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A revolt by farmers who supplied Clover Stornetta Farms with most of its organic milk has sparked debate within the North Bay's shrinking dairy industry over the best way to ensure its survival.

Ten of the 15 organic dairies that sold their milk to Clover walked away from the Petaluma company this summer and aligned with rival Organic Valley, an all-organic, farmer-owned cooperative based in Wisconsin.

The news of the breakup, which emerged last spring, signaled the arrival of a newcomer that takes a very different approach to selling organic milk.

In Clover, the state's largest organic dairy and one of Sonoma County's most iconic food companies, the aim is to focus on a local product. That means putting virtually all the milk purchased from farmers into a Clover jug, ice cream carton or other packaging — complete with a "Clo the Cow" image on it.

In Organic Valley, the nation's largest organic farm cooperative, the group sells milk and other products from 1,643 dairies under its own label. But it also sells milk products to other food makers and on the bulk market, an approach its boosters say means fewer production cutbacks for farmers.

Ironically, the co-op currently is selling most of its local milk to Clover. But that is a short-term arrangement as Clover takes on new dairies and encourages its existing ones to expand.

The divorce between Clover and its long-time suppliers exposed intense feelings and differing views on how to help local dairies prosper.

When Tom Scott, general manager of Cotati-based Oliver's Market heard of the farmers' departure last spring, he pulled all eight Organic Valley products that directly competed with Clover off the shelves of his three stores. He emphasized he still sells another 18 Organic Valley products.

"We're not boycotting Organic Valley," Scott said. "We're supporting Clover."

Scott said he did so not only because Clover is a model for giving back to the community. He also shares the company's view that the best way to sustain local dairies is to keep the milk distinctly a North Bay product, not to blend it with shipments from other areas.

In contrast, the farmers who left said they need more stability in the money they earn for their milk. They said Organic Valley is less likely to cut their production levels or prices, and they already are benefiting from the new arrangement.

"Our milk check is going to be considerably more" in August from Organic Valley, said Two Rock dairyman George McClelland. He estimated his payment would be up 15 percent over what he earned in July from Clover.

Moreover, he said, the company is not only paying him more but selling milk to consumers at a lower price. The Rohnert Park Costco is selling two gallons of 2 percent Organic Valley milk from California for $9.99. That's about $2 less per gallon than Clover's organic milk sells for in Santa Rosa supermarkets.

"It will compete on the shelf right alongside Clover," McClelland predicted of his new brand. "And the price will tell the story."

Observers privately say the tight-knit dairy community has been filled with talk of soured relationships and questions over who was to blame for the breakup. Most, if not all, of the 10 dairies had been with Clover for more than 20 years.

The North Bay remains dairy country, where milk is Sonoma County's second-largest agricultural product after wine grapes. But many dairy farmers here have struggled for decades to stay in business.

Clover President Marcus Benedetti noted that when his grandfather, Gene Benedetti, was manager a half century ago at the Petaluma Cooperative Creamery, he worked with 400 dairies. Today Sonoma and Marin counties have roughly 100 dairies.

For the first seven months of the year, combined dairy production for Sonoma and Marin counties fell to 380 million pounds, a 12 percent decline from the same period of 2008, according to the California Department of Agriculture. In contrast, the state's production totals remain unchanged.

The Great Recession hit dairies hard. In 2009, exports dried up, consumers ate out less often and farm milk prices plummeted far below the cost of production. The losses took a huge toll on farmers.

"Most of them lost most of their equity in their operations and borrowed a heck of a lot of money," said UC dairy economist Leslie Butler.

The conventional milk dairies felt the pain first. But the organic segment, which routinely had experienced double-digit annual growth, suddenly saw sales fall 4 percent in 2009. To get rid of excess product, much of the organic milk was sold off at lower prices paid for conventional milk.

To cope, Clover last year imposed a 25 percent cut on the amount of organic milk it would buy from its dairies. The company also cut the organic price it paid dairies by 20 percent.

Two farmers who left said they disagreed with Clover over how quickly to return to their old production levels.

The cutbacks "really hurt us," said Jarrid Bordessa, a Valley Ford farmer. "We were really struggling and we were desperate to get that back. And Clover didn't seem as desperate to get that back."

Benedetti, Clover's president, responded that he didn't want to start selling excess organic milk as a commodity because "that business could be gone tomorrow and then we're talking cutbacks." Instead, he said, the company is growing the business by selling milk tied to the Clover brand and that gives its farmers "an incredible amount of stability."

"I've never felt better for the future for Clover and our producers," Benedetti said.

As a result of the breakup, Clover by year's end will gain eight new organic dairies. One of the new farmers is Mike Moretti of Tomales, whose farm was named the Sonoma County Fair's North Bay Dairy of the Year.

By mid-October, Moretti hopes to be milking 70 organic cows, plus 100 more that eventually will be certified organic.

He acknowledged he "missed the boat" in making the switch to organic farming in the last decade.

"When I really got serious, I didn't have a home for my milk," he said. Without an organic contract, his dairy had to remain a conventional operation during the recession.

"We lost a lot of money over the last three years," Moretti said.

Now the region's farmers also will be watching Organic Valley, which had $619 million in sales last year. Its dairy farmers include 31 in California.

The co-op's mission is to keep price and production as steady as possible for farmers "so they can stay on the farm," said Louise Hemstead, Organic Valley's chief operating officer. To do that, it sells some of its milk products as commodities.

This year dairy exports have picked up, and so have retail prices. An average gallon of milk in the San Francisco Bay Area cost $3.59 in August 2008, according to AC Nielsen data collected for the state. A year later the price had dropped 22 percent to $2.81. Last month it had climbed to $3.91.

However, higher farm income has been offset by skyrocketing feed prices. The price of a ton of corn has risen 68 percent in one year to $330, said Butler, the UC economist.

Doug Beretta, an organic dairy farmer near Santa Rosa whose milk goes to Wallaby Yogurt, said he recently paid $350 a ton for alfalfa hay, up at least $100 from last year.

"We're making money, but it's not what it was," Beretta said.

Observers noted that wounded feelings remain on both sides in the Clover breakup. But a few see the chance for the North Bay milk industry to emerge stronger, with more dairies able to enter the organic niche and to take advantage of a more stable market for their product.

"It's still a little raw," Healdsburg dairy farmer John Bucher said of feelings in the dairy community. He stayed with Clover after attending the dairy farmers' meetings with Organic Valley.

Bucher said he chose to remain because "I believe in the Clover brand" and the company's approach to building a loyal customer base for a 100-percent local product. Even so, he welcomes more competition for dairy production, and he sees a chance for more of his fellow farmers to go organic.

"It might be a difference for whether they can stay in business or not," Bucher said. "Cause I don't see a bright future for conventional."

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