Livestock > Cost & Return > Budgets and Record Summaries

Organic Dairy Production Planning Concepts

File B1-24
Written October, 2007

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Marketing Organic Milk

The milk marketing infrastructure is well developed in the United States. Cooperatives handle the majority of raw milk and do a significant amount of processing for the wholesale and retail markets. Several private companies have processing and retail operations but usually do not collect raw milk.

However, the organic milk collection, processing and cooperative distribution system has been a relatively recent occurrence. In many ways it parallels the conventional milk marketing chain rather than interacting with it. A few privately held dairy processors have started their own organic milk product lines.

The food retailing industry has begun to take note of the growth of organic fluid milk consumption. Even the largest discount retailers are including organic milk in their grocery line. A September 2002 USDA-ERS report indicated organic dairy was the most rapidly growing organic food segment during the last half of the 1990’s. Consumer tastes and preferences are driving the rapid growth. Consumers perceive organic dairy products as a healthier choice than conventional dairy products. Some consumers are choosing organic dairy products for environmental reasons. Another reason for the growth in consumption is taste preferences.

Farmer processors have the opportunity of differentiating their product by identifying it with their individual farm business. They can also tell the story of a family-owned farm. This story builds a unique relationship to their customers. Consumer perceptions of environmental benefits and better taste also differentiate organic dairy products for cooperatives.

Marketing opportunities for organic dairy farmers continue to increase. In some areas of the United States organic milk purchasers are competing to get milk supplies from existing organic producers and future supplies from transitioning dairy farmers. The lack of supply has led to increased milk prices for raw organic milk in the Upper Midwest.

Organic milk is priced per hundredweight. It is fixed at a specific price for the whole year’s production. Organic dairy farmers are also able to contract fixed milk prices for up to three years.

Organic Milk Production Certification

Before a producer can sell organic milk, he/she must obtain certification from a third party certifier. The Organic Foods Production Act (OFPA) and the implementing regulations accredit agencies to perform the certification process. Prior to OFPA, many of the agencies performed organic certification using rules that may have differed from those of other suppliers. OFPA standardized the rules. Organic producers selling less than $5000 of products annually are exempted from certification. However they must sell their products directly to consumers and follow the rules of the National Organic Program (NOP).

There are two aspects of organic milk production certification. One focuses on the dairy herd and the other focuses on feed production or acquisition.

Dairy cows must be managed organically one year prior to certification. Management aspects include recordkeeping, herd health, feed and living conditions. Herd replacements must be included in this transition year since any that will calve during the transition year must also have a year under organic management for eligibility to sell organic milk.

Feed used during this transitional year can come from feed produced during the third year of the three year transitional period for feed production. Crop and feed production requires a 36 month (three years) transition period prior to organic certification. During this period no synthetic fertilizer, herbicides, insecticides, sewage sludge, or genetically engineered seed and inoculants may be used. Fields that have been in hay production for several years may be able to meet the three year requirement quickly if no prohibited products (e.g. herbicides, etc.) have been applied. Feed from non-organic fields may be sold during the transition period and records kept for verification that it was sold and not fed to the dairy herd.

A dairy farm must establish and then implement an organic system plan. These are the steps in the process.

1) An accredited certification agency is chosen and an organic farm and livestock plan application packet is sent to the prospective organic dairy farm.

2) The Organic Farm and Livestock Plan is filled out. This will include three year histories of all fields and pastures. It will also include future soil and crop management strategies, including inputs, equipment and crop storage and harvest. The same type of information is provided for the dairy herd. Crop and livestock product marketing strategies are listed.

3) The certifying agency reviews the documents for completeness and makes a determination if the applicant can comply with NOP.

4) An organic inspector is assigned by the certification agency. Inspectors verify information and assess compliance with NOP. The inspector will conduct an exit interview with the applicant. The inspector does not make the certification for organic production.

5) File is reviewed by the certifying agency’s official organic committee. This committee determines from the materials presented and the organic inspector's interview whether the applicant is in compliance with NOP.

6) Once certification is obtained, it continues until withdrawn by the producer or revoked by the certifying agency.

Production Costs

Feed costs are an important aspect of the organic dairy farmer’s success. Until recently, organic dairy farmers needed to grow their own energy and protein feed sources (e.g. grain and protein supplements). The high cost of these concentrates often resulted in no economic advantage over conventional milk production. However with the recent increase in organic mailbox milk prices, it may now be a profitable option for some organic dairy producers. It will be more economically feasible in areas where these feeds are readily accessible and do not require significant transportation cost.

The cost of organic hay production does not seem to be much higher than conventional hay, but the quality is variable. This also tends to be the case for purchased organic hay. Organic hay tends to be mixtures of alfalfa and grass. A forage mixture is often not conducive to high milk production because the individual grasses do not reach maturity for optimum quality at the same time. So it is not possible to harvest when all of the grasses in the mixture are at optimum quality.

Animal health care is another adjustment that the organic dairy producer will make. Uterine infections and mastitis treatments are two of the common problems that face organic dairy farmers. Some apparent success has been found for uterine infection using a drench. Mastitis treatments may be a bigger challenge depending on the type of organism that causes the infection. Mastitis reduces milk production and quality and therefore reduces income. Good dairy herd management, milking procedures and cow cleanliness will help reduce the impact of mastitis.

Information Resources

Books

Organic Dairy Farming: A Resource Guide for Farmers. Ed. Jody Padgham. Gays Mills, WI: Orang-utan Press. 2006.

Dettloff, Paul DVM, Alternative Treatments for Ruminant Animals. Austin, TX: Acres USA. 2004.
Padgham, Jody. Guidebook for Organic Certification. Spring Valley, WI. Midwest Organic Sustainable Education Service. 2005.

The Upper Midwest Organic Resource Directory. 6th ed. Spring Valley, WI. Midwest Organic Sustainable Education Service. 2006.

Web Resources

Butler, Leslie. “Survey quantifies cost of milk production in California.” California Agriculture. Sept-Oct 2002. Accessed (Jan. 2007).

Dalton, Timothy, et al. “Cost and Returns to Organic Dairy Farming in Maine and Vermont for 2004.” University of Maine, Department of Resource Economics and Policy Staff Paper #555. Accessed (Jan. 2007).

Northeast Organic Dairy Producers Alliance. Deerfield, MA.

Midwest Organic and Sustainable Education Service (MOSES). Spring Valley, WI..

Barham, Bradford., Caroline Brock, and Jeremy Foltz. “Organic Dairy Farms in Wisconsin: Prosperous, Modern and Expansive.” June 2006. Program of Agriculture Technology Studies (PATS) Research Report No. 16. Accessed (Jan. 2007).

Greene, Katherine. “U.S. Organic Farm Sector Continues to Expand.” April 2006. Amber Waves: The Economics of Food Farming, Natural Resources and Rural America. Accessed (Jan. 2007).

McQuilken, Hilary. “UNH to Teach Organic Dairy Farming.” February 2006. University of New Hampshire Public Radio. Accessed (Jan. 2007).

Select Organic Dairy Companies

Horizon Organic (Dean Foods), Dallas, TX

Strauss Family Creamery, Marshall, CA

Organic Choice, Mondovi, WI

Radiance Dairy, Fairfield, IA

Cedar Summit Dairy, New Prague, MN

Stafford Organic Dairy, Stafford, VT

Organic Valley (CROPP), La Farge, WI

Farmers All Natural Creamery, Wellman, IA

Cedar Grove Cheese, Plain, WI

Aurora Organic Dairy, Boulder, CO

Back to Nature (Kraft Foods), Glenview, IL

Naturally Iowa, Clarinda, IA

Kemps, St Paul, MN

 

Robert Tigner, Nebraska extension educator, rtigner2@unl.edu
Ron Orth, Iowa Institute for Cooperatives