After more than a decade of staggering double-digit annual growth, sales expansion slowed significantly for the organic milk industry in 2009. According to Nutrition Business Journal research, growth of U.S. organic dairy sales soared more than 20% between 2000 and 2007, before dropping precipitously to 10.6% in 2008. Last year, U.S. organic dairy sales inched up a paltry 0.8%, NBJ estimates show.
This collapse in sales growth comes in the wake of the global economic crisis and a dramatic expansion of organic milk production over the last decade. Despite facing higher production costs, organic dairy farms tripled in number to 1,600 over the five years between 2002 and 2007, and the number of certified organic dairy cows increased an average of 25% per year between 2000 and 2005, according to the U.S. Department of Agriculture (USDA). The high volume of production overmatched the demand for organic products among U.S. consumers in 2008 and 2009, however, as the recession tightened spending.
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Mark Retzloff, chairman of Aurora Organic Dairy, told NBJ in a recent interview that the double punch U.S. organic dairy producers faced over the last two years—the recession and skyrocketing organic milk prices caused by high organic feed costs—was exacerbated by the fact that convention milk prices hit an all-time low in early 2009. “There was a huge differential in the price of organic and conventional milk,” Retzloff said. But now, the organic dairy veteran said things are moving in the other direction: organic prices are beginning to come down, while conventional prices are moving up. This, and the fact that consumers seem to be “a little less nervous about their spending,” have Retzloff feeling optimistic about 2010. “The first two months of this year started out much stronger than last year,” said Retzloff, whose company is a major producer of private-label organic milk for Wal-Mart and other retailers. “If things hold this way, we could be up about 10% this year.”
Organic milk can be a tough category for producers, especially in today’s economic climate. Converting from conventional to organic in the United States is a difficult and expensive undertaking, requiring certification under the standards of the USDA’s National Organic Program (NOP). Among the NOP’s guidelines are managing grazing pastures organically for a minimum of three years, one year of organic healthcare for livestock, and providing dairy cows 100% organic feed without antibiotics or hormones. Organic feed is more expensive than conventional, as are labor and managerial costs for tending to organic pasture. And the NOP recently cemented its rules for pasturage on organic dairies in mid-February, and now requires cows to graze for the entirety of the local grazing season and to receive at least 30% of their food from pasture during that season. Transition to organic may be an unrealistic proposition for small dairy farms milking less than 100 cows, however. Though only 13% of organic dairies milk more than 100 cows, these larger producers account for nearly half of the organic milk produced, and they are the ones most likely to entice investors because of their ability to generate returns over the cost of operations, the USDA reports.
NBJ will provide a full analysis of the organic dairy category in our 2010 Organic Issue, which publishes later this month. To order a copy or to become an NBJ subscriber, visit the NBJ Subscription page.
Related NBJ links:
Private Label Keeps Organic Growing in Sour Economy
Melamine-Tainted Milk Highlights Safety Issues in China’s Supply Chain
Organic Yogurt, Dairy Sales Spike in Conventional Stores
Related Functional Ingredients link:
Organic Pasture Rules Defined, Finally