Prices sour demand for organic milk

Vt. farmers struggle as dairies start to cut back production

By Jenn Abelson / Globe Staff

Article from Boston.com

Dylan Ouellette and Cameron Phelps milked cows at Kimball Brook Farm, which is coping with falling demand.
(Caleb Kenna for The Boston Globe)

NORTH FERRISBURG, Vt. - Three years ago, organic milk was like white gold: Health-conscious customers wanted it, supermarkets couldn’t get enough of it, and anyone who could sell it was making a killing as a shortage swept across the country.

At the time, Kimball Brook Farm was at the center of a bidding war as companies courted the farm’s owners, JD and Cheryl Devos. They decided to join Horizon Organic, which offered a $33,000 signing bonus, more than $100,000 to pay for three months of special feed for the cows, and other perks.

Almost overnight, though, things have changed. Sales of organic milk have plunged and farmers who got lucrative deals from a dairy industry that was thirsty for the stuff now can’t get rid of it. The volume of organic milk sold nationwide is projected to drop nearly 15 percent this year compared with 2008, according to some industry estimates. Already, one Vermont farm has closed its organic business and others are expected to follow, threatening what was one of the few bright spots in the state’s struggling dairy industry.

Some say the allure of organic milk - from cows that munch on expensive organic grain and aren’t injected with hormones - evaporated when the financial crisis hit and the price of conventional milk sank. In some regions, organic milk is $7.50 per gallon compared with around $2.50 per gallon for nonorganic milk.

Others blame the influx of organic farmers: Vermont, which supplies much of the organic milk for the Boston market, saw the number of organic dairy farmers grow to 201 from 114 in the past three years. Now, some farmers, many of whom incurred big debt to convert their farms to organic, can barely pay their bills.

“Just a few years ago, everything was fantastic,’’ JD Devos said on a recent Saturday. “None of us had any idea we would end up like this.’’

Earlier that day, Cheryl Devos said, she had gotten a call from Horizon requesting a 5 percent cut in milk production, coming weeks after the company cut the price it paid to farmers. The couple has already sold more than 50 of their 230 cows to help pay down more than $150,000 in debts. But the farm is still behind on bills and could lose up to $120,000 this year. The Devoses are now looking for a bank loan and trying to think of new ways to unload their milk.

Organic milk accounts for just about 6 percent of milk sales, but a slowdown in business has a bigger affect because the base is small. Regular dairy farmers are suffering, too, but the fall off in organic sales is especially remarkable because it contrasts with the dramatic rise of just a few years ago.

To drum up demand for organic milk, dairy companies are unveiling new products and launching advertising campaigns. From the new half-gallon chocolate milk to tubed, flavored yogurt, the message is the same: Come back, it’s worth it.

Horizon, which cut several contracts in New England and slashed production in half at one of its own farms, said now is the time to invest in educating consumers about the value of organic. Horizon is running ads with taglines like “Growing Brains’’ and “Think Outside the Juice Box.’’

Backers of organic milk say additives in conventional milk can pose health risks to humans. That’s one of the selling points that helped boost sales initially.

“For years, organic has been growing at double digit rates. Over the last couple of months, there’s been no growth at all and even a 1-2 percent decline,’’ said Kelly Shea of Horizon.

Despite the marketing efforts, Andrea Dagraca remained unconvinced as she shopped at Shaw’s supermarket in Dorchester on Friday. “It’s more of an economic thing to me,’’ said Dagraca, 25, an environmental biology doctoral student at the University of Massachusetts at Boston. “Having a budget makes it very hard to eat healthy.’’

At the same time, the glut of organic milk has led New Hampshire yogurt maker Stonyfield Farm to bring back organic smoothies - a product it discontinued during the shortage - and turn its entire line into 100 percent organic.

The company has also stepped up its offerings, including Oikos organic Greek strawberry yogurt and YoBaby meals - a 3-in-1 product that features yogurt, fruit, and veggie combos in one cup. “We’re hemorrhaging with an oversupply of milk,’’ said Nancy Hirshberg, Stonyfield’s vice president of natural resources. “Our sales aren’t growing as fast, so we can’t absorb all the milk.’’

Stonyfield buys milk from Organic Valley Cooperative, which has asked its farmers to cut production by 7 percent starting in July. Farmers who produce above the limit will be paid at conventional milk prices, which are about half organic prices. HP Hood has also slashed the price it pays farmers and eliminated contracts.

“The current situation has resulted in intimidation by milk companies of farmers that are fearful of losing their market, and forcing farmers to accept contractual changes to contracts with conditions that are heavily biased toward the milk companies,’’ said Ed Maltby, executive director of the Northeast Organic Dairy Producers Alliance.

For many organic farmers, the money they make producing the milk now falls short of covering their costs. Some of the hardest hit are those who are new to organic farming and took on significant debt in converting to certified organic production, said Dave Rogers, a policy adviser for Northeast Organic Farmers Association of Vermont, a group of organic dairy farmers. It can take up to three years to transition to organic farming, and farmers must buy expensive organic grain, ensure the land is free of pesticides, herbicides, and artificial fertilizers, and avoid antibiotics when treating sick cows.

Despite the challenges facing organic farmers, many say they are better off than conventional dairy farmers in Vermont, who are seeing record low prices for milk and cannot compete with huge Midwest conglomerates. In recent months, Leo Branchaud has had trouble with Horizon over tests for infections in his cows at his organic Tinmouth farm - results he disputes - and the company recently sent a letter telling him that his contract would not be renewed when it expires in December. His friends held a “sympathy dinner’’ for him.

“It stinks. I can’t go back to conventional. Those farmers are losing money every month,’’ he said. “So if we go down, we’ll lose everything we worked for our whole lives. We’re done.’’

Globe correspondent Sean Sposito contributed to this report. Jenn Abelson can be reached at [email protected].