Milk Prices Squeeze Organic Dairies
Farmers Fear Quotas, Cuts
Farmers across the White River Valley are feeling the squeeze as the market for organic milk appears to be in a sharp decline. According to farmers and representatives from Organic Valley, the state’s largest organic dairy cooperative, farmers who exceed a certain quota of milk production will receive a $4 per hundredweight reduction in payment for their product.
Representing an approximate drop of 10 percent for a typical dairy farmer, the reduction is a course reversal for a market that has typically been insulated from the volatile ups and downs of conventional dairy prices.
More expensive to produce than conventional milk, organic milk hasn’t seen a price drop for nearly a decade, in large part due to its relatively limited supply.
“The bigger picture of this whole situation is … there hasn’t been enough organic milk on the marketplace to meet the demand that’s out there,” explained Regina Beidler of Randolph Center’s Beidler Family Farms, who says that picture has since changed.
“A lot of players that hadn’t been in the organic milk market before jumped in and offered really high prices … then the market had an oversupply of milk, which is what it’s correcting for right now,” said Beidler, who also works for Organic Valley as the East Coast Regional Specialist for their “Farmers in Marketing” program.
The more abundant the supply of organic milk, the cheaper it is to buy that milk. By making adjustments in how much farmers are paid per hundredweight and asking that farmers pare back their production, dairy co-ops are able to moderate the roller coaster ride of commodity prices.
“The basis of the organic milk market is balancing supply and demand,” says Beidler. “So that the pay price that farmers get is steady and doesn’t go up and down like it does in the conventional world.”
Despite the moderating influence of multinational dairy co-ops like Organic Valley and Horizon Organic, which purchase the lion’s share of Vermont’s organic milk, the careful act of balancing supply and demand can still leave small farms with a precarious foothold in the industry.
For farmers who sell their milk to Horizon Organic, the combined effect of price cuts and repeated requests to reduce production is, in some cases, resulting in a double-digit decrease in annual revenue.
“Between the 5% [reduction] in milk and the price cut, it’s about an 18% reduction in our yearly income,” said Tim Roberge of Oughta-Be Farm in Chelsea. “We don’t really know yet what we’re going to do,” he said. “It’s a really big reduction. For us, it’s going to be over $50,000 a year.”
After factoring in organic production’s higher fixed costs of insurance, grain, and other operating expenses, the reduction in on-hand cash can leave small farms unable to repair or replace aging equipment without reducing the size of their herd.
“That’s the critical thing,” said Roberge in a telephone interview on Wednesday morning. “It’s not like a person can just cut back on their satellite dish package, or internet package, or stuff like that. We have costs every month,” he said.
The revenue drop has some farmers considering alternative options for riding out the estimated 18 months required for the organic milk market to stabilize.
With more than a decade in the organic milk business, Ted Hoyt of Hoyt Hill Farm in Tunbridge recognizes the difficult bind that farmers are facing in the months ahead.
“It is going to hurt,” said Hoyt, who sells his farm’s milk to Horizon Organic. “They cut us $4 [per hundredweight] and then they sent us another letter last week saying they’re going to cut another dollar on the first of October.”
Hoyt, who hopes to pass the family farm to his son Scott in the next six months or so, has adopted a weather-the-storm mentality. In addition to trimming operating costs wherever he can, Hoyt has also postponed equipment purchases with the hope of maintaining a reserve fund to tackle unforeseen expenses.
“You try to save a little each month … so if something does break down you can replace it,” he said, acknowledging that putting away money is becoming increasingly difficult.
“Farming has the highs and has the lows,” he explained. “Years and years ago, the highs lasted a lot longer, but now it’s up and down like a yo-yo.”
Finding a Way
Another long-time farmer with experience of riding out the highs and lows of the commodity market is Rep David Ainsworth (R, Windsor Orange 1) who is sympathetic to the challenges facing organic dairy farms.
“I think it’s going to be a hardship for the farmers,” said Ainsworth. “It was kind of a shining star for agriculture for the past few years” he said.
Taking a look at the New England dairy industry as a whole, Ainsworth recalled the Northeast Dairy Compact and its region-wide purpose of stabilizing dairy prices in the 1990s.
“If we had [something] like we did back with the Compact, that would help a great deal,” he said, referring to the Montpelier-based interstate commission that ceased operation in 2001.
“It did a nice job when we had it,” said Ainsworth, who now points to diversified revenue streams and in-house processing facilities that have boosted the revenues of conventional dairy cooperatives in recent years.
“The more we can process and not have to rely on commodity pricing, the better it is,” he said.
Back in Tunbridge, Ted Hoyt continues to prepare to hand off Hoyt Hill Farm the next generation, hoping to trim expenses just enough for his son, Scott, to make a living once he takes over.
“You can cut corners and save a little here and there,” he said. “But most farmers have done that now. There ain’t no more corners to cut,” he explained.
“You can only go so far before you completely start losing everything.”