Not Enough American Dairy Farmers Switching to Organic

Higher milk prices and skyrocketing grain costs may be causing fewer dairy farmers to make the switch to producing organic milk a phenomenon that could mean higher prices for organic milk lovers.

Converting a dairy farm to be organic is an expensive proposition, but to many farmers the higher prices they eventually received for organic products once made it worthwhile. Now, farmers say switching to organic milk may not be worth it since they’re getting paid high prices already for conventional milk.

“The economic inducement to become organic is less so,” said National Milk Producers Federation spokesman Chris Galen.

The process of switching to organic from regular starts and ends with changing what cows eat. To be certified organic, a farm must feed its animals with 100 percent organic animal feed, which is more expensive than traditional animal feed since it must be made with corn and soybeans that haven’t been grown with chemical fertilizers.

It takes about a year to fully convert cows over to organic because they must eat organic feed for a certain period of time before they can be certified as producing organic milk. During that year, farmers have to keep selling conventional milk, which typically sells at lower prices than organic milk. Farmers, then, can’t usually recoup the higher feed costs during the transition year.

With demand for organic milk rising at a rate of about 20 percent a year, producers had been willing to pay a premium for organic milk. Farmers would then be able to recoup the higher costs they paid to make the transition.

But now, farmers don’t have to switch to organic milk to receive higher prices. According to the U.S. Department of Agriculture, the average price producers paid farmers for milk in February was $19.68 per counterweight, the industry measurement for fluid milk. A year ago, farmers received $13.39 per counterweight.

Ed Maltby, executive director of the Northeast Organic Dairy Producer’s Alliance, said the supply of organic milk has already started to drop. Last fall, Maltby said, there was an excess of organic milk on the market. Now, supply is merely balancing demand.

Plus, making the switch has been getting steadily more expensive. The price of grain used to make both traditional and organic feed has dramatically increased due to demand for the alternative fuel ethanol. Ethanol is made with corn, so when demand for the fuel rises, corn prices soar. Animal feed is made largely with the grain.

Milk processor Dean Foods Co., which owns the Horizon Organic brand, said the higher feed costs are helping to dampen supply. Chief Executive Greg Engles said that means organic milk prices will go up on grocery store shelves.

“Supplies are tightening and we’re starting to increase our pricing to better match supply and demand,” Engles said during a conference call with analysts last month.

Prices on the shelves are bearing this out already. The online grocer FreshDirect.com sells its cheapest half-gallon of whole milk for $2.29 and its cheapest organic half-gallon for $3.79.