Most organic fluid milk is sold through grocery stores and these sales were on the rise
Four months have passed since the COVID-19 pandemic caused a shutdown of nearly all aspects of people’s lives. In the food markets, the shutdown impacted everything from production to processing as well as how consumers purchased their food. Even though markets are still in flux and will continue to be for some time, I wanted to get a sense of what was happening to the organic dairy market. I facilitate the New York Organic Dairy Task Force, a group that has been meeting for 15 years. The Task Force consists of organic dairy and grain farmers, processors, certifiers, as well as state and extension personnel. We convene to gather the different perspectives of the organic dairy industry in New York and how we can work together to help it grow. I worked in conjunction with the Task Force to prepare this report.
It is important to note, for the past four years, the organic dairy industry had been under duress, caused by over production. Some of the national organic processors implemented supply management as a way to manage milk supplies with sales. There is strong reasoning to do this, since organic processors sign yearly contracts guaranteeing a price to their farmers. When there is over-supply, the processor is responsible for the difference between what they pay the farmer vs. what they get from the market. Any milk that does not get sold on the organic market, gets sold on the conventional market, which can be a loss of $15-$20 or more for every hundred weight (cwt) of milk.
The first reports I heard were from organic dairy farmers who were concerned about the reports of wide scale milk dumping experienced by the conventional milk markets. These farmers were told that their processors’ supply chains were different than the conventional supply chains. They did not include school and restaurant sales. Most organic fluid milk is sold through grocery stores and these sales were on the rise, as families stopped relying on schools and restaurants and ate at home. One national organic processor said their sales were running 7% above the previous period the year before. This caused the processor to leave some demand unmet. Another processor who sells regionally, said the increase in sales allowed them to use all their farmer’s milk locally and not sell any on the spot market. The increase in sales came at an opportune time for the organic markets. Traditionally, spring is when the cows go out on pasture and many farmers breed to have high production when they can make milk the cheapest. The “Spring Flush” is difficult for organic processors since the increase in supply causes processors to either sell on the spot market, or if that is not possible, they sell on the conventional market, which is when they lose the $15-$20 per cwt.
Even though this spring had a silver lining for the organic dairy market, the processors who replied to my questions said they were not going to make changes to their supply management because the future is sure to bring more changes. Farmers who I spoke with had the same challenges as every other farmer when it came to wearing masks, limited opportunities for networking and socializing with other farmers, but they were grateful to have their milk picked up and paid a guaranteed price. Supply management allows both the processors and the farmers to reduce their risks. The farmers know the price they will receive up to a year ahead, this allows them to manage their expenses to keep a positive cash flow. The processors have a system that allows them to increase the pay to farmers for milk produced in the winter and decrease the price paid in the spring and summer. This affects the supply of milk provided to them and avoids selling excess milk at a loss. With more than 600 dairies, New York has more organic dairies than any other state. Good communications and shared desire to prevent wide fluctuations in prices and profits keep the industry sustainable.