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Demand for Organic Dairy Products in USA Exceeds Supply--New Farmers Needed

From: Cheese Market News May 20, 2005 <

Organic dairy demand exceeds supply; new farmers needed

MADISON, Wis. <Consumer demand for organic dairy products has eclipsed industry expectations growth predictions that once seemed overly optimistic are lower than actual growth. Yet, despite the market potential, organic companies are failing to cash in on the demand. There simply is not enough organic milk to keep the shelves fully stocked.

Steve Pechacek, president and general manager of Organic Family LLC, which does business as Organic Choice, says he is short approximately 384,000 pounds of milk this week.

"We're doing the best we can, but it's hard," says Pechacek. "This week I had orders for eight additional loads that I don't have." Headquartered in Prescott, Wis., Organic Family works with 12 milk processing plants and primarily ships its milk to the East Coast. Pechacek says he easily could sell an additional 720,000 pounds of organic milk per week.

Teresa Marquez, chief marketing executive for Organic Valley Family of Farms, LaFarge, Wis., says her company expected sales to increase by 20 percent in 2004. Instead, it had a 36 percent increase in sales.

"It really has taken us by surprise," says Marquez. "We really felt that the 20 to 30 percent growth would kind of slow down. The whole sector is meeting maybe 85 percent of the demand." Marquez says companies are focusing on filling basic demand for fluid milk, cheese and yogurt, but because of low supply are missing out on the opportunity to diversify their organic products. For example, Marquez says demand for organic infant formula is high.

Bruce Ellis, CEO of Wisconsin Organics, says his company is dealing with the shortage of organic milk by limiting company growth. If supply were unlimited, Ellis says his company could "certainly grow several hundred times." In addition to capping company growth, Ellis says Wisconsin Organics is exploring buyout options of existing organic dairy companies and looking for traditional farms willing to transition to organic. However, despite the promise of a higher and more stable premium for organic milk, farmers are hesitant to go organic.

The problem seems to be in the transition period. Transitioning to organic production is an expensive process and farmers do not begin receiving a higher premium until their milk is certified organic.

Ellis says organic feed costs 40 to 50 percent more than conventional feed. Federal law requires that cows be fed organic feed for a year before their milk will be considered organic.

In addition, farmers who save money by growing feed on their own land are subject to a longer certification process. Stephen Walker, certification program manager, Midwest Organic Services Association (MOSA), says 95 percent of the farms he works with grow feed on their own land. If they have used prohibited substances such as herbicides or pesticides, the land will not be certified organic for an additional three years. The cows must be fed the organic feed for an additional year.

Pechacek says that for many of the farmers he talks to, four years is too long to wait for a higher premium.

"Unfortunately conventional farming has left so many in dire straits that they have a real hard time getting through transition," says Pechacek. "I've known farmers that even though they made the transition it was too late. Financially they couldn¹t hold on due to debt load." Ellis adds that small farms may not be able to cash in on the organic market because they may not have the cash reserves or the option to take out a loan to pay for the transition period.

"Anybody with 200 cows or under is going to have a heck of a time when it comes down to expense," says Ellis. "Smaller dairy farms will not be able to afford it and once again the family farmer is on the outside looking in." Faye Jones, executive director, Midwest Organic Sustainable Education Service Inc. (MOSES), Spring Valley, Wis., educates farmers about going organic and says the transition period is a "big problem." "But a farmer will know the price he's going to be getting and know its going to be stable and that¹s a big incentive," adds Jones.

Marquez says the challenge now is to convince farmers that going organic is a good business decision. She notes that the farmers who had an ideological motivation to produce organic milk have already transitioned, leaving farmers who "don¹t know how to do it and don't see the value in it." "But they look at the premiums, especially in dairy, and they think about it," adds Marquez.

Organic Valley recently started a "Transition to Organic Fund" which supplies financial assistance to farmers who transition to organic. The company hopes that offering assistance will convince dairy farmers that are unsure about organic to sign on.

But as good as the organic market is now, farmers are rightfully concerned about how the market will perform one to three years from now.

"For everybody that's the No. 1 question, "how long is this going to last?" says Pechacek. "I think all indicators point to the position that it is going to continue to grow." Ellis says he expects organic dairy products to transcend the classification as niche or specialty products and become a commodity in the dairy sector.

"I can see where organic dairy could easily become 25 percent of the dairy industry," says Ellis.


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