January 14, 2004

More BSE-related culls.... Dairy producer check-off challenged.... Bongards to re-open Minn. facility.... Group Danone now Stonyfield majority holder.... Parmalat fraud investigation.... Kraft Foods reorganizes.... Shaw's opens 200th store.... Striking workers lose insurance.... Safeway closes Chicago stores.... Odds-and-Ends... Stock Market Ticker... More news at www.idfa.org.

DAIRY BUSINESS BRIEFS

As the search for other cows potentially infected with bovine spongiform encephalophathy (BSE or mad cow disease) enters its fourth week, the U.S. Department of Agriculture (USDA) announced it will slaughter 129 additional cows in its investigation. The herd is from the Mabton, Wash., dairy farm that was final home of the BSE-positive Holstein from Alberta, Canada. USDA will soon order the killing of three cows on a Mattawa, Wash., farm that came from the same Canadian herd as the Holstein. This brings the total of condemned animals to 581; a herd of 449 bull calves, which included an offspring of the infected cow, was killed last week. A farm in Quincy, Wash., is also under quarantine because seven cows from the Alberta herd were potentially housed there. In related news, Agriculture Secretary Ann Veneman broke ground this week for the renovation of the government's animal disease complex in Ames, Iowa. She said President Bush would ask for the final $178 million in his 2005 budget to complete the upgrades. The Ames labs are where the United States tests animal tissues for BSE. (Associated Press)

A three-judge panel representing the U.S. federal appeals court in Philadelphia is considering the validity of the dairy producer check-off program, which helps fund the "got milk?" campaign. A couple operating a small farm in Pennsylvania claims that the program is unconstitutional because it requires all farmers to pay for the promotions, even if they disagree with them. A timetable for a ruling has not yet been announced. Beef and pork check-off programs lost their most recent legal rounds last year in similar federal cases; in those cases, judges ruled that federal regulations requiring farmers to pay for marketing efforts violated free speech rights. However, the U.S. Supreme Court has passed different decisions in check-off cases depending on the specific commodity and the regulations governing it in the marketplace. (Associated Press)

Bongards' Creameries will reopen a former Land O' Lakes cheese plant in Perham, Minn. The cheese whey facility was purchased by the Bongards, Minn.-based cooperative last August and is slated for a March opening. (Associated Press)

Groupe Danone SA upped its holdings in Londonderry, N.H.-based Stonyfield Farm to an 80 percent stake this week; terms were not disclosed. Danone bought 40 percent of the organic yogurt company two years ago. The remaining 20 percent of the company is held by a combination of founding shareholders and employees; Stonyfield Chairman Gary Hirshberg owns the largest portion of remaining shares. (Associated Press)

Calisto Tanzi, founder of now-bankrupt Milan, Italy-based Parmalat Finanziaria SpA, remains in police custody in Italy, arrested along with eight others. Tanzi has hinted that the accounting fraud was driven partly to hide major losses at Parmalat's South American operations. Parmalat Brasil has lost money every year since 1998, when it first began publishing results. A lawsuit by a U.S. pension fund accuses Citigroup of helping Parmalat cover a gap in its balance sheet created by the Brazilian subsidiary. A Brazilian supplier of Parmalat Finanziaria SpA asked a state court to force Parmalat's Brazil unit into bankruptcy after it failed to pay a bill for $321,429; Parmalat in Brazil has additionally struggled to pay thousands of dairy farmers. In Latin America, Parmalat also owns units in Argentina, Chile, Colombia, Ecuador, Paraguay, Uruguay and Venezuela, all considerably smaller operations than in Brazil. Parmalat Chile has suspended payments to about 150 local milk producers. In Italy, producers supplying milk to Parmalat will be paid in cash on a weekly basis after several weeks of missed payments. (New York Times; The Miami Herald; International Herald Tribune; AFX News)

DAIRY BUSINESS REORGANIZATION

Northfield, Ill.-based Kraft Foods has announced a new three-pronged organizational strategy in an effort "to deliver sustainable growth." First, a new global marketing and category development group is being formed. Second, geographic-based commercial units will drive business sales at the local level. Finally, key functions will now be worldwide in scope to increase effectiveness and drive cost savings across Kraft's business system. There are now five global consumer sectors: Beverages, Snacks, Cheese and Dairy, Convenient Meals, and Grocery.

For financial segment reporting purposes, Kraft Foods will have six segments: U.S. Beverages and Grocery; U.S. Snacks; U.S. Cheese, Canada and North America Foodservice; U.S. Convenient Meals; Europe, Middle East and Africa; and Latin America and Asia Pacific.

Many key personnel have been reassigned within this new structure. Betsy Holden will serve as president of global marketing and category development and will continue as a member of the Kraft Foods board of directors. A team of senior Kraft executives will be responsible for leading global consumer sectors, including Rhonda Jordan as senior vice president, Global Cheese and Dairy Sector; and Mary Kay Haben as senior vice president, Global Convenient Meals and Grocery Sectors.

Kraft's geographic-based commercial units will be organized into North America Commercial and International Commercial groups. David Johnson has been named as president of the North America Commercial group. Reporting to Johnson, Kevin Ponticelli has been named group vice president and president of the U.S. Cheese and Dairy Sector, which includes the Kraft Cheese Division along with the company's yogurt business. (Due to the reorganization of duties, Haben will step down as vice chair of the National Cheese Institute; Ponticelli will become more active with the board.)

Franz-Josef Vogelsang, executive vice president, Global Supply Chain, will have responsibility for Kraft's procurement, manufacturing and logistics/customer service. Jean Spence, executive vice president, Global Technology and Quality, will oversee product and packaging development, research, nutrition, quality, food safety and scientific affairs.

Complete staff reassignments can be found on Kraft's website. On January 27, Kraft will make a full presentation on this reorganization in New York City to the investment community.

CUSTOMER CLIPS

On January 9, Bridgewater, Mass.-based Shaw's Supermarkets Inc. opened its 200th store. The nearly 60,000 square-foot store in Hillsborough, N.H., offers more than 250 varieties of imported and domestic cheese. The store is conducting daily sweepstakes for $200 in Shaw's gift cards through January 31. In addition, the first 200 customers through the doors of the new store each day through January 22 will receive a free gift. Shaw's is a subsidiary of J Sainsbury plc.

Secret talks between California supermarket chains and the United Food and Commercial Workers broke off with no resolution Sunday, the three-month anniversary of the strike/lockout involving 70,000 California workers at Safeway Inc. (Vons and Pavilions), The Kroger Co. (Ralphs) and Albertsons Inc. Dwindling strike funds mean six out of seven union locals involved in the work action cut picketing workers' pay by up to half. Union officials report locals have enough funds to support the labor action through at least May. Meanwhile, most clerks lost healthcare eligibility on January 1; workers have been given a one-time option to buy family coverage through March for $365. Coverage is not guaranteed, as the supermarket chains have not made full payments into the healthcare trust fund since the work action began. An arbitration decision on the union's federal lawsuit to keep the retailers contributing to the healthcare fund is expected this month. (Associated Press, Los Angeles Times)

Safeway Inc. will close 12 flagging Dominick's stores in and around Chicago on March 13. In November, Pleasanton, Calif.-based Safeway ended its 13-month effort to sell the 113-store chain. A potential buyer was unable to make a deal with the United Food and Commercial Workers union regarding the stores' unionized labor force -- the same reason Safeway gave for trying to sell. Safeway reports that it is working with the union to find employees positions at other stores. Store closings will result in as much as $55 million in pretax costs in the first quarter to exit leases. (Chicago Tribune)

IDFA NEWS

Dairy Forum Starts This Weekend
It's not too late to register on-site and attend one of the most important industry meetings of the year: the 2004 Dairy Forum, January 18-21 at the Boca Raton Resort and Club in Boca Raton, Fla. This year's program is packed with sessions on the hottest dairy topics, including market growth, dairy's role in weight management, the debate over MPCs, milk and soy in schools, health claims for dairy, international trade policies and milk price elasticity. Watch www.idfa.org next week for all of the news from Dairy Forum. For a complete schedule of events, click here http://www.idfa.org/meetings/2004dairyforum.cfm

ODDS-AND-ENDS

Laser-sliced cheese has the potential to: cut down on labor associated with cleaning large cheese cutting machines, reduce bacteria transmission potential, offer thinner slices and create novelty cheese cuts. The technique is being developed by University of Wisconsin-Madison researcher Xiaochun Li, a mechanical engineering professor and laser expert. A new class of ultraviolet laser, also known as a cold laser, is utilized to avoid cheese scorching. The first shapes laser-cut from a slice of Kraft American cheese were the university's Bucky Badger and motion "W" logo. (Associated Press)... The maker of Enfamil infant formulas, Mead Johnson Nutritionals, reports it will award 20 college scholarships of $25,000 each through a contest open to babies born between November 1, 2002, and June 30, 2004. Evansville, Ind.-based Mead Johnson is a division of Bristol-Myers Squibb Co.... A $7 million museum and visitors center in northwest Indiana debuted December 10 to promote the dairy industry. The Fair Oaks Dairy Adventure operation offers the opportunity to milk a Fiberglass dairy cow, tour an operating dairy farm and sample cheeses. It also features Starbucks coffee, ice cream and Eli's cheesecake by the slice. The consortium-owned agri-tourism venture in Fair Oaks, Ind., is about 40 miles south of Gary, Ind., and is expected to draw 1.5 million visitors annually within five years. A similar center in Ohio draws 1.3 million each year. (Associated Press).... The 2004 Pennsylvania Farm Show annual butter sculpture was unveiled January 8 and was crafted from 800 lbs. of Land O'Lakes butter and 300 lbs. of Hershey's milk chocolate. The milk chocolate likeness of Milton Hershey is flanked by two cows made with butter and spotted with chocolate. The sculpture took 15 days to create, and pays tribute to Hershey Foods Corp.'s 100th anniversary and to Milton Hershey's dedication to the dairy industry. Arden Hills, Minn.-based Land O'Lakes has more than 2,000 dairy producers in Pennsylvania and the surrounding area; the farmers supply milk for use in Hershey's milk chocolate products. (Mid-Atlantic Dairy Association and Land O'Lakes)

STOCK MARKET TICKER

As of 1/13/04, market close.

Company/Symbol		Last Trade		Change over Previous Close		Change over Last Week's D-brief
ConAgra Foods/CAG Dean Foods/DF Dreyer's/DRYR General Mills/GIS Groupe Danone/DA Hershey Foods/HSY Horizon Organic/HCOW Ingles Markets/IMKTA Kraft Foods/KFT Kroger/KR Ruddick Corp./RDK Safeway/SWY Saputo/SAP.TO SuperValu/SVU Unilever PLC/UL Weis Markets/WMK Wimm Bill Dann/WBD Winn-Dixie/WIN		26.19 31.17 77.80 45.08 33.45 76.35 24.00 10.90 31.30 18.60 18.40 22.39 30.05 28.33 39.00 35.26 17.00 09.46		-0.13 -0.83 -0.01 -0.42 +0.15 +0.84 +0.05 +0.20 -0.73 +0.01 -0.10 +0.12 +0.08 -0.12 -0.50 -0.14 +0.02 -0.08		-0.12 -2.01 +0.10 -0.42 -0.02 -0.82 +0.00 +0.61 -1.19 +0.12 +0.56 +0.31 +0.11 -0.10 +0.75 -0.77 -0.20 -0.31

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