Organic dairies facing financial challenges, too

Source: USDA Livestock, Dairy and Poultry Outlook, May 19, 2009

The organic dairy sector has seen strong growth in recent years, with the number of specialized organic dairy farms increasing by 79% from 2002 to 2007 (USDA Agricultural Census).  Land used for organic production on specialized organic dairy farms increased by 85%, and total organic dairy product sales increased by 83% over the same period. 

 

U.S. organic milk producers have suffered much the same fate as conventional milk producers: falling milk prices and high feed and energy costs.

U.S. organic milk producers have suffered much the same fate as conventional milk producers: falling milk prices and high feed and energy costs.

Like the conventional dairy sector, the organic dairy sector is composed of all types of dairy farms. Small organic dairy farms that grow most of their own organic feed can be found predominately in the Northeast and Midwest, whereas the Western United States. is home to several larger dairies that rely more heavily on purchased organic feed. All organic dairy cows must have access to pasture, per USDA regulations.  There is a limited, but growing, amount of data available on organic dairy production at the national level. However, examining the three states with the highest number of organic dairy farms, Wisconsin, New York and Vermont, can shed some light on the current market situation. 

 

U.S. organic milk producers have suffered much the same fate as conventional milk producers: falling milk prices and high feed and energy costs. The March 2009 USDA Economic research Service monthly Milk Costs of Production estimates for conventional dairies in Wisconsin, Vermont and New York were, on average, $21.54/cwt., $24.94/cwt., and $26.55/cwt., respectively.

Organic dairies, on average, have higher production costs by about $5-$7/cwt.   Thus, implied production costs for organic dairies in the three states can be approximated at $27-29/cwt. (Wisconsin); $30-32/cwt. (Vermont); and $32-34/cwt. (New York). 

According to the Northeast Organic Dairy Farmers Association (NODPA), as of April 2009, pay prices for organic milk by the three largest processing plants in the region (HP Hood, Horizon Organic and Organic Valley) will average about $27.43/cwt.  At current estimates of production costs, organic dairy farmers in Vermont and New York are losing about $4/cwt. and $5/cwt., respectively.  The average milk price paid to dairy farmers by the two largest organic processors in Wisconsin (Organic Valley and Horizon Farms) is currently $24.63/cwt.  At that price, the average loss for Wisconsin organic dairy farmers is $3/cwt.

Costs vary greatly across farms and production methods.  Farms that rely more on purchased feed inputs can expect to see greater losses than farms that rely more on pasture-based feeds.  Organic dairy farmers use fewer feed concentrates and more forage than conventional producers; however, the purchased feed they do use has a higher per unit cost since it must be certified organic feed.  For example, prices published by USDA’s Agricultural Marketing Service at the beginning of May 2009 show Upper Midwest organic feed grade corn at about $7.48/bushel, yet conventional No. 2 yellow feed corn was about half the price, averaging $3.90/bushel in Chicago. 

While organic milk and dairy products have a higher cost of production, they also receive a higher price at the farmgate as well as the retail level.  Organic dairy producers earn an average $15/cwt. premium for their product in Wisconsin, Vermont and New York  over conventional milk and, at the retail level, organic milk prices currently average  over twice the price of conventional milk.  Organic milk accounts for about 6% of retail milk sales and is widely available at all types of outlets, from big-box stores to conventional supermarkets to small independent retailers.  Many supermarkets now offer both private label and branded organic milk products.   

Organic milk retail prices vary substantially by region and brand, but have remained  at a premium to conventional milk prices.  In April 2009, a half-gallon of organic  whole milk in the U.S. retailed for $3.79 on average, compared with approximately $1.64 for conventional whole milk.   Conventional milk prices have declined almost 12% from the beginning of 2009 to the present (May 2009).  Organic milk prices have been steadier, with roughly a 2% decline during the same period.   

Organic milk sales showed strong growth during 2008, with an annual increase of 23% for organic whole milk and 19.7% for organic reduced-fat milk, according to USDA’s Dairy Market News.  Sales of both conventional whole milk and reduced-fat milk also increased during 2008, but at a significantly lower rate compared with organic milk sales.  Conventional whole milk sales increased by 1.2% and conventional reduced-fat milk by 3.6% in 2008.

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