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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Comments

Steven from from The Organic Garden on February 25, 2011 at 08:57:51 AM
Hey George,
We met many years ago in KC at a proposed nationwide coop thing. I am glad to hear your core principles have not changed. Thank you for your caring and courage. I hope that the simple enjoyment of simple farm pleasures are still a part of your life. We are still struggling, but we are used to it now. Thanks again,
Steven Quarles
The Organic Garden
816-322-4530
stevenleeq@aol.com
Jamie from from Organic Valley, La Farge, WI on October 23, 2009 at 08:49:44 AM
Hi JAS, I spoke to George, and he says that historically the price for grain was always determined by the price offered at the Mississippi. The introduction of ethanol plants changed the dynamics. As local ethanol plants increased the demand for grain, they began competing with the Mississippi and as a result, the price of grain has gone up.
Emily from from Elko, MN on October 21, 2009 at 08:23:34 PM
Thank you George for this great post. I am honored to be an Organic Valley Farmer owner and am greatful for OV's commitment to it's farmer owners. While some organic milk processors just did not renew farmer contracts and left farmers without a place to sell, OV farmers banded together to weather out this storm.
Once a farm is no longer in operation, the reality is that the land will probably be turned into a housing development or industrial park. Once you are out, a farmer rarely comes back. Thanks to OV, they are trying to keep as many family farms in operation as possible.
Organic Valley producers are local family farms, who are dedicated to the health of their land and animals. No matter what state you live in, you can be assured that you milk was probably produced by a family in your region.
As economic times improve, so will the demand for organic products. We hope that our loyal customers will continue to support the hard working men and women who make up Organic Valley/Prairie Family of Farms.
JAS from from Wisconsin on October 21, 2009 at 02:20:32 PM
George, can you point me to some resources showing that the grain cost are being held high due to the new ethanol market? I've read from government and other sources that the rise in grain cost and its high holding price are not due to ethanol but to other market factors. But that doesn't match what I'm reading from farmers, who are in the trenches and dealing with this up front and personal. I'd really appreciate some insight on what's really happening. Thanks, and "Go Organic Valley!"
Geoff from from Gainesville, FL on October 20, 2009 at 07:32:46 PM
In view of the struggles of dairy farmers nowadays, let me offfer a thought concerning Organic Valley's $1 reduced price coupons. .
Here in Gainesville FL our local grocer, Wards, charges $2.99 for a half gallon of milk while Publix charges much more. So we buy our milk only at Wards, of course. And, while I initially thought I'd print out the on-line coupon - who doesn't like $1 off - I decided not to do so. Wards price seems fair, especially compared to Publix. I don't want to do even a small part towards depressing dairy farmers income further.
Of course if your money is tight, you may need to cut any corner you can. My suggestion is not directed at you. I/we are very far from rich - I'm a retired teacher (as George Siemon knows - from sitting in my classroom 40 years ago). I suspect many Organic Valley fans are like us. We appreciate Organic Valley's coupon offer, but we don't really need it. And we do want - need! - Orgainc Valley to be around for our grandkids.
Yamil Sarabia from from Oyster Bay, NY on October 20, 2009 at 07:31:40 PM
I just read the above article. Perhaps I need to understand more of the way your "cooperative" runs it's business, but my impression from the above is that you are in need of a new business model and/or business plan. This is just a simple comment and without intention to offend. I almost always buy Organic Valley, but definitely try out other organic brands if the price is more palatible. However, I don't actually drink milk. I only use organic half and half for my coffee adn the milk is reserved for cooking or on cereal for my college kids when they are around.
George from from La Farge, WI on October 20, 2009 at 05:13:30 PM
Hi Lisa, thank you for sharing your thoughts and questions. The issue of price is one that we too struggle with as we work with our farmer-owners to make sure their pay truly reflects their cost of production. The conventional food system does not do this and the cheap food era we are in is unsustainable for farmers. If current trends continue, this year we may lose up to 20,000 of our nation’s remaining 60,000 dairy farmers. Americans currently spend 17 cents of every dollar on healthcare and 9 cents of every dollar on food—imagine if we could take some of the dollars going toward our healthcare costs and spend it on high quality, organic food! The choice to spend more on organic can be a tough one, and we share your frustration. We don’t want organic food to be for the elite, and we also don’t want family farmers to go out of business. We’re going to keep working on this issue and look forward to a continued dialogue about it.
George from from La Farge, WI on October 20, 2009 at 05:12:23 PM
Hello Myrto, thanks for responding and sharing your insights. Yes, we’ve seen an impact on sales, but the good news is that our cooperative is strong, and we’re very fortunate to have a tremendous network of consumer support. The growing support for the organic and local food movement that our cooperative is a part of is very exciting to us, because it means that folks are making personal connections with farmers and want to understand the story behind their food. I see local/regional foods as an important part of an organic lifestyle that starts with initial awareness and deepens to personal values-based food choices and finally personal action. I created an “evolving organic lifestyle” pyramid to illustrate this: http://www.organicvalley.coop/why-organic/organic-defined/evolving-organic-lifestyle As a cooperative of more than 1,300 family farmers, we are well known for our national brand Organic Valley and many do not know yet that we have a regional milk production model. So, when you buy Organic Valley milk in Boulder, you’re supporting our 17 farmer-owners in Colorado, Wyoming, Utah and Idaho. Our farmer-owners also have a pasture policy in place that goes above and beyond the USDA organic standards; you can read more about it at http://www.organicvalley.coop/why-organic/pasture/pasture-policy/ Again, thanks for responding!
Colleen from from Circle Pines, MN on October 20, 2009 at 04:19:14 PM
Being the daughter of a dairy farmer, whose father sold the family dairy herd in the mid-1980's due to many of these same problems, this brings tears to my eyes. That land is now no longer a farm.
I choose to pay the price difference for Organic Valley milk, even over store brand organic, because I have met some of the farmers that supply CROPP myself and believe in what they are doing. It's my small part to keep farmers farming - organic or not - and I pray that the conventional farmers will be able to weather the current crisis without turning over to huge agribusiness.
I support (financially and otherwise) our local land stewardship project and will continue to tell all my family, friends, and coworkers the benefits to themselves and the farming way of life to buy Organic Valley products and support local farms.
Lisa from from Northern Indiana on October 20, 2009 at 12:39:37 PM
Thank you for sharing the concern and frustrations of the dairy farmer. It helps me as a consumer try and understand the difference in cost. I can spend $2 a gallon for non-organic milk, or I can spend nearly $8 on organic. I want to do the right thing. For all the right reasons organic is the right and responsible way to go. The problem is telling that to my budget and my accountant husband. It is very difficult during these times. If all dairies went the organic route would that help or make things worse? I'm just curious. Thank you for keeping us consumers educated.
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