Organic dairy rebounds

ADDISON COUNTY — For Russ Cary and a number of other Vermont farmers, the dairy business is looking up.
The Bridport dairy farmer milks 130 cows on the four-year-old Cary Family Farm. Last week Cary signed a contract with the Organic Valley milk cooperative. In recent months, Organic Valley and Horizon Organic, the two organic dairy processors that buy from Vermont farmers, have begun seeking new farms to add to their rosters.
According to federal organic standards, it will take one year for Cary to transition his herd, during which time he will feed it only organic grain but continue to sell his milk on the conventional market. Next November, Organic Valley will begin buying his milk.
It’s not a year too soon.
“With conventional prices as low as they are, we had to make the decision to get out of the business or drastically change it,” he said. “We can’t milk enough cows conventionally and pay for it.”
Cary said the margins are simply too low for conventional dairy to be a sustainable business for him. He pastures his cows in the summer, but feeding the cows on grain throughout the winter is expensive. He said he spends roughly 18 cents per pound on the grain that feeds the cows, and only receives about $21 per hundredweight of milk — that is, 21 cents per pound.
Organic grain is more expensive by about 25 percent, said Cary — he gets his grain at 24 cents per pound. That will be a significant expense to carry over the coming year, when he will still be selling conventional milk.
But Cary expects the payoff will be worth it. Since his Jersey cows produce high-quality milk, Cary expects that he will bring in closer to $34 per hundredweight once he begins selling his milk to Organic Valley. The widened margins between feed price and milk price, he said, will make all the difference.
LEFT OUT OF ORGANICS
Cary originally intended to jump straight into organic dairy processors when he purchased the Bridport farm in 2007.
By late that year, the two organic dairy stopped accepting new farms. As the economy declined, so did the market for organic milk, which according to USDA figures sells at approximately twice the price per half-gallon as conventional milk. Between April, 2008 and April, 2010, the average price of a half gallon of organic milk hovered between $3.50 and $4, while a conventional half gallon was between $1.50 and $2.
Lisa McCrory is an independent dairy consultant who farms in Randolph and works with the Northeast Organic Dairy Producers Association and UVM extension. She said that prior to the recession, demand for organic dairy products was steady. Since companies began selling organic dairy products in the mid-1990s, demand had been increasing by percentages in the double-digits each year. With the economic downturn, the market for organic dairy took a hit that left processors reeling.
“There was still growth, but it was only 3 percent to 6 percent,” said McCrory. “And the milk buyers were still handling milk in the quantities that they had been. It kind of shocked the system.”
In 2009, the Wisconsin-based Organic Valley cooperative called for its producers to decrease production by 7 percent across the board. Colorado-based Horizon Organic also asked its farmers to cut back by 5 percent, but those restrictions were not mandatory.
John Cleary, the New England Regional Pool Coordinator for Organic Valley, said that the decision to put quotas in place was a difficult one.
“It was either reduce the price to the farmer, or ask the farmers to reduce the milk,” he said. “So the farmers agreed, ‘let’s try to solve this by working together, to pull supply more in line with demand.’”
A decrease in overall production meant the handlers could continue to pay dairy producers the high premium for their milk, said Dennis Kauppila, a UVM extension professor in the St. Johnsbury office.
This summer, in response to increasing demand for organic dairy, both Horizon and Organic Valley removed production restrictions.
“My market’s been steady,” said Mike Eastman, who milks 44 cows in Addison and sells to Organic Valley.
Kathleen Hescock milks around 200 cows in Shoreham with her husband Joe. They sell their milk to Horizon Organic, and she said the voluntary cutbacks did not alter business.
“We do what Horizon asks,” she said. “It hasn’t really affected us.”
But for farmers looking to jump into the organic dairy business, the upturn in demand spells new opportunity. Both buyers are looking for new producers, and Cleary said that Organic Valley will be adding between 10 and 15 Vermont farms over the next year.
FINDING STABILITY
The premiums that handlers pay for organic dairy don’t guarantee automatic success. After the costly transition year that organic producers must go through, McCrory said that organic dairy farmers still expect small profit margins.
“There isn’t a whole bunch left over,” she said. “It all comes down to the manager.”
And nationwide, organic dairy is only a small slice of the market as a whole, with only a 6 percent market share in 2007, according to the “Nutrition Business Journal.”
Still, many leaders in the dairy industry are holding out for a supply management clause in the next farm bill, which will go into effect in 2012. This could create a system for conventional dairy farmers that would give incentives for cutting production if demand falls.
“Whether or not that will happen, I don’t know,” said Kauppila.
He said that what works on a smaller scale may not work in the large conventional market, and that not all conventional producers would necessarily be willing to cut production.
“If somebody asked you to work less, would you?” he said.
Reporter Andrea Suozzo is at andreas@addisonindependent.com.


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