Organic Sense

Crisis in the Dairy Farmer World: Organic and Non-Organic

by George L. Siemon, Organic Valley CEO  on October 11, 2009

The economic side of being a dairy farmer is very frustrating! First and foremost, the pay price that defines the gross income of the dairy farmer is not connected to cost of production! Second, the pay price goes up and down beyond logic. Imagine, the conventional dairy farmer does not know what he/she is making until a check arrives in the mailbox. Today, the economic crisis has resulted in low global export sales hence we have an over production of milk. The pay price of milk to conventional dairy farmers is at a thirty year low. As many as 20,000 family dairy farmers are expected to leave the dairy sector during this crisis.

These realities were foundations that the farmer-owners of CROPP Cooperative, producers of Organic Valley products, used when developing the organic dairy market. The vision of CROPP Cooperative in forming the first organic dairy pool in the U.S. was that organic must be sustainable for the land and be economically sustainable for family farmers. We insisted that the price be fair and stable and in our first 20 years, we accomplished that goal. The conversion to organic dairy has been a life line for many conventional farmers.

Like many businesses, dairy supply and demand fluctuates depending on the market, the seasons and the weather, too! In our 20 year history, supply has fluctuated many times between too much milk and not enough milk to keep up with the growing market. Around 2004, organic milk became short for an extended period as organic dairy experienced double digit growth. During the tight supply situation, many new competitors entered into the organic dairy marketplace hoping to cash in on the growing market.  Many of these were traditional dairy companies with hopes that organic could help save their farm or company. These new players procured large quantities of organic milk as it seemed at that time that the market would continue its dramatic growth.

This era should be called the “organic dairy gold rush.” The new competition caused high prices. Just as the recession set in, the organic dairy supply was over stimulated and this era came to an end. The recession had an immediate impact on the organic dairy market which dropped from a 25% growth rate down to 0%.

Exacerbating the situation, the non-organic conventional dairy pay price hit a 30 year low and has stayed there for an extended period. The conventional dairy farmer is losing money as never before with grain cost being held high due to the new ethanol market. This low farm pay price brought the retail price of conventional milk to an all time low resulting in an organic premium three times that of conventional. This wide gap premium has contributed to the erosion of organic dairy sales, and it is now estimated that the organic dairy market is at minimum -5 % below last year.

These factors have all caused harm in many ways for the organic dairy farmers. Many of the organic dairy processors are now withdrawing or reducing their supply both in an ethical and unethical manner. Many contracts that came to term are not being renewed and many of those farmers are being left stranded without an organic dairy market. Other organic dairy farmers are being paid on a utilization basis which means if half of the processor’s milk is used conventionally then the producer will get the conventional price for half of their milk. An added insult to all of this is the fact that if an organic dairy was to choose to feed non-organic feed and thus lose their organic certification, the USDA National Organic Standards does not allow them to transition back to organic dairy with that herd!

CROPP Cooperative is supplier to their own farmer-owned brand Organic Valley, to other organic dairy processors and to private label (store brand) customers. Our supply-demand balance is also out of balance. As a cooperative we are reacting to it from a community perspective and our farmer-owners, farmer Board and Management are implementing a mandatory supply reduction of 7% from the average of the last three years of milk production. We have never done this before, but we feel it is critical to keep all of our family farms on the land farming organically. We are all cutting back together, so we can maintain our sustainable pay price and not leave any of our farmers stranded.

Today, all organic dairy farmers are challenged as we deal with this “perfect storm.” The farmer-owners of CROPP Cooperative are being very cooperative in working with the supply reduction program. It is a learning journey for us, and we will learn and be better prepared for such dramatic shifts in the future. The hardest hit farmers are those outside our cooperative who are being stranded without a market or being forced to an unsustainable pay price. Today, cooperation is the most important value we can hold dear as we face this challenge together.

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Myrto from from Boulder, CO on October 20, 2009 at 12:23:10 PM
I am curious whether the economy is causing a drop in sales of Organic Valley products. I am wondering because the other place I get my milk, a local, unpasteurized dairy, is seeing their business double every year. This suggests that there is a place for a completely different model of food: personal, local, high quality (the cows are pastured). I would love for Organic Valley to capture some of that. It is still a little too impersonal for those of us willing to pay more for good food.
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