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Organic milk boom slows down

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ORGANIC DAIRY FARMER John Rutter watches part of his herd as it crosses Middle Road in Bridport to graze Wednesday morning. Rutter and other organic dairy producers are seeing a drop in demand for their product due to the sagging economy and oversupply. Independent photo/Trent Campbell

By KATHRYN FLAGG
ADDISON COUNTY — Bridport farmer Jon Rutter was getting by — but just barely -— as a conventional dairy farmer.

“Economically, we were just treading water, if not drowning, under the conventional market,” Rutter said, looking back.

That’s when Rutter became a convert — that is to say, when he made the choice to go organic. That was back in 2001. Now, Rutter milks around 270 cows on his Bridport spread.

For dairy farmers who, like Rutter, were caught in the volatile throes of the conventional dairy industry, organic farming in recent years looked like the land of milk and honey.

Demand for the milk was skyrocketing, and many supermarkets couldn’t keep the stuff on their shelves. Organic dairymen entered into stable, yearlong contracts with their processors and cooperatives, avoiding the ups and downs of the conventional market.

And farmers’ cooperatives and processors were bringing new farms into the fold at an astounding rate. Organic Valley, the largest organic co-op in the state, began enlisting Vermont farmers in 2000 — and now, nine years later, their numbers have swelled to 122 family farms.

But all that is changing. With consumers tightening their belts and eyeing their pocketbooks, more expensive organic dairy products aren’t flying off the shelves like they once did — and that means cutbacks on organic dairy farms across the state.

“A lot of processors kind of jumped in, like a gold rush. The gold rush, for the moment, is over,” Rutter said. “Some companies have jumped in, thinking they were going to make a fast dollar on it, and that sort of backfired.”

Now, according to trade industries like the Organic Trade Association, the rush to sign up new organic farmers means there’s an oversupply of organic milk on the market — an oversupply somewhere in the neighborhood of five percent.

“The buyers are basically saying, ‘Whoa, we have contracted for more milk than we can sell,’” said Dave Rogers, a policy adviser at the Northeast Organic Farming Association of Vermont. “They have asked, and in some cases told, their farmers to cut back.”

That typically isn’t a make-or-break verdict for well-established organic farmers, whose milk checks are still high. (At Organic Valley, farmers typically make $26.50 per hundredweight as a base amount for their milk, with premiums on top of that for butterfat, protein and milk quality. That’s more than twice as much as conventional farmers were earning for their milk this winter, when prices dipped to around $10 per hundredweight.)

But the cutbacks, and what some companies say is a faltering demand for organic milk, could be bad news for more vulnerable organic farmers, like those who are new to the business. Those farmers, Rogers said, took on debt to transition to organic farming, and typically don’t have their management systems running as efficiently as they could be.

And other farmers looking to switch over to organic milking are finding that, for the time being, the gates to the land of milk and honey are closed: organic co-ops like Organic Valley have put a hold on accepting any new farms.

For farmers who were eyeing the switch to organic as a way to escape the conventional dairy industry, Rutter said the outlook is “pretty dismal, at the moment.”

But he thinks there will be room for those new farmers to come on board eventually. That will be possible if the market stabilizes, he said, and with the natural attrition of farmers who retire from the business.

“It isn’t like the door is shut forever,” Rutter said.

CHANGES IN THE INDUSTRY
For farmers like Rutter, who transitioned to organic milk when the industry couldn’t grow fast enough, the past few years have seen plenty of changes.

Take Regina Beidler. In Randolph Center, Vt., Beidler and her husband bought their 145-acre farm 11 years ago. After a two-year transition period, they switched over to organic milking in 2000. It was a “serendipitous” time to go organic, Beidler said: the Organic Valley co-op was just establishing its foothold in Vermont, and was drumming up farms to create a supply of organic milk for Stonyfield Farm yogurt-makers in New Hampshire.

The Beidlers were the third farm to join Organic Valley back in 2000.

Like Rutter, Beidler also watched the demand for organic milk skyrocket over the course of her time in the industry. When the Beidler farm switched to organic — a change that was attractive to the Beidlers because of both the stable milk checks and organic philosophy — their product was considered a “niche market.”

At the time, organic dairy made up just one percent of the overall dairy market.

But now, nearly 10 years later, that number has grown to a six percent market share. It’s still a tiny portion of the total dairy industry, Beidler said, but those kinds of numbers are encouraging for organic farmers.

The situation started to change late last year, when sales of organic milk products began to slow. Beidler said total sales are still growing, but at a much slower rate than organic co-ops had anticipated. Gone, at least for now, are the years of 20 or 30 percent annual growth, which Beidler said the organic dairy industry saw frequently over the past few years.

Those numbers sync up with what the Organic Trade Association reports. Dollar sales for organic milk and cream clocked in around $2.13 billion nationwide in 2008 — up 24.9 percent from the sales figures the year before. In 2007, those numbers saw an 28.2 percent boost.

But now, at Horizon Organic, another nationwide organic processor, Marketing Communications Manager Sara Loveday said demand for dairy products across the board is tapering off. And she chalks that decrease up to the state of the economy, and the choices consumers are making.

A half-gallon of Horizon milk sells for around $3.29. Meanwhile, in Middlebury this month, a gallon of milk from Monument Farms Dairy sold for $3.69 in some supermarkets.

At Horizon, executives are ramping up their marketing efforts to encourage consumers to buy organic, even if the price tags are a bit higher. The processor is launching a new Web site in a few weeks, and is pushing two big advertising campaigns. One emphasizes the role that milk, fortified with DHA and omega-3, can play in healthy brain and eye growth in children.

The other pushes a new, single-serving milk product that’s “shelf stable,” which means it doesn’t have to be refrigerated. Sold in supermarkets in the same aisle as boxed juices, this milk is being promoted with the tagline, “Think outside the juice box.”

“We really feel that we’re a brand that moms can trust,” Loveday said. “We’re continuing to reiterate and refresh that. We’re communicating to moms and families about the healthy options for their kids.”

But advertising aside, Horizon — like all other organic processors — is still faced with an oversupply of milk.

Now, Horizon is asking its 485 family farmers — 64 of whom are based in Vermont — to consider voluntarily cutting their milk supply by five percent.

At Organic Valley, farmers agreed to go one step further: farmers voted to cut production across the board by seven percent starting this month.

Beidler said the good news is that farmers can decide how to handle those cutbacks in the ways that make sense for their farms. Some are selling older cows. Others are feeding their animals less grain, which means their cows produce less milk. Others still are feeding milk to veal calves, a way to diversify their businesses.

It’s all part of keeping supply and demand in check, she said — and that’s in large part where organic farmers find the security that’s lacking in the conventional dairy industry.

MUDDLING THROUGH
Of course, it’s not all bad news in the organic dairy industry. The Organic Trade Association insists that demand for organic dairy products is holding strong, even if it isn’t growing at the rates it did in previous years. Barbara Haumann, a spokeswoman for the OTA, said a recent consumer survey said many customers are still devoted to organic products.

“The consumers are saying, ‘We are still choosing organic, we are making cuts in other places,’” Haumann said. “Consumers do recognize the value of organic milk.”

And some farmers have good news to report. In Orwell, Brian and Patti Wilson, who transitioned to organic dairy farming six years ago, are some of the lucky ones.

Wilson has supplemented the family’s milk checks with a little diversification. Now, the Wilsons sell cattle, some forage and Jersey cow breeding stock. That, and the quality of their milk, means that so far, Morningside Jersey Farm is having a great year.

“There’s always going to be room for the organic milk,” Wilson said. “I think you have to get out of the box and think differently. There’s always the opportunity. I’m always optimistic.”

In the end, he said it’s important for consumers and processors to realize that buying organic milk is about more than the “organic” label.

“This isn’t just about pesticides and hormones,” Wilson said. “It’s about supporting … the family farm. That’s what makes it special.”

And as for farmers who are more vulnerable, Rogers said he hopes the cutbacks at places like Organic Valley and Horizon can be done in a way that doesn’t cause a “severe crisis” for farmers, particularly the new ones to the business.

“Hopefully … everybody can sort of muddle through until demand picks up again,” Rogers said.

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