The U.S. dairy industry with its cycles of boom and bust makes us all wonder if times will ever return to when we may enjoy the comfort and security of a stable milk price. Blame it on federal milk pricing policy; blame it on overproduction; blame it on the economy; blame it on the weather.

The vast majority of milk producers continue to struggle through this extended period of low prices. One segment of our industry, however, seems to have risen above the pricing craziness.

Organically certified dairy farmers receive more money for their milk and wild fluctuations in those prices have been nearly non-existent. In the Northeast, prices paid to dairy farmers producing organic milk have remained consistently in the upper-$20-per-hundredweight range for the past few years.

Compare that to the volatile prices ranging from below $10 to around $20 per hundredweight paid to traditional dairy farmers across the country during the same time period. For sure, the traditional dairy industry can learn a thing or two from the organic dairy industry.

From its very beginning, the organic industry has been careful to focus on matching supply with demand – something the traditional industry has never been able to do. Until this past year the organic industry has seen annual growth by as much as 20 percent per year.

Yes, the global economic slowdown has also had an impact on growth in the organic milk sector. But rather than chopping prices in half, one organic milk processor is requiring its producers to reduce upcoming production by 7 percent.

While this is no small hit, amounting to about two days per month of milk production, most will agree that this is a more sensible approach to dealing with an over-supply of milk rather than cutting revenues by 30 to 50 percent or simply shutting a dairy off.

For Dave and Mary Franklin of Guilford, Vermont, a stable milk price was the primary reason they switched to organic dairy farming in 2004. It was a business decision made in light of the fact that pricing volatility in the traditional sector was only going to get worse.

The Franklins milk 45 cows that are rotationally grazed during the summer and fed home-grown round bales during the winter. The herd is supplemented with 8 pounds of an organically certified grain mix – the only purchased feed for the dairy. The grain mix is costly but amounts to only a small amount of the cows’ diets.

The Franklin’s herd gets 70 percent of their dry matter off of the pastures and their herd averages about 13,000 pounds of milk per cow per year. You can do the math and see if their income over purchased feed costs is higher than yours this year – with milk consistently near $30.

Marketing of certified organic dairy products centers around the belief that the health-conscious American consumer will pay a premium for dairy products that are guaranteed to be free of antibiotics and supplemented hormones.

And apparently they will because during the year-and-a-half between January 2006 and July 2007, organic milk sales in the U.S. rose from 1.7 percent of total U.S. milk sales to 2.7 percent of total milk sales. Organic dairy farming languished for many years as it tried to invent a market for itself.

Then finally in the early 1990s when rBST was approved for use in the dairy industry, and consumers were told that the U.S. milk supply was now full of “hormones,” the movement took off like a rocket. Fortunately organic dairy producers and processors have several decades of supply mismanagement and pricing policy in the dairy industry to look back on and be able to learn from those mistakes.

While many may still consider the organic movement as an eclectic group of overzealous environmentalists who have succeeded in developing a misdirected and deceptively clever marketing tool for demonizing modern industrialized agriculture, one cannot argue with their success.

The organic dairy industry has succeeded in accomplishing at least three things:
1) Showing that there is a sensible way to manage milk supply
2) pricing issues that have plagued the traditional industry can be solved outside the arena of government-mandated pricing
3) raising the awareness that an environmentally sustainable dairy industry is not that difficult to attain.

In Vernon, Vermont, Peter Miller and his family are currently in the process of acquiring organic certification for their dairy – a three- year process that will be completed in December of 2009. Miller is a firm believer in the ethos of organic farming, noting that “it is the right thing to do.”

He agrees with the sensibility of the way the Northeast organic market is developing and that organic seems to have a commitment to supply management. The traditional dairy industry gets itself into a pricing crisis with a mere 2 percent or 3 percent surplus.

Because milk markets are so competitive, it takes only a very small amount of over-production to bring prices crashing down. Conversely, it takes only that much shortage to send prices climbing. Certainly, the organic milk industry has found itself in a sweet spot for many years with demand outpacing supply, allowing its members to enjoy good prices.

Organic dairy farming is certainly not for everyone and, as with traditional dairying, only the best dairy farmers will survive the economic crunches. As we’re now seeing, organic dairying will, from time to time, also find itself with more milk than it can sell.

To their credit, though, the organic dairy industry has developed and adhered to a production model that will keep their prices at levels that make them money most of the time rather than part of the time. PD

John Hibma
Nutritionist
hibmajl@cox.net