by Tamara Scully
“The last three years have really emphasized that organic dairy is a commodity,” Ed Maltby, executive director of the Northeast Organic Dairy Producers Alliance, said.
Commodity farmers don’t set prices, they take them. And just as with any commodity, organic dairy farmers have found that as the demand for organic milk has increased, the supply of organic milk has also quickly increased, and the pay price has rapidly decreased in response to a saturated milk market.
The retail price of organic milk does not change with the supply. Store-branded organic milk is often a loss leader for retailers, as consumers who want organic food often use organic milk as an entry point to other organic product sales. Retailers want to entice them to buy it.
One bright light – or at least a dim glow – on the horizon is the increase in organic whole milk sales over the past five years, Maltby said. He attributes this to the educated organic consumers who buy organic milk and “want something that tastes like milk.”
Organic milk is primarily co-packed, so when fluid milk supplies are high, there is no capacity for organic, Maltby explained. With 90% of the organic milk produced as ultra-pasteurized, it can spend a longer amount of time on store shelves too.
The decrease in pay price isn’t likely to change, Maltby said, and milk contracts, both organic and conventional, will be hard to come by. The vertical integration of dairies gives the largest buyers control of milk routes, the milk supply and the contracts.
As buyers demanded more organic milk, larger producers became certified, and the number of organic cows substantially increased. According to Maltby, there were 41,000 certified organic dairy cows in the U.S. in 2001. Ten years later, there were 200,000. More cows (about 38,000) were added through 2016.
“There is little wonder we went from a steady market to an over supply,” he said.
During the supply shortage seen in 2014-15, the pay price rose to $36/cwt for certified organic milk, and up to $40/cwt for grassmilk. As growth slowed in 2016 – in part because of the hype over plant-based “milks” – organic dairy farmers faced a rapid decrease in demand.
Beginning in 2018, producers saw contracts for organic and grass-fed milk cancelled, and transitions to organic production halted. Pay prices for organic milk dropped an average of $8/cwt, or 25%.
“The low pay price is not sustainable,” Maltby said.
The current oversupply of organic fluid milk has been compounded by several factors. Controversy over organic dairy standards, organic milk serving as a loss leader on the retail store shelf, products from plants labeled as milk and the rapid expansion of the grass-fed label (without adequate demand) have all added to the declining pay price for organic milk.
Danone and CROPP (Organic Valley) are the two big national buyers, while large regional, vertically-integrated dairies such as Aurora are major suppliers. The international organic dairy market does not affect the domestic one, and organic milk is not a part of the Federal Milk Marketing Orders. All of these factors leave the buyers in control of the supply.
Another issue is that of spot milk markets. Buyers can purchase organic milk when needed from other regions, undercutting local farmers who received higher prices. For example, milk from Ohio is less expensive and is used to fill demand for New York processors.
While the supply of certified organic milk is beginning to balance out, there is no pay price predicted for organic dairy farmers. The western part of the nation has seen its contracts stabilize while the small dairy farms in the Northeast are disappearing.
National Organic Program
The NOP is finally beginning to investigate claims that these larger dairies are not fulfilling the certification requirements. Primary concerns center around the Pasture Rule and the transition of livestock. Certifiers of large dairies have been lax in applying the standards, interpreting them in favor of large dairies at the expense of dairy farms in other regions, Maltby said.
The proposed Origin of Livestock regulation dates from 2015, and covers the transition of animals into the organic herd. Currently, some certifiers have allowed large dairies to continually transition new young stock into the herd, gaining an advantage over those who interpret organic transition requirements in a more restrictive manner. The NOP has recently held the Texas Department of Agriculture in violation for non-compliance with organic livestock program rules.
The proposed Origin of Livestock regulations, re-opened for comment until Dec. 2, would clearly state that “a producer can transition dairy animals into organic production once. This proposed action would clarify that, after completion of this one-time transition, any new dairy animals that a producer adds to a dairy farm would need to be managed organically from the last third of gestation or sourced from dairy animals that already completed their transition into organic production. This proposed action would also clarify how breeder stock should be managed on organic livestock farms,” according to the Agricultural Marketing Service.
Likewise, the Pasture Rule states that the grazing season must be a minimum of 120 days or more, depending on climate; that 30% of the dry matter intake during the grazing season must be from pasture; and that a soil and water management plan must be a part of the grazing management plan. Large industrialized organic dairies have been accused of skirting these regulations.
The NODPA has been active in lobbying for the integrity of the proposed Origin of Livestock rule as well as the Pasture Rule. Holding all dairies to the same standards, and eliminating different interpretations by various certifying agencies, would result in the decertification of some of the mega-dairies fueling the oversupply. Maltby uses the example of one 14,000-cow dairy in Texas, who arguably could be supplying over 5% of the organic fluid milk in the nation, despite their questionable ability to meet the pasture standards.
Another issue of concern to organic dairy farmers is the import of organic beef. With this meat on the market, culled organic dairy cows will not be in demand. These organic cull cows will receive conventional prices, as has happened with organic fluid milk, and further add to the economic downturn of the organic dairy farm sector.
“That to me is where we’re at,” Maltby concluded. “For sure, direct marketing is there. But the majority of milk goes out as a pooled market.”