Dairy Dilemma

Ban on rBGH use by Tillamook sparks conflict

Thomas W. Gray, Ph.D.
Rural Sociologist
USDA Rural Development, Cooperative Programs

Editor’s note: The author welcomes feedback from readers on this
article and the general topic of the countervailing power of cooperatives
in the market place. Their thoughts may be used in future
articles, and can be e-mailed to: Thomas.Gray@usda.gov. Citations
of reference material are listed by author name and title of article,
as available on the Internet. Later references to the same work give
only the author’s name and year of publication. Readers may find a
more extensive version of this article in the forthcoming
Cooperative Accountant, Winter 2007.

hen Tillamook County Creamery Association voted in 2004 to ban use of synthetic bovine growth hormone (rBGH) by its producer-members, it triggered a conflict within its membership and with Monsanto Corp., the sole manufacturer of the hormone. The often-heated dispute lasted about 18 months, from May 2004 until February 2005, during which time the co-op vigorously resisted efforts by Monsanto and pro-rBGH members to convince it to reverse course and allow members to use the growth hormone.

Tillamook, based in Tillamook County, Ore., is a relatively small dairy cooperative of 147 dairy farmer-members, with an established worldwide reputation for excellence for a wide variety of dairy foods. It is especially renowned for its cheddar cheeses. Total sales in 2004 were $260 million.

Monsanto is a multinational corporation, headquartered in St. Louis, Mo., with offices in nearly 50 countries. It produces a wide number of chemical and agriculture-related products. It had sales of $6.3 billion in 2005. (Hoovers Online, September 2005)

The conflict is, in part, a result of differences in organizational philosophies, structure and power between different types of economic organizations.

In this case, the conflict is between a farmer-owned cooperative and a multinational, investor-driven corporation. This article suggests how these differences in corporate philosophy and goals may have influenced the conflict, and comments on the continuing relevance of cooperatives in furthering democratic business processes in civil society.

Synthetic rBGH: pros and cons
The FDA approved the use of synthetic growth hormone, rBGH (recombinant bovine growth hormone) also referred to as rBST (recombinant bovine somatotropin) in 1994. It is a genetically engineered growth hormone that can stimulate cows to give more milk. Advocates suggest it can increase milk yields by 10–25 percent via injections every 14 days. (Alex Pulaski, Hormone Fuels a Fight in Tillamook, 2005) In an era of high feed and fertilizer costs, with relatively low milk prices, many farmers have been tempted to draw upon the production-increasing abilities of rBGH.

John Fetrow (Economics of Recombinant Bovine Somatotropin, 1999) has estimated that in adequately managed dairy herds, farmers can earn at least a 50-percent profit over the expenses of using the product, given typical prices for milk and feed. “By increasing production in existing cows, the technology spreads fixed costs over more production, increasing the margin and profits for the farm.”

It is estimated Monsanto, along with Upjohn, Eli Lilly and American Cyanamid spent as much as $1 billion in research and development of rBGH. Monsanto Corporation, currently the sole producer, sells rBGH under the brand-name Posilac. Bank One Securities estimates that Monsanto earns upwards of $270 million a year on rBGH sales. (Vince Patton 2005, Tillamook Bans Artificial Growth Hormone.)

In June 1997, the Tillamook board approved member use of the product. In April of 2003 and in 2004 the board held strategic planning discussions on rBGH use. In May 2004, it voted to require producers to phase out its use in order for members to be rBGH-free by April 1, 2005. The May 2004 vote was, in-part, a response to consumer complaints concerning its safety. The vote was especially triggered by consumer concerns about possible antibiotic residues left in milk after cows had been treated for rBGH-related infections.

In the intervening period, from prior to June 1997 to May 2004, there were numerous press reports concerning the safety of rBGH, ranging from concerns about animal welfare (mastitis and hoof splitting), consumer health (cancer risks and antibiotic traces in milk), the natural environment (disposal of used syringes), to its socio-economic impacts (producing more milk for an already glutted milk market). (1997 TED Studies, Bovine Growth Hormone and Dairy Trade)

Furthermore, Barham, Jackson-Smith and Moon (University of Wisconsin, 2000) argue that use of rBGH has not been nearly as profitable for farmers as first promised, and adoption rates have been much lower than anticipated.

Advocates have countered that no research has confirmed higher cancer rates. Mastitis has been found to occur at higher rates. However, “appropriate” management of a herd can minimize these problems, thereby eliminating antibiotic milk residues. Fetrow (1999) has argued the environmental risks may actually decline, since similar volumes of milk can be produced with fewer cows, reducing manure and methane levels.

Consumer concerns lead
to ban; Monsanto reacts

Tillamook cheese sales are, in part, driven by a highly visible brand name, and a well-known reputation for producing a quality product. Most Tillamook cheeses have won national and international awards.

James McMullen, CEO of Tillamook, says the ban on rBGH was primarily driven both by direct complaints to the company and by consumer market research. “In 2002…3 percent of phone calls and e-mails received by the association were related to bovine growth hormones. That number rose to 4 percent the next year, and hit 8 percent by 2004.” (Pulaski)

Steve Neahring, a board member during the period when rBGH was being contested, said protecting the brand was the primary objective. “The most valuable asset the creamery owns is that brand.”

Mark Wustenberg, vice president of member relations at Tillamook, said letters and e-mails were important in making the decision, but that customer market research had clearly indicated that consumers were concerned and wanted a change.

Tillamook has also taken several actions to protect the environment in ecology-conscious Oregon. Such measures have included: 1) fencing 91 miles of stream-banks to protect riparian areas from dairy cow damage; 2) creating more than 1,000 alternate water facilities for cattle; 3) planting over 400,000 trees along local rivers and streams; 4) encouraging use of manures as an alternative to commercial fertilizer; 5) building manure storage facilities and 6) working with local and state governments on various other environmental enhancement projects. (Tillamook County Creamery Association website, 2006)

As reported by Pulaski (2005), “Fearing consumer questions concerning the quality of the brand contributed to banning the product.” Farmer-members need cooperative sales to stay in business. They need to be able to use the cooperative to process their milk and market their farm products. Their elected board, after two years of careful deliberation — acting in its role as strategic planner for the organization — voted to ban use of rBGH.

Monsanto reacted to Tillamook’s ban with a letter to their rBGH customers in the area. It said that restricting the hormone’s use, “seems ill advised because it would cut into dairy farmer…choices, particularly their profits.” The letter said Monsanto would work to ensure farmers have continuing choices in how they run their dairies. To do so, it may be necessary for a Monsanto representative to call on them and seek their advice.”

Conflict in structure and goals
Structured as an investment firm, Monsanto obviously needs sales to maximize returns on investment for its stockholders. Management is evaluated on its ability to do so. Tillamook, the cooperative, needs sales to guarantee a market for the milk production of its member-users.

Co-op management performance is similarly measured based on its ability to successfully market its members’ products. Monsanto’s need for rBGH sales came into direct conflict with Tillamook’s concerns over providing a continuing outlet for its members’ milk. The co-op’s ability to market is closely tied to brand quality, consumer interests and environmental image and actions.

In January 2005, the cooperative received a petition from 80 members asking that the board reconsider the ban. The Tillamook board did reconsider, and on Jan. 31, 2005, announced it would uphold the restriction.

Eight days later, a letter was handdelivered to the Tillamook corporate offices by a District of Columbiabased attorney. The letter called for a general vote by all cooperative members to consider a change in its bylaws. The proposed change was written so that it would mandate that “the Board shall...not in any way restrict the right of any member to use any pharmaceutical product approved by the …[FDA] …for use in dairy cattle.” The petitioning letter had been signed by 16 Tillamook members, and had the effect of precipitating an overall member vote on Feb. 28, 2005.

Tillamook charged that Monsanto was meddling in the internal affairs of the organization. Monsanto responded that it had not instigated the vote, nor had it provided legal assistance to the Tillamook members seeking the vote.

Individual vs. collective rights
Tillamook members who opposed the ban saw the issue as one both of economics and individual rights. They also questioned reports of ill effects on human health and animal welfare. Bob Northrop, a cooperative member, said he “stands to lose thousands of dollars in income because [his] cows will produce less milk…and [argued] that the hormone has no ill effects on humans or cattle.”

Jim Wilson opposed the ban based on individual rights concerns, asking whether there would be further restrictions on products farmers were allowed to use. “What’s the next thing we won’t be able to use?”

Carol Leuthold, another member, argued for the “democratic voice” issue: “We want the freedom to dairy the way we feel is best.” This sentiment was echoed in the comment: “This is about members of the co-op having a voice and [our] voice is not being heard.” (As reported by Pulaski, 2005.)

Monsanto took a position consistent with the Tillamook members who opposed the ban. It was a matter of free choice, economics and business sense as well as health. “Monsanto director of public affairs, Jennifer Garrett, emphasized the findings of the Food and Drug Administration that there is no impact on human health and that milk is exactly the same form as [that from] natural cows and cows on Posilac.” (Patton, 2005, Tillamook Creamery bans use of artificial growth hormones)

While FDA studies in the United States did draw such conclusions, supporters of rBGH restrictions countered that countries such as Canada, Australia, New Zealand, Japan and the EU have banned its use. These countries have taken such action based on concerns about animal health and “unanswered questions about human impacts.” (Patton, 2005)

Those against its use also point to faults and conflicts of interest in the hormone approval process at the FDA itself. These charges were investigated, however, and found to be without merit by the General Accounting Office.

Ban upheld
Between Feb. 8 and Feb. 28, 2005, more than 6,500 consumers contacted the cooperative to comment on the vote. Nearly 98 percent requested that Tillamook go rBGH-free. Member sentiments were similar on voting day, though not with such overwhelming percentages. The vote was 87-43 in favor of retaining the ban.

In response to the vote, a Monsanto spokesperson said: “We are pleased that the producer owners of Tillamook had the opportunity to decide this for themselves and respect the choices of the majority of the producer owners… For individual producers, it is unfortunate that their choice to use a product that could have provided a significant economic benefit to many Tillamook family farms had been limited…We hope that in time Tillamook producers will reconsider this policy.” (Pulaski 2005)

Christie Lincoln, then a spokesperson for Tillamook, said: “We are a consumer-driven company and we’re keeping consumers in mind. I think this is a confirmation that our members believe in us.” (William McCall, 2005, Dairy Co-op Rejects Monsanto Proposal to Reject Hormone Ban, The Oregonian)

Collective interests
In joining a cooperative, members give up some individual rights (in this case, concerning a milk-production practice) in exchange for greater collective market presence and all the advantages that brings. Individual members delegate certain decision-making rights to their elected board of directors to make strategic planning (and operational) decisions that affect the cooperative organization as a whole — and thereby also members as individuals.

In exchange, the cooperative then provides members with certain services and guarantees. In the Tillamook cooperative, members are guaranteed a market for their milk regardless of how much they produce individually or as a group. The cooperative must find markets for members’ milk and milk products (following an old dairy farmer adage of “sell it or smell it”).

Tillamook has, in part, done this historically by developing a brand name that promises high-quality cheeses (among other products), with a local identity tied to Tillamook County, and a public corporate demeanor congruent with the environmental consciousness of the Oregon citizenry.

Tillamook, like all cooperatives, has both individual and collective benefits. A farmer who receives a higher price for his/her product when delivered to a cooperative is receiving an individual benefit, due to the cooperative’s joint marketing of members’ products. The fact that a farmer can produce a particular product, due to being able to reach a market that no one producer could reach individually, is a mutual collective benefit. (Edgar Parnell, Reinventing Cooperation, 1999)

When Tillamook sells rBGH-free milk as an organization (regardless of actual differences from rBGH milk), it is marketing collectively in a particular consumer niche that no single producer could create individually. This is a mutual collective benefit, though obtained at some individual sacrifice of free choice.

Competing cultural images and values Given the many provisions to protect individual freedoms within the laws of the United States (and within the value systems of its culture), any contingencies imposed upon individual rights of property and freedom of choice — even when done in a voluntary and revocable manner — may seem problematic to many. Monsanto, and some of Tillamook’s own members, appealed to the more general understandings in the public of the rights of individuals. Questions surfaced such as: “What producer rights will be limited next?” “This is our farming operation [our private property], so we should have the right to determine how we use it.”

Less experience in the general public of exchanging certain rights for others, particularly when the exchange is between an individual business and a non-governmental organization — can sometimes give cooperatives a heavyhanded, top-down image. This can occur in spite of their democratic (and grass-roots) character.

Monsanto’s website stresses it commitments to boosting agricultural productivity and feeding a hungry world. However, Monsanto must also labor against certain conceptions of being a “big, multinational producer of chemicals.” In the Tillamook case, issues of brand-name reputation, consumer demands, links to environmentalism and local rural farm imagery tended to rule the day.

Cooperative interests (and all that is entailed in their markets, image/values and environmental commitments) outweighed Monsanto investment interests, and the imagery/values of “technology being used to benefit a hungry world.”

Competing organizations and power
As an organization, Tillamook faces the complex challenge of managing a decision-making structure where its owners and users are the same people. It must make a sufficient economic return such that the business continues through time for member use.

In certain respects, Monsanto’s central task as an organization is simpler than Tillamook’s. Unlike with Tillamook, it does not process and market its owners’ products. Its owners do not produce the ingredients of bovine growth hormone. Rather, owners provide financial resources and, in return, expect the corporation to make a profit. Monsanto’s behaviors are bound to its organizational form. Monsanto must defend corporate resources and obtain a competitive return on stockholder investment.

As a large organization with the deep pockets of a multinational firm, Monsanto is able to marshal many resources and act with power in the political economy of agricultural markets (it ranked 336th on the Fortune 500 list of largest corporations in 2006).

This issue has also led to Monsanto previously challenging the state of Maine, Oakhurst Dairies (a family-held dairy processor in Maine), Swiss Valley Farms (a dairy cooperative headquartered in Iowa), and Pure Milk and Ice Cream Company of Waco, Texas.

In the state of Maine and Oakhurst cases, Monsanto challenged certain labeling policies. Maine promotes its products with a “Maine Quality Seal.” Dairy processors can use the seal if they do not accept milk produced with artificial growth hormone (and 80 percent of the milk processed comes from producers within the state).

Monsanto objected to the labeling, but Maine refused to modify the policy. Monsanto also sued Oakhurst for labeling issues. Oakhurst had indicated on its milk containers that “Our farmers’ pledge: no artificial growth hormones.” Monsanto argued that the labeling was misleading. It implied that there were differences in rBGH-produced milk, and that rBGH-free milk was healthier.

The case was settled out of court, with Oakhurst agreeing to indicate on its products that the FDA had determined that there was no difference in the milk products. Essentially, “milk is milk,” regardless of whether the milk is obtained from cows treated with rBGH or not.

Tillamook gives no indication on its label that their milk is rBGH-free. James McCullen, CEO of Tillamook, has said “We didn’t want this to become a national issue, and we didn’t want to be the target of the labeling issue.” (Patton, 2005).

The issue remains, as other dairy processors have decided to require producers to go rBGH-free (Darigold Farms, Meadow Gold, Eberhard Dairy, Alepenrose Dairy) Dean Foods, Wal- Mart and Kroger are all seeking to increase sales of rBGH-free milk (Organic Consumers, Monsanto’s Bovine Growth Hormone Once Again Under Fire, 2006). In 2003, organic dairy products accounted for $1.3 billion in sales.

As of this writing (September 2006), there have been recent headlines that two of the nation’s largest privately owned dairy foods companies, Dean Foods and H.P. Hood, are demanding rBGH-free milk from regional dairy cooperative suppliers. The Boston Globe reported that the motivation behind this strategy is to compete for the substantial market gains being made in sales of organic (rBGH-free) milk.

The context of this struggle will likely continue, with Monsanto seeking to maintain or expand sales, gaining a competitive return on its investors’ money. Monsanto has not released dollar- volume sales data on Posilac, but did recently report that it sells more than 33 million doses annually. (Rachel Melcer, Monsanto Takes Over Production of Milk Hormone) Cooperatives will continue to guarantee a market for their producer-members product. With approximately $1.3 billion in sales of organic dairy products, and with such major retailers as Wal-Mart announcing that it is expanding sales of rBGH-free milk, it is likely other cooperatives will seek a market niche.

A founding logic of the Capper- Volstead Act was to help legally empower individual farmers to act collectively, such that their cooperative action might countervail the power of much larger agribusiness firms. According to John Craig (Nature of Cooperation, 2003), cooperatives have been successful to this end. In the Tillamook/Monsanto case, a co-op with gross sales of $260 million was able to mobilize the democratic processes of the cooperative, such that members successfully opposed the contending interests of Monsanto, a multinational firm with sales of $6.3 billion annually.

In an era of joint ventures, strategic alliances, mergers and consolidations, the Tillamook/Monsanto controversy serves as an example of the continuing relevance of agricultural cooperative organization to countervail the power of larger organizations, while simultaneously achieving the voiced-interests of independent farmers.

Protection for dissenting voices

Voting power in Tillamook is on a one-member, onevote basis. This provision creates a more horizontal business organization in that — regardless of the amount of milk any individual member sends or how much cooperative equity is owned — each member has only one vote. This reduces tendencies within the cooperative for voting power to concentrate with any single member or group of members. Members who dislike cooperative policies may dissent in various ways, among them:

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