Organic Dairy Pay Price Update January 2012
By Ed Maltby, NODPA Executive Director
ADDED January 19, 2012
There are two national organic procurement companies, Organic Valley/CROPP Cooperative (CROPP/OV) and Horizon Organic/WhiteWave. There are also some smaller regional groups of up to 50 producers such as LOFCO, Natural By Nature and Upstate Niagara, smaller cooperatives/companies such as MOO Milk, individual processors such as Butterworks Farm, Strafford Organic Creamery and Empire Organics, and a few established dairies that are expanding into organics such as Foster Farms and Cloverland Dairy.
Organic Valley/CROPP Cooperative pay price is decided annually at its December meeting by its producer-owner board.
Horizon Organic/WhiteWave negotiates individually with each producer and price is set by company executives.
During 2009 and early 2010, Horizon reported that many producers cooperated with voluntary requests for a 5% or more drop in production; that they did not terminate contracts, and honored contracts given to transitioning producers. They are now encouraging producers to increase production and have increased their pay price by adding $1.50 to their MAP for the 6 Northeast states and $1 for the rest of the country from August 2011 to March 2012. Horizon has maintained its base pay price; an average base of $25/cwt in the northeast and a $3/cwt premium in October, November, December and January, although there is some variation in contracted pay-price. The contracts that Horizon is presenting to its producers have changed between 2008 and 2009. Some changes are:
As Horizon renews contracts they will favor those producers who are located near processing plants, have consistently good quality milk tests, and have a good relationship with the company. Horizon says it needs the contract changes in order to compete against other companies in buying raw milk and dealing with excesses in supply. Many producers are concerned that the contracts are now more restrictive and give the company more power to alter their agreements as market conditions change. In the competitive market for milk, producers may be able to obtain changes to the standard contract.
OV sales in 2009 were $523 million, down 1.3 percent from the previous year, and it was the first time the 23-year-old company had experienced lower year-over-year sales. 2010 sales were $621 million and 2011 sales were up again to $715 million as the volume of milk marketed increased to an all-time high for the industry. Other 2011 achievements include beginning installation of wind turbines to offset 100 percent of its distribution center’s current electricity use. It also launched a green-designed headquarters expansion, which is expected to add 84 new administrative jobs this year.
Organic Valley has a new agreement with Stonyfield which will add about $60 million to its 2010 annual sales for production of Greek style yoghurt and the expansion of its New York Fresh brand bottled at Elmhurst Dairy in NY. Members of Organic Valley, including the new members from the Stonyfield pool, received their 13th check for $0.47 per hundred pounds in June 2011. In response to the increased on-farm costs in 2011, the CROPP/OV Board voted to pay out the profit sharing portion for the farmers with a 100% cash payment instead of the traditional 20% cash with the balance in Preferred Stock E-2. This cash payment was sent out this summer and was equal to approximately 16 cents/cwt for all milk shipped in 2010. Farmers have the option of investing money from their cash payment back into Preferred Stock.
In addition, the CROPP/OV Board decided to increase pay price which equals a cooperative-wide cost of $1/cwt through the end of the year. The increase came in the following 3 parts, and started on August 1, 2011:
In March 2012 Organic Valley will change its base price and its component prices which will increase pay price by approximately $2 per cwt.
Organic Valley pay price will chang to:
Base Component Price: $25.50/cwt.
Based on component levels of 3.5% Butterfat; 3.05% Protein; 5.65% Other Solids
CROPP will use a pay price program based on product utilization.
Butterfat $ 2.09 per pound
Protein $2.09 per pound
Other Solids $2.09 per pound
2012 Regional Premium $3.25
MARKET ADJUSTMENT PREMIUM: $1. per cwt
2012 Base component Price – Northeast pay program effective March 2012 $29.75/cwt
2012 Base component Price - New England pay program effective March 2012 $30./cwt ($0.25 extra regional premium)
There IS a $180.00 ($2,160/ year) stop charge per month for CROPP producers.
SEASONAL PAY PRICE VARIABILITY:
DAIRY POOL CAPITAL BASE PLAN:
To meet the requirements of the Dairy Pool Capital Base Plan, CROPP farmers are required to purchase preferred stock equivalent to 5.5% of their annual base gross income. Calculation of this is based on:
OV is discussing new policies on off-farm diversion, farm conditions, cooperative conduct and maximum herd size. OV is also being pro-active with their own animal care program in anticipation of the work of the NOSB and concerns of customers. CROPP is watching the increase in feed prices and working with its members in anticipation of expected rise in price and availability of quality feed. CROPP is looking to simplify its programs and stabilize its component payments.