Dairy: Organic milk goes into surplus - for now

Saturday, May 10, 2008

With one major purchaser, Sunopta calling a halt and some new producers coming on stream, there is now a surplus of organic milk. But that could change if Sunopta starts buying again

by SUSAN MANN

After almost eight years of organic milk demand outpacing supply, there now appears to be a surplus and that has implications for Ontario's organic dairy farmers.

Two policies encourage organic milk production in Ontario. Producers get six additional production credit days, and the milk they sell brings them a premium of 23 per cent over the gross blend price for milk.

These policies have certainly encouraged organic production. As of Oct. 31, 2007, there were 52 producers marketing 18 million litres of organic milk during the year. Steve Cavell, chief executive officer of Organic Meadow Co-operative Inc. of Guelph, says that the number of organic farmers in Ontario is expected to rise to 70 or 75 this year. Lawrence Andres, owner of Listowel-based Harmony Organic, refers to "a huge influx of new milk coming on stream."

Peter Gould, general manager of Dairy Farmers of Ontario (DFO), told Better Farming in March that the additional production credit days are still there for organic farmers now, but he wouldn't rule out a review "at some point during the year."

Credit days are like a loan of free quota for organic farmers over and above their regular quota holdings, says Andres, and most farmers shipping milk with Harmony use those additional production credit days.

DFO will have to let farmers know by the summer if the credit days will be continued into 2009, since farmers need to know ahead of time if the additional production days are still available or not so they can plan to sell cows if needed.

"You cannot overproduce. You get penalized," Andres says. Removing part or all of the credit days for farmers is a very effective way to slow the supply down, he says.

The premium for organic milk might also alter as the supply and demand situation changes. Organic dairy farmers will "definitely still get a premium. It may not be the same as if all the organic milk is sold," Gould says.

Organic farmers get a premium of 23 per cent over the gross blend price. In February, the gross blend price was $75.55 per hectolitre. The blend price varies slightly each month depending on how much milk is sold into each of the six classes of conventional milk.

During most of 2007 there was a shortage of organic milk. Since then, a number of new farms have started shipping organic milk both with Organic Meadow and Harmony.

A few farmers not connected with either operation have also started shipping organic milk. "That has increased the supply considerably," Cavell says.

Another factor causing the surplus is a halt to purchases by a major user, Sunopta, which makes skim milk powder and has its own oversupply problems. Last year, Sunopta bought 2.5 to three million litres of the organic milk produced in Ontario. Taking Sunopta out as a buyer "creates an oversupply," Cavell says. Once Sunopta begins buying milk again, supply and demand will be relatively balanced.

Just less than one per cent of the 2.4 billion litres milk produced in Ontario is organic.

Cavell says that it's harder to match supply and demand with organic milk than conventional milk partly because it's a small market. "If we get it wrong by a million litres, that's five per cent," he notes.

Gould agrees that it's harder to match organic milk supplies with demand. There aren't any limitations with what you can do with the regular milk supply, he explains. "If one plant doesn't want it, you can market it to another."

But organic milk is a segregated supply. The farmer, milk transporter and processing plant all have to be certified as organic for a product to be marketed as such, says Gould.

As of Feb. 1, DFO took over control of organic milk marketing in Ontario. Now all organic dairy farmers get the same premium for what they produce.

Before, Harmony and Organic Meadow marketed, allocated and co-ordinated organic milk supplies. "They, in turn, would make some of that volume available to other processors," Gould explains. But processors weren't charged the same price for the milk and extra transportation charges weren't being applied in a uniform basis. BF