when it comes to organics. People are starting to make the connection. Pediatricians are starting to say not so much antibiotics. Of course, they don't have the hormone issue because of the EU, but they are starting to be aware of pesticides, herbicides. There's advocates who are — there's a guy who may run for president who's a former television personality who is saying, “I only eat organic food, and unless the leading candidates take a position on climate change and healthy food, I'm going to run my own Green Party platform.” So we think it's emerging. But certainly I would never think to call it Stonyfield there.

JD : What do you think finally clicked in New England on BST?

GH : It's funny, isn't it?

JD : People like the Bennetts [at Oakhurst Dairy in Maine ] are thinking, “Damn, that was one of our points of differentiation.”

GH : [laughter] Yeah, sure — thanks for the ride. [laughter]

JD : Imitation is the sincerest form of flattery.

GH : Yeah. You know, Stonyfield and then, a day later, Ben & Jerry's were the first dairies, even before Stanley [Bennett, Oakhurst CEO], to pay farmers not to use BST. We were the first, way back when, the day it was approved [for use by the FDA]. For us, it was one of those “duh” moments. Again, tampering with milk and yogurt — why?

This market has a lot of people who read labels. People know their foods here, and they'll debate with you about whether a Madagascar vanilla is better than a Seychelle vanilla. I get into these very funny discussions out in the supermarket. I love it. I'm surprised by how astute consumers are, and I'm not just talking about at Whole Foods. So, we just thought it was obvious. We applauded Stanley hanging in there with his lawsuit. I can't tell you why — I do know that John Kaneb [chairman of HP Hood] has enjoyed enormous success with organics. First, they owned the Organic Cow, grew that and sold it to Horizon. Then with our partnership, that became a $35 million brand overnight, and it would have been a $70 million brand if not for supply constraints. Certainly, in the dairy business, that's a nice windfall, So John has been well aware that there's a consumer out there who's concerned about this stuff. Actually Garelick, before it was acquired by Suiza and Dean, also had a BST-free position, back in the days when Hood and Garelick used to fight over who had fish oil. So I think in some respects, Dean has just rediscovered its roots, and certainly one is going to do what the other does, because it's such a tight battle.

JD : Dean does have other brands across the country that are already BST-free.

GH : Yeah, and I read the commentary from Gregg's [Engles, Dean CEO] office, his spokesperson, who said they're going to see how it goes in New England before they decide what to do in the rest of the country.

JD : If Dean were to pursue this policy nationwide …

GH : That's it. It's over. But you know, it's not really — I know there are big debates about this. But just talking to farmers and cooperatives and so on, the number's still in the single digits as far as how far it's actually penetrated on a routine basis. People will argue that number, and I'm not going to argue one number versus another. But what you can't argue is, when you walk into a room of consumers and you say, everyone put your hand up — how many want the milk from cows that are injected with growth hormone? The vast majority of people are not going to raise their hand. The dirty little secret about Posilac is that nobody wants it — no consumer wants it. The other little secret is that, the farmers tell me, animals are healthier without it. They produce longer, and ultimately that's the farmer's equity. I think that much was made of the introduction of BST as being the first GMO biotechnology introduced to the food system. I think milk was a pretty bad place to choose to start. Better to choose energy drinks or something because, again, it's pure. I think what Dean and Hood have done is listen to their consumer.

When we were fighting whether it should even be allowed, arguing for the moratorium like they have in the EU, I could see the writing on the wall. There was former congressman Toby Moffett leading the charge as Monsanto's chief lobbyist, talking to his cronies, he has a little bit better access than I do, especially then, when we were a $5 million company. But we did believe we could win on labeling, certainly not deny the right to. And that's because at the end, the consumer rules. Given the choice, consumers will never choose it. I'm not saying that they'll always choose organic. And now we have a whole level of pediatricians across America starting to say we're using too many hormones, we're using too many antibiotics. They're getting reinforcement from the medical community. Certainly no one in the medical community is pooh-poohing this. But in the end for us, it's never been about health, because we have not believed necessarily — we believe why tamper with it? We believe it's really bad for family farmers.

Our central mission, which is not well loved by many of your readers, because they're processors who sometimes see the farmers as adversaries, but the reality is, no farmers, no milk. And in New England and the Northeast, “no farmers” means we're importing from a long distance. It means we're even more dependent on fossil fuels. We're contributing even more to global warming. And by the way, if we let these fields become forests, the carbon costs of restoring them are — I mean, those folks back then hacking with their axes, they were superhuman, building their stone walls. But to reclaim a field from the forest is an enormously expensive proposition in all senses of the word. So we really believe we've got to keep farmers in the fields, on the land and that the supply and demand nature of milk, where it really has oscillated but not really varied from the mean, adding something into the milk pool that boosts production by 20 percent is inevitably going to result in farmers going under — inevitably going to result in the price dropping and farmers going under, and we don't believe we can afford that as a country, as a species.

JD : What do you see as the biggest challenges and opportunities for the dairy industry?

GH : I think that the biggest challenge facing the industry is the rising cost of fossil fuels and the inevitable taxing of carbon that's coming, because America is producing 25 percent of the global warming gases. It is not only an industry mandate, because the implications of climate change are so severe to our industry since we depend on weather and so on, but also it's just to me a moral obligation to restore some balance in terms of what we're putting into the atmosphere. It really does require that we address refrigeration, transportation, manufacturing, production, efficiency.

In the end, greening our plants and greening our practices is nothing more than becoming more efficient. People want to make it into this big social change thing — it's not. Our waste plant — which I'm very proud of; it's a net producer of energy right now, not to mention, instead of shipping sludge out twice a month, two full truckloads, I'm doing a half a truckload probably every three years, but at least two years. So it's saving on all kinds of levels. I just think, as an industry, attacking our inefficiency and reducing our climate footprint is going to be something of enormous … to me, it's like a Marshall Plan-type of opportunity, a huge economic growth opportunity. It's also important because of the corollary, which is that I don't see us winning the soda wars. We have got to find ways to mine our P&L's. We have got to find ways to be more efficient, because we're always going to be at a margin deficit to a lot of these substitutes for food that are out there.

We are launching an organic energy beverage of our own next year. It's very exciting. I don't think for a second I'm going to knock Gatorade or PowerAde or what I call Red Bulls--t off the shelves. But as a father and a soccer coach, those products offend me, because they give my kids the sense they have energy, but what they're really giving them is a caffeine or sugar spike. An hour later, they're lying around watching TV because they have no energy left. We're giving dairy with calcium and protein, not to mention other ingredients we can add, that affords kids the opportunity to have sustained energy, which I think can be a real advantage to the dairy industry. But we're not going to win that battle with big advertising dollars, no matter how much we pool. We're going to win it my mining our P&L's, including our marketing, for the most efficient ways of getting that message across. Again, for me, mining the P&L for that stuff is — I have two huge uncontrollable costs in my industry: energy costs and health care costs. I mean, I have a lot of them, but those are the two whoppers. My waste plant, and now all the other things we're doing to improve efficiency, are about mining the P&L to get me more efficient for the marathon.

As an industry we've got to come to grips with the fact that declines in the numbers of family farmers is not good for us. Organics happens to be a good solution to that. It's the only thing that's had an uptick in our region, and now we've got second-generation kids actually looking to stay with farming, where they were looking to get the heck off the farm before. But don't think it's enough to say we're going to have bigger and bigger farms in the West, because again, with fossil fuel prices and the inevitable taxing of carbon that's coming, we've got to keep people in agriculture.