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Forecast for Organic Dairy in 2018 & Beyond:
Organic Dairy Producers’ Thoughts on
the Current State of Organic Dairy

Added January 29, 2018.

Introduction by Ed Maltby, NODPA Executive Director
Interviews with NODPA Members edited by Nora Owens, NODPA News Editor

NODPA was formed 17 years ago by organic producers when pay price first became an issue, so what better folks to ask the important questions as to the future of the market and organic dairy family farms than organic dairy producers. While there may be a general, underlying trend there is no one reason behind the success and failure of family farms, each are different. We hope that the answers given by these producers will put the current crises in organic dairy in some perspective for each and every family. It is becoming increasingly apparent that pay price will not increase in 2018 and probably not in 2019. While the essence of organics is continuous improvement and investment, these next few years will be more like 2010-2013, but with higher costs of inputs. There will be little opportunity for investment in infrastructure and equipment or for improvements in the quality of life. Producers are resilient, but stubbornness must take second place to the reality of losing money over an extended period and the effect on family and quality of life. I hope the article below gives food for thought, examples of survival and reassurance that you are not in this alone.

Ryan and Annie Murray
Hidden Meadows Dairy
Cincinnatus, New York

What type of operations will survive 2018? Is it a case of bootstrapping and sacrifice for the next two years?

Farmers with well-structured operations won’t be set back too far. Those that have been conservative in their spending and not carrying a lot of debt in the times of higher pay price should survive okay. Those that have let costs get away from them or invested in the farm infrastructure and/or new equipment may have difficulty. Those who will have difficulty may have allowed costs of production to increase while prices were higher and did planning based on prices they were making then rather than planning for lower prices now. This is not to say that farmers shouldn’t invest in their farms but if they are carrying more debt now, it will be stressful.

Should our expectations be lowered to accept lower margins and cyclical supply conditions that determine pay price eventually becoming dependent on the world organic price?

I believe the answer is yes, unfortunately, at least keeping it in mind when pushing the pencil; planning on lower prices; it’s hard to fight markets and long term trends. Organic dairy is similar to conventional dairy and we’ve been doing this a long time. In the commodity market there are low margins and if you aren’t an above average producer, it will be tough to make money. As organic dairy becomes more mainstream, it becomes more of a commodity. To get higher margins, there has to be a leading edge in management and production models. Even grass-fed is having problems right now, although those farmers are a bit more stable.

How do operations plan for the future with increasing land prices and higher minimum wages?

Good business planning; pushing the pencil before making decisions; good financial decisions will all be necessary with rising land and labor prices. There will probably be more automation as labor costs go up, too. With increasing land prices, it may result in higher production per acre or moving to less expensive property.

What will organic dairy look like in 5 years?

I think we will move to ‘Organic Plus’ because traditional organic regulation is too easy to skirt at this point. 30% dry matter is a very low bar. Consumers think that cows are grazing much more. Perhaps the ‘Organic Plus’ market might include increased testing on milk, such as measuring CLA, Omega 3 levels, etc. Testing would be more scientific and objective than complying with Organic Certification rules.

What is the future of the existing grass fed standards and what can be done to safeguard producer leverage on pay price and contract conditions?

These producers might need to raise the standards, too, in order to ensure that the product remains different than regular organic, and that the market doesn’t get flooded—keeping supply limited and demand up.

Other thoughts you might have?

We’ve been lucky; Upstate Niagara continues with the highest pay price in the area. My opinions might be a lot different if my pay price was lower. Also, having the security of having the same contract in 2018 that we had in 2017, and that it’s not going away, is really important to us.

Steve Morrison
Clovercrest Farm
Charleston, Maine

What type of operations will survive 2018? Is it a case of bootstrapping and sacrifice for the next two years?

Well capitalized and well run operations that are in it for the long haul will survive. If this is a temporary downturn, those making major investments recently will probably survive because they’ve made a commitment to it; who knows how far beyond they can survive. Most farmers can survive one year of low prices but after that it’s questionable. Small family farms that are paid for and run by retirement-age farmers won’t lose money for a long time in order to stay in the business and are most likely to exit. With no successors in line and 55+ years of age, they won’t want to remain so long that they lose a lot of their assets with such low pay price.

Should our expectations be lowered to accept lower margins and cyclical supply conditions that determine pay price eventually becoming dependent on the world organic price?

It is a rational expectation but I cannot accept that as the new normal and business plan for my farm. I don’t have high profit margins and can’t commit to an environment that doesn’t have a sustainable price and I need to be encouraged to remain doing this. For me, my expectation is to continue to look for increased money for my milk, not to settle for less. I can’t continue for a long period of a low pay price; $29.00/cwt will eat people up. We can’t really operate for less than $40.00/cwt, especially with labor and all of the other costs going up.

How do operations plan for the future with increasing land prices and higher minimum wages?

My approach is to downsize. I am currently overstocked with animals and I need labor to assist with them and for putting up feed. And, it order to grow high quality feed, I need a lot of acres to use. So, if necessary, I will sell cows and downsize the operation, to look more like a small 2-person family farm.

What will organic dairy look like in 5 years?

I think it will look a lot like it does right now: huge amount of “organic milk” from factory farms and imports, not necessarily from the Northeast. There will be a smaller percentage coming from family farms, as they find it less and less tenable. My sense is that the percentage coming from factory farms will surpass the percentage produced on small family farms as the prices fall.

What is the future of the existing grass fed standards and what can be done to safeguard producer leverage on pay price and contract conditions?

There’s no opportunity to ship grass-fed milk from Maine, at this time, so I don’t have experience with grass-fed but I think it will be most important to get a standard that everyone can abide by. The standards discussed at the 2017 NODPA Field Days sounded like it would be voluntary
(the Organic Valley standard), and so weak that anyone can claim it. It will be important to have established guidelines that are absolute and move forward. More science would be good, too. If there’s a huge benefit of organic grass-fed milk compared to organic milk, then let’s all capitalize on it. But, without a clear standard, there will be a lack of consumer confidence and that will impact sales.

Other thoughts you might have?

The competition from non-dairy beverages (nut beverages, etc.) continues to be problematic. It is not environmentally sustainable, such as with Almonds, and can’t be done on marginal land in New England, which can be done with cows in Maine. People don’t think about the various impacts of these nut milks on the environment. Dairy is better for the future than nut milks.

Liz Bawden
Bawden Farm
Hammond, New York

What type of operations will survive 2018? Is it a case of bootstrapping and sacrifice for the next two years?

Operations that are more likely to survive will be those that have a handle on their operational costs; with lower debt; grow their own feed; have a good relationship with their lenders. A 25% or more drop in pay price requires more than belt tightening. Most ag lenders will work with you for a while but after 6+ months, it will likely require restructuring a farm’s current debt load. Any additional programs (improving soil health, building maintenance, equipment purchases) to enhance the efficiency of the farm will have to be put on hold because there isn’t any money to put into them. For example, we could save money by grinding our own grain but we’d need to purchase the grinder/mixer, storage bins, etc., and that is out of the question at this time.

Should our expectations be lowered to accept lower margins and cyclical supply conditions that determine pay price eventually becoming dependent on the world organic price?

Remember where most of us have come from—if pay price continues to slide down and becomes a cyclical cycle mirroring the conventional market, many of us will go back. If the Organic premium doesn’t cover the costs, grains, seeds, soil amendments, cow health products, etc., then we’ll be better off in the conventional market. It’s where most of us came from and while we don’t like it, we need to survive. Although most of us will continue to farm organically, at least we understand the conventional market and we know that we can survive in it.

How do operations plan for the future with increasing land prices and higher minimum wages?

Farming has always been this way. Twenty years ago, you could purchase land for $350.00/acre around here but not anymore! Land costs have always been a factor for us. In organic farming, I always thought that if the farmer was better cared for via pay price that some of that should be passed along to the workers, and they should be better cared for, too, in a just and fair work environment. As margins shrink, all that goes away. Those farms that are more dependent on non-family labor will be impacted the most.

What will organic dairy look like in 5 years?

This is a hard one. If the oversupply continues, it may not be much different. The only way into the market may be through a Canada-like quota system, where you buy a herd and farm with an established market/buyer. I’ve heard of some who are getting out are selling their herd where the market already exists, similar to Canada model. I hope we get through this time and can gain knowledge and experience so that it won’t happen again. And I hope I can look back and say that the NOP stepped up and enforced what they were supposed to be enforcing and made a level playing field for everyone. It would be nice….

What is the future of the existing grass fed standards and what can be done to safeguard producer leverage on pay price and contract conditions?

We are not a grass-fed farm and I don’t have a lot to say regarding their standards, but I do have some concerns about grass-fed operations. 2017 was a very difficult year to put up quality feed, with good energy and protein. So much of it is sub-standard feed with low energy and protein and it concerns me as to how this is impacting good cow care. The grass-fed people need to work this animal welfare issue out. How do you deal with it? If anybody paid attention to this, they might be the next ones under the gun from animal welfare advocates. When you take away tools from farms, you have to have something else in place, even though this is part of their marketing strategy.

Other thoughts you might have?

It’s a fearful situation out there for all of us. There’s the trickle-down effect in my neighborhood. Other businesses are seriously impacted by the organic milk market crash. A local equipment sales person is having a lot of trouble, too. It’s no surprise that conventional farmers have little sympathy for us, either. However, our costs have been different; debt load is different; we could fix up our buildings and make infrastructure changes. We expanded when possible in a time of growth; committed to a fair amount of debt when you didn’t expect a huge drop in price. When it crashed so rapidly, there’s not enough time to change your debt load. People didn’t expect this reality and aren’t prepared for it. Everyone has to figure it out themselves, and we don’t know how long this will last. Industry people say maybe by the end of 2018 but how long will this impact the pay price? We just don’t know how long this will last.

Cliff Hawbaker
Hamilton Heights Dairy
Chambersburg, PA

What type of operations will survive 2018? Is it a case of bootstrapping and sacrifice for the next two years?

To survive in 2018, we need to ask: What’s the most profitable strategy for each individual farm? There is no one strategy. We’re seeing a depressed market due to oversupply. As farmers, we need to be careful. If quotas are the rule, this forces producers to produce less. If I decide to produce less, I get hurt. I need to maintain production and there are certain economics there—it’s Business 101. Farmers start thinking that if we all decrease production, that’ll mean prices rise for all and we will all get more money. In reality, it’s never worked. When you produce less, you make less money. Competition is the real answer. With fewer companies controlling processing and therefore decreasing competition this will depress price. Those who keep to their business plans will survive. Yes, it will mean less money for a time—you have got to flow with the market. I think bootstrapping is too negative a term, instead, I need to look at the opportunities that exist for my farm, for example, feeding replacement calves and beef calves milk we have available rather than spend money on expensive milk replacer. Being creative in seeking new revenue avenues will help every operation get through this year.

Should our expectations be lowered to accept lower margins and cyclical supply conditions that determine pay price, eventually becoming dependent on the world organic price?

Should we expect lower margins? We should expect lower pay price but not necessarily lower margins. Both organic and conventional farms can over-produce; supply management will always be a challenge. I’m sure that organic milk will be produced for less than the US can do it, so really, the locally produced and marketed milk will be the winner in the future. People, especially millennials, are increasingly more aware of where their food comes from and are more particular about what they chose. Organics tries to make it transparent where the milk comes from and how it’s produced. Increasingly, more people will seek it out. Lower margins will depend on us farmers. Expect lower pay price but not long term lower margins. We have to operate in a positive way and seek positive solutions.

How do operations plan for the future with increasing land prices and higher minimum wages?

This is a good question because the young guys starting out are dealing with higher land and labor costs, as well as being able to attract good help. It’s important that we look at the farm as what’s its potential is from the soil up. It must feed itself and produce—this is my definition of sustainability. Whether it’s the land, checkbook or milk market, it must sustain itself. I believe that soil health is the essence of life. Too often, we as farmers, including me, set sights on what we want our farms to be, whether dairy, raising chickens, vegetables, etc., and we get locked in rather than looking at the farm’s potential. What’s the quality and type of soil; land characteristics? As we pay more for land, demand for land with high organic value will rise. The more productive the soil, the higher the price will be. I think we may move toward swapping land with other farmers, for example vegetable producers, whose soil could benefit from having cows on it for a time, and the vegetables have a higher quality. Collaborating with farmers to enhance soils to make the most of the soil and build it up. Some farmers look to increase value-added products at their farm rather than improving the farm’s natural productivity (the soil). The farm itself needs to be a profit center. Infrastructure challenges will exist with this type of scenario but perhaps these younger farmers will begin to figure out how to invest in more temporary structures in order to accommodate a more mobile use of farm land. Portability will be necessary. Most importantly, farmers need to think outside of the box and we have the skills to solve these problems. Opportunity will exist if we do so.

Why aren’t organic farmers producing milk as inexpensively as conventional farmers? We have more expenses, true, but we can decrease our expenses, such as eliminating grain. When are we going to promote what’s in our food rather than what’s not in it?

What will organic dairy look like in 5 years?

I think that organic dairy will continue to grow slowly while conventional dairy will continue its slow decline. The problem is that we haven’t figured out how to produce organic milk at a lower price. We need to produce at a price so that it can go to the masses. We sell to about 4% of the population now. What if we were to be selling to about 25%? Where would it be coming from? We could do this in the next five years by producing milk at the same price as conventional if we put our minds to it. But, the level of regulations has hampered production. It’s a big governmental swamp and it seems like we are regulating everything so we can keep supply down. These regulations are keeping people out of organic when they want to get in.

What is the future of the existing grass fed standards and what can be done to safeguard producer leverage on pay price and contract conditions?

I don’t have a full answer for this question just yet. I think the standards that are currently being developed represents a good start and it might be time to make these national standards. I’m ambivalent about having only one standard. I believe that we may need a hierarchy of standards, good, better, best. Consumers can be the judges by buying the one that they like the most. If you only have one standard, then all of that milk becomes the same, whereas quality might really be different and should be rewarded. In some cases, grass-fed conventional milk might be better than grass-fed organic milk! My passion is in grass-fed, so I want it to be really successful and to have farmers rewarded for the milk their cows produce.

Kathie Arnold
Twin Oaks Dairy
Truxton, New York

What type of operations will survive 2018? Is it a case of bootstrapping and sacrifice for the next two years?

What farms will survive depends on many factors:

  • Who the farms ships to, as there is currently a considerable spread in pay price;
  • How much debt a farm has and whether their lowered pay price can still support that debt load plus other farm expenses;
  • Whether a family member(s) has an off farm job or someone who can take an off farm job so that their income can support the family and perhaps somewhat financially support the farm to allow the operation to survive until a better pay price comes around;
  • Whether or not the farm/family has assets or other enterprises that can help allow the farm to make it through a potential period of negative net income;
  • Whether the weather in 2018 breaks for a good pasture and crop year or whether it will be a year of lowered pasture and crop yields because of drought, like 2016 in the Northeast, or a year of excess rain, like 2017, that meant lowered quality of harvestable crops and a difficult year for quality grazing;
  • What happens with farm input costs such as grain and fuel;

How do operations plan for the future with increasing land prices and higher minimum wages?

I am not sure how much farmland price rise there has been in central NY recently. Prices bumped up considerable after 9/11 (urban people looking for a safe place in the countryside). $1000 an acre is most likely the very minimum per acre price here now, whereas we purchased land in the last ten to fifteen years that we paid from less than $500 to $700 (granted, both parcels flood). That sounds (and is) very cheap compared to many states but that is paired with higher land taxes per thousand of value. But at least those taxes can be deducted and NYS allows farmers a tax credit for school taxes paid. If farm land (especially good quality farmland) becomes available that is contiguous or near to one’s farm, if one can figure out a means to purchase it, it will only make the farm more valuable and viable so it will still be worth exploring any possible avenues to purchase.

As to minimum wage hikes, I am a believer in hiring high quality help, if possible, and that requires paying a good wage. Mistakes or the overlooking of potential issues can be costly so having employees who are attentive, knowledgeable, and either already skilled or quick to learn can save a farm as much as their higher wages might cost. I also am mindful that employees need a living wage and people are more apt to become long term employees if they are adequately compensated. Turnover has its costs too. Perhaps the higher minimum wage levels are more of
an issue if a farm has lots of low skilled manual labor that makes up the job description.

What will organic dairy look like in 5 years?

I have been shipping certified organic milk for almost 20 years now and this is by far the most significant downturn in organic milk pay price that I have witnessed. Given this, and the fact that Aurora Dairy is building a new processing plant in Columbia, MO to process the milk of 30,000 cows for their “cow to carton” business model, I am not sure what the picture will look like in 5 years. 30,000 more Aurora cows, given their high production system, will likely produce the milk of 500 or more average organic dairy farms in the Northeast. If the market for organic milk keeps growing at a good clip, the market may be able to absorb that new milk without much more than the current downturn. But, if the growth in the market levels off, we may be in a situation of a long term trough, meaning lack of market opportunities for new organic farmers and a longer term low pay price for existing producers. I still think the majority of organic producers are likely to be in a somewhat better place than conventional dairy producers, who are also in a low price trough along with some conventional farms losing their milk market with no other market options available. The loss of a market is also a potential risk for organic producers who do not belong to a cooperative who may be at risk of being given notice by their buyer. Unfortunately, I think the next 5 years are much more uncertain and unstable for organic dairy producers than has been seen since the early days of the market.

Forrest Stricker
Spring Creek Farms
Wernersville, PA

What type of operations will survive 2018?

When we went to visit the farms in New Zealand in 1997, they were producing conventional milk for $6/cwt and making a profit. What we observed was that they had low cost milking parlors; milking a lot of cows per man; minimal equipment/tractors and were 100% grass fed. I believe that is the type of operations that will survive--those that can produce milk at a lower cost per cwt.

Is it a case of bootstrapping and sacrifice for the next two years?

Yes. We will need to be very cost conscious.

Should our expectations be lowered to accept lower margins and cyclical supply conditions that determine pay price eventually becoming dependent on the world organic price?

The only way to avoid that is by developing your own local markets and working with your local handler to set your own price and not be dependent on the global market price. There could be tariffs placed on incoming “certified organic” milk that is produced in other countries where workers are paid below our minimum wage. And AMERICAN standard NOP rules are enforced on foreign “organic” grain and dairy products.
How do operations plan for the future with increasing land prices and higher minimum wages?

Renting land vs purchasing; sharing assets with neighboring farms (equipment, employees??)

What will organic dairy look like in 5 years?

NOP is not enforcing the grazing organic standards and so now the consumer is losing confidence in the integrity of organic product. Our milk processor was questioned by one of his customers who said “so now organic milk cows do not have to graze any more”. This is being reinforced by newspaper articles and some of the gigantic dairies are NOT adhering to the grazing standards. We need local producers that ship to local processors/handlers/dairies who can answer these questions honestly and where the consumer can actually come to a dairy producer’s farm and see that the animals are being treated humanely and ARE grazing.

What is the future of the existing grass fed standards?

I believe that the grass fed standards needs more producer input and not be solely written by 2 milk companies and 2 organic certifying agencies, NOFA New York and PCO. We want to have greater input into the standards that are going to be imposed on us. At the Lancaster County Grazing Conference on February 20-21 in Quarryville, PA, we are going to get producer input on the new proposed grass fed standards. These suggestions will be taken back to one of the agencies mentioned above. This is how we are planning to get our message into the new standards.

And, what can be done to safeguard producer leverage on pay price and contract conditions?

I believe the future of organic dairy is going to be 100% grass fed milk and the reason for that is grain lowers the nutritional quality of the milk. The consumer is looking for the nutritional quality of milk. We safeguard the pay price by working with a LOCAL processor where communication and integrity are shared by both parties.