Dairy products

Is the organic milk market headed for a price crisis?

Rising feed costs, hikes in farmers' wages and weather-related shortages signal a supply crunch and price hike for organic milk products. Is the dairy market headed for another 2009?

Save for produce, dairy products have enjoyed the fastest and largest growth of any organic food & beverage category over the last decade. However, the explosion in popularity of organic milk products is now faced with supply shortages and price hikes up and down the value chain.

Now, as major organic dairy producers Horizon and CROPP (the co-op behind Organic Valley) have instituted 2012 wage increases for their farmers, retail prices are bound to inch ever higher.

Nutrition Business Journal covered this topic in depth in its October Natural & Organic Food & Beverage Issue.

Dairy farmers are no strangers to price fluctuation, tied as they are to a volatile commodity market. In fact, organic dairy faced a similar market conundrum three years ago.

2009 all over again?

Organic dairy had been a high-growth market for a long time. But in 2009, a huge upswing and consequential fallout in global commodity prices for conventional fluid milk sucked the wind out of dairy sales across the board. Farm price for conventional milk halved while organic prices stayed consistent.

The conventional price collapse reverberated all the way up the chain, widening the price gap between a gallon of conventional milk versus a gallon of organic. Recession-shocked consumers intuitively traded down, and organic dairy sales slumped.

Overall organic dairy sales bounced back nicely in 2010 and 2011, though, as conventional milk prices returned to 2008 levels and the retail price gap closed. But a sweltering summer of 2011, along with rising organic feed costs, have contributed lately to a shortage of organic milk.

In January, Organic Valley upped co-op members’ pay by 2 percent—following a previous 2 percent boost in August 2011—which will put added pressure on their margins. And Horizon offers a market adjustment premium to its contracted farmers, which compensates for added input costs.

Current data would suggest, however, that consumer demand for organic dairy has yet to significantly decline. But with input costs gradually rising, it begs the question: Is the dairy market headed for another 2009?

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