The industry politics of A1 and A2 milk

[This post was first published in the Fairfax NZ Sunday Star Times on 7 September 2014]

I have previously written about the health reasons why New Zealand should convert its herds away from A1 beta-casein. However within the industry, the issue remains controversial. Fonterra’s response in recent weeks has been that the co-operative produces a great product which consumers love and there are no plans in relation to A2.

The technology of eliminating A1 beta-casein is simple but it does take time. The first step is to only use semen from bulls that carry double copies of the A2 gene variant.

If farmers did nothing else but use A2 semen, then the A1 beta-casein milk component would halve with each cow generation. In practice, there would be almost no effect for three years due to biological lags, but thereafter the level of A1 beta-casein in the milk would halve every five years. I call this approach the ‘passive approach’ to breeding out A1 beta-casein.

Farmers can increase the rate of conversion by a range of active decisions. The most powerful is to genetically test each calf at birth and select replacements accordingly. Many farmers already genetically test their calves for other reasons, so adding the available test for A1 beta-casein is easy.

A second strategy is to genetically test the cows. This can have some effect through more effective culling, but is less powerful than testing the calves.

There are other strategies that can greatly speed up the process, but these have more management implications. For example, many farmers in New Zealand do not select replacements from first-calving cows, because these are typically mated naturally while on dairy support land away from the main farm. Farmers in other countries find this New Zealand system very surprising, because these are the calves that have the highest genetic merit. Selecting from these first-calving cows would also give immediate scope on most farms to ensure that no replacement stock carried the A1 gene variant.

The other way to greatly speed up the conversion is to use sex-selected semen. This would allow almost all existing A2 cows to produce female A2 progeny. This system works very well in intensive year-round mating systems used overseas, but needs further refinement for New Zealand’s seasonal mating systems.

So the question has to be asked: if it is so simple to make fast progress, why is it not already happening?

The answer is two-fold. First, some farmers have been quietly converting away from A1 beta-casein for ten years and more. The semen marketing companies all know the A1/A2 status of their bulls, and frozen A2 semen is readily available. However, LIC, as the major semen provider, does need to set up a service for non-frozen A2 semen.

The second reason is industry politics. Back in 1998, the New Zealand Dairy Group (NZDG), which was New Zealand’s biggest co-operative at that time, nearly made a decision to shift to A2. However, the pre-Fonterra New Zealand Dairy Board, which had responsibility for marketing all New Zealand dairy products, was concerned about the risk to the ‘existing category’. The question was put: how do you expect the Dairy Board to still sell A1-containing products during the 10 year conversion period once it becomes known publicly that we are breeding away from A1? At that time the evidence against A1 beta-casein was much weaker than it is now, so a decision was made to sit tight and hope the problem would fade away.

The concern about damage to the ‘existing category’ remains a key constraint influencing industry decisions. It is also an issue many politicians would prefer not to face up to. The alternative perspective is that it is better to manage risks pro-actively.

Despite the lost years, the New Zealand industry does still have opportunities relative to others. Our level of A1 beta-casein is lower than in the USA and much of northern Europe. Also, most countries are currently constrained by patents held by The a2 Milk Company which are perceived as controlling the right to select herds free of A1 beta-casein.

These patents, which are not effective in New Zealand, run out in most other countries starting in 2016. So we have less than two years to build our lead. Thereafter, other countries, and particularly the USA with its mega-sized herds and the use of sex-selected semen, can quickly catch up, and race ahead with differentiated A1- free premium products. Oh dear!

From a purely business perspective, the other key issue is the role of the NZX-listed a2 Milk Company. To date, they have used their patents to good effect outside New Zealand to keep others at bay. They have made spectacular progress in Australia, but have yet to transfer this success onto the world stage. In part this is because the global mainstream industry, with its enormous resources but cut-out from the action by the current patents, has understandingly chosen to make life as difficult as possible for The a2 Milk Company.

Disclosure of interest:
Keith Woodford receives royalties on his book on A1 and A2 beta casein and has previously acted as an independent adviser to The a2 Milk Company and other agri-food companies. He holds no shares in any milk company.

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About Keith Woodford

Keith Woodford is an independent consultant, based in New Zealand, who works internationally on agri-food systems and rural development projects. He holds honorary positions as Professor of Agri-Food Systems at Lincoln University, New Zealand, and as Senior Research Fellow at the Contemporary China Research Centre at Victoria University, Wellington.
This entry was posted in A1 and A2 milk, Agribusiness, Dairy, The Fairfax SST Articles. Bookmark the permalink.

9 Responses to The industry politics of A1 and A2 milk

  1. ed765 says:

    “The question was put: how do you expect the Dairy Board to still sell A1-containing products during the 10 year conversion period once it becomes known publicly that we are breeding away from A1?”
    The quick answer is that the rest of the World’s diary industry will try to keep the problems with A1 milk from being known. To the extent they succeed there is no problem for the New Zealand dairy industry (only for the milk consumers in their home countries).

    If they fail, milk consumption in these countries might decline a little, but New Zealand product would be seem as superior and would be expected to increase its share. The result would probably be greater sales for the New Zealand product.

    While it could be argued that the price of milk would decline, and this would hurt the New Zealand prices, in some countries (notably the US) the price support system would hold the prices up, and New Zealand could ask for a premium.

    If A2 type milk was seen as healthier, one could expect firms to try to offer it, or at least milk products that could be advertised as lower in A1 than the competition. US firms might be deterred by the A2 patients. This would provide an opening for New Zealand firms.

    One might be A2 Corp with the benefit of an established brand, and the ability to supply the product (although it might be from Australia).

    Other New Zealand firms which could quickly start offering either an A2 type product, or a low A1 product. Trucking cows around is cheap to create A2 herds, and the milk from these herds can be segregated and processed separately.

    If firms are scared of A2 patents and selling a product that could be argued to have been produced in NZ for the US market in ways that violate the patents. It should be noted that the A2 Corp patents relate to producing milk that is over 95% A2 beta casein, and it would be easy to avoid the issue by producing a 94.5% A2 that could be honestly advertised as much lower in A1 milk than other domestically produced product. Once patents were expired, the percentage could be raised to essentially 100%, and advertised as substantially A1 free.

    While I have not gone back and reread the A2 patents, I don’t believe they cover many possibly traded milk products, such as baby formulas, which NZ firms might wish to sell at a premium price.

    I have gone over the A2 Corp. patents in the US, and they are very weak, and can be challenged in several ways.

    In practice A2 Corp would be in a weak position to prove infringement, or to block imports of a particular milk product (does A2 type milk product look different than A1 type milk product, or is it likely to be bought from a different firm than the supplier of regular milk product?) and collect damages. Thus, it might be willing to provide a license at a low cost, and possibly even throw in the use of their trademarks also.

  2. “Our level of A1 beta-casein is lower than in the USA and much of northern Europe. ” Did not know that. Having had dealing in quality management for dairy-related products at large Fortune-100 food producers I know the name Fonterra and its huge part of New Zealand’s overall BSP. And know they have very keen strategists in their board. I would have thought that of all world players in the milk industry Fonterra’s management would have grasped that nettle as early as possible rather than rely on foot-dragging as it knows it always has several Damocletian swords hanging over its head.

    • Keith Woodford says:

      Darragh,
      A key problem is that the strategists have not read the scientific literature. In part this is because they are not trained in science. They therefore have to rely on the advice of others,in particular their chief scientist. I have written about that person and his role in the beta-casein saga in other places, and he figures prominently in my book.
      Changing the perspective within Fonterra requires someone to ask difficult questions. That is not the standard approach if one wants to have a successful corporate career. The pressures to be a good company person and promote the company line are issues that exist throughout the corporate world.
      Keith Woodford

  3. JL in US says:

    I have been following this issue for sometime after reading the authors book. On one end this is a fascinating public health question and on the other a major business issue. I think the author should be commended for keeping the science aspect of this issue in focus. At some point the industry needs to consider the potential for a tipping point, where the science and public perceptions begin to merge on the potential negative aspects of A1 milk for some individuals. The current questions scientific and business that are emerging around gluten sensitivity should be carefully noted. At the end of the day it is hard to argue with people who say they feel better if they do not eat a certain product or ingredient.

    • Keith Woodford says:

      Thanks JL. The gluten analogy is an interesting one. For thirty years I was myself intolerant to gluten, but I never identified the problem. Now, having finally identified the issue,my body now rewards me accordingly.

      • JL in US says:

        Keith

        Thanks for sharing. We have dealt with this issue as well on a family level. I think for some of us there is a definite synergistic interplay between gluten and A1 casein. One can only hope we will see more research in this area. One has to applaud the early work by the NZ Dairy Board Scientists and their collaborators on the seemingly hidden health issues with casein.

        John

    • Melinda Jill Johnson says:

      JL, I would take the gluten sensitivity a step further with the A1 milk concerns. I refer you to information on lectins and Dr. Gundry’s book, Diet Evolution.
      http://www.krispin.com/lectin.html
      http://www.medicalnewstoday.com/releases/78478.php
      I believe our major health issues today are greatly exacerbated by A1 beta casein, lectins and sugar. Thank you Keith, for all your work on the A1 issue. I share your information with our physicians regularly. I have not made much progress but a few in roads 🙂 I have had some successes with people changing their foods to a low lectin and A1 beta casein free. I am developing many great recipes and teach classes, “It is just a matter of ingredients and preparation.”
      For a healthier world.
      Thank you!
      Jill

  4. Steve Short says:

    Hi Keith. If you don’t know this already I think you will get a big laugh out of it.

    The other day my partner bought some ‘Dairy Farmers’ brand milk here near Wollongong, NSW. We usually buy the A2 full cream milk from the Aldi supermarket chain but this was a corner store.

    The front label boldly states: ‘NATURALLY contains A2 PROTEIN’. On the back label; it states (disingenuosly): ‘ Dairy Farmers milk naturally contains A2 protein, as well as A1 protein. Of those proteins, our tests to data confirm that 50-70% is A2’.

    What can I say but wow – such chutzpah on the part of Dairy Farmers!

  5. ed765 says:

    I presume the Dairy Farmers brand claims are accurate. This is good. If some other brand can beat them, perhaps they will make their claims also. Competition to eliminate A1 casein could easily escalate to where brands are claiming to be A1 free.

    I would hope something like that would happen in the US and elsewhere. Some brand has to be have a below average amount of A1 beta casein. They could advertise this. In the US a very obscure brand, Golden Guernsey, is probably the leader (they use cows from only the Guernsey breed, which appears to be very low in A1).

    The obvious way to win such a race is to seek out milk that is low in A1 beta casein. There is nothing in the US or other patents held by A2 Corp. to prevent a bottler from seeking out low A1 beta casein milk, and even paying a premium for it. Of course, a producer might be argued to infringe some patents if he segregates his herds or changes his breeding policy to produce such milk. However, since you do not know the A1/A2 genetics of a cow from its looks, or the A1 content of milk from looking at it (and milk low in A1 casein is shipped in trucks that look just like the trucks used to ship other milk), there are some problems in knowing which farmers may be infringing patents owned by a certain New Zealand firm (which I suspect lacks staff in the US to figure out what is happening).

    The buyer could be accused of infringement (inducement) if he dictates to his suppliers how to produce such milk, but he is safe to just announce a price schedule in which milk low in A1 beta casein gets a better price. US farmers are not stupid or uninformed, and I suspect most could figure out how to produce milk low in A1 beta casein.

    If they have a problem, I suggest they call a certain supplier of New Zealand semen, and ask for advice. I have talked to their representative, and he seems like the nice sort of chap who might tell them how to go about breeding a herd that produced the desired milk. He would probably even be kind enough to take orders for the semen needed, or to direct them to someone who could.

    Perhaps more important the key patents deal with producing A2 type milk, which is defined as over 95% A2 beta casein. The herd segregation technique can be used to produce herds that produce very little A1 casein, and A2 patents are not infringed if a farmer merely uses the techniques to lower the A1 content of his milk.

    Once the A2 patents have expired (soon), a few A1 beta casein producing cows can be removed from the herd, and milk with higher percentages of A2 type milk produced.

    Hopefully a producer could supply information (factual) on their milk. If people ask what is A1 beta casein, there is a certain blog they could be referred to, and a good book by Woodford. If the US producers are not telling the owner of this blog what to write (which I believe is the case), they might be safe.

    Of course competitors might organize to keep these claims from being made (or use their existing organizations), but hopefully they would fail.

    Some scenario like this may be the best way to reduce the amount of A1 beta casein consumed in the US.

    The first step is to make consumers aware of the issue.

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