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Yeah, it's pretty out there, although some of its campaigns--a touring demonstration of how vegetarians make better lovers, for instance--could possibly give some people pause. And some were pretty funny. If I'm not mistaken, wasn't PETA responsible for the spay-and-neuter-your-pets ad featuring a cat orgy while the owner is gone, or was that a different organization? That was hilarious!
Whatever we think about breastfeeding notwithstanding, I think the idea of this commercial was to equate drinking cow milk with drinking human breast milk, the notion of which most adults find pretty distasteful. Add to that the "eeuuwww gross" factor associated with lactation fetishes, and this was essentially another over-the-top PETA antic. The people who are offended by this ad have probably mostly already made up their minds about PETA, but will probably find other animal-rights organizations to be more reasonable by comparison, making them seem more "middle of the road." And some people may indeed be put off by the comparison of cow "breast milk" to human breast milk, or at least by the inhumane practices used to extract it.