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Published December 30, 2011, 01:24 PM

Rising production costs cause organic milk shortage

A shortage of organic milk across the country has gotten so bad in areas like the Southeast that Publix stores from Florida to Tennessee have put up signs in dairy cases anticipating the shopper’s frustrated refrain: “Where’s my organic milk?”

By: William Neuman, New York Times News Service

There is a shortage of organic milk across the country, and it has gotten so bad in areas like the Southeast that Publix stores from Florida to Tennessee have put up signs in dairy cases anticipating the shopper’s frustrated refrain: “Where’s my organic milk?”

The answer is that there is not enough to go around, and starting next month consumers can expect to see a sharp jump in price as well.

The main reason for the shortage is that the cost of organic grain and hay to feed cows has gone up dramatically while the price that farmers received for their milk has not. That means that farmers feed their cows less, resulting in lower milk production. At the same time, fewer farmers have been converting from conventional dairying to organic.

Through it all, the demand for organic milk has been growing.

“It’s a double whammy to have higher sales than you expect and less milk,” said George L. Siemon, chief executive of Cropp, the farmers co-op that produces Organic Valley milk and much of the milk sold as supermarket store brands. “We’re sweating bullets over it.”

The shortages have been most noticeable on the East Coast but most areas of the country have seen short supplies in recent months. Target said that it has had difficulty keeping organic milk on shelves nationwide. Wegmans, a chain with 79 stores from Massachusetts to Virginia, said it has seen shortages of milk from Horizon, a major national brand.

And Publix, with about 1,050 stores in five Southeastern states, said shortages started showing up in November in both its store brand, Publix GreenWise Market organic milk, and national brands like Horizon and Organic Valley.

“Supplies are sporadic,” said Kimberly Jaeger, a Publix spokeswoman. “We are working with our suppliers to secure as much organic milk as we can.”

Dairy industry executives predicted that the shortage along with plans by processors to increase the amount paid to farmers mean that retail prices will rise in the next several weeks by as much as 10 percent. That means that a half gallon of organic milk that typically sells for $3.99 today may go as high as $4.39. Some chains have already started to raise prices.

Organic milk sales are growing, even though organic milk costs significantly more than conventional milk. Sales of whole organic milk increased 17 percent from January through October, measured by volume, compared to the same period last year, according to the U.S. Department of Agriculture. Reduced-fat organic milk sales rose by 15 percent. At the same time, total conventional milk sales decreased 2 percent.

While the shortage may be frustrating for consumers, it reveals a bitter truth for organic dairy farmers, who say they simply need to be paid more for their milk.

“If it doesn’t happen, the milk’s not going to be there,” said Tony Azevedo, an organic dairy farmer in Stevinson, Calif., and the president of the Western Organic Dairy Producers Alliance, a farmer group. “And you’re going to have more and more consumers that are going to be turned away.”

The alliance sent a letter to major milk processors like Organic Valley and Horizon this month, spelling out the economic difficulties facing organic dairy farmers. The letter cited the sharp rise in the cost of hay and grain fed to cattle, which is partly due to increasing demand for corn for ethanol.

It said that to make organic dairy farms profitable, processors would have to increase the amount paid to farmers by $5 for every 100 pounds of milk. That amounts to an increase of about 20 percent.

The alliance calculated that such an increase, if passed on to consumers, would lead to a retail price increase of about 22 cents a half gallon.

“We need at least $5 in order to stop the bleeding,” Azevedo said. “I’ve got farmers that can’t pay their bills. The wolf’s knocking at the door.”

Azevedo also said that retailers should do their part by lowering their markup on organic milk so that higher prices do not drive away consumers.

Payments to farmers differ by region. Azevedo, who sells his milk to the Organic Valley cooperative, said that he receives a base payment of about $24.50 for each 100 pounds of milk, known as a hundredweight. Like many farmers, he gets bonuses linked to milk quality and seasonal factors, which bring his total payment to about $27 a hundredweight.

Eric Newman, vice president of sales for the Organic Valley co-op, said the company gave farmers a $1 per hundredweight increase to their base pay in August. It was the first increase in the base payment since May 2008, he said. Newman said the co-op plans to increase the base payment by an additional $2 over the next year, which he hoped would make farms more profitable and entice more farmers to convert to organic production.

Converting is a costly process that takes three years, during which farms must refrain from the use of synthetic pesticides and follow other guidelines. Organic dairy farming costs more than conventional farming for many reasons. Farmers must keep their animals on pasture or feed them expensive organically grown grain and hay. Azevedo said that cows on organic farms typically produce much less milk than cows on conventional farms.

Despite all that, farmers have switched to organic in part because they can sell organic milk for more money.

This year, the price of conventional milk has risen closer to the organic price, while the costs of conventional dairy farming have not risen as much as organic costs have.

Siemon said that a handful of Organic Valley’s dairy farmers have switched back to conventional farming this year, an almost unheard of move in the past.

“Like never before, we’ve seen them go back to conventional milk,” Siemon said.

Siemon said that his company is able to give retail customers about 90 to 95 percent of the milk they order. Scott McGinty, president of Aurora Organic Dairy, another large processor, estimated that there is a 20 percent shortfall in organic milk nationwide.

The shortage has been most pronounced in the Northeast, where dairy farms tend to be smaller than in the West and where a single company, Stonyfield Farm of New Hampshire, buys a large portion of the local organic production. Stonyfield makes yogurt, cheese and other products.

Tight supplies have led the industry to extremes. Siemon said that to fill spot gaps in production he has had to send trucks of milk from the Midwest to the East Coast or from California to the Midwest.

The shortage has also compelled a startup yogurt company in New York to make plans to produce its yogurt in California and truck it to a plant on Long Island, where it will be packaged.

Dean Horowitz, chief executive of the company, A & D Yogurt, said he was not able to get a reliable supply of organic milk in the Northeast. The company plans to open a store on Long Island next spring where it will sell regular and frozen yogurt. It also plans to sell a line of yogurt mixed with vegetables for dogs.

“For us to provide ourselves with enough security and enough milk, we’re going to ship it across the country,” Horowitz said.

He said the shipping will add about 12 percent to production costs.

“It’s a lot of miles,” Horowitz said.

Copyright 2011 2011 New York Times News Service.

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