What is the market for organic milk?

Good. UK organic liquid milk sales are booming and are forecast by the Soil Association to grow 25% a year for the foreseeable future. Supplies are short and some processors are importing organic milk to keep up.

In just 10 years since 1995/96, organic milk production has grown from 7m litres to 300m litres a year. Sales were boosted in 2005 by research findings showing that organic milk had potential human health benefits over conventional milk and through promotion by producers, processors and retailers.

This upturn in sales led enquiries from farmers about conversion to pick up in October last year. Once SFP entitlements were established and following the announcement of the Organic Entry Level Scheme, people began to be able to plan their businesses, says Pete Douglas of the Soil Association.

In mid September this year in a tight market, the ex-farm organic milk price is 24-25p/litre on a rolling 12-month basis and looks like reaching 27-28p/litre by the end of the year on the same basis.

However it was only a few years ago that a five-fold increase in supply over two years (2001/02) meant that the market was flooded with organic milk, much of which had to be sold at conventional prices.

This time, things are different, say advisers and processors. The market is already much larger, it is better established and they think that the forecast increase in demand is reliable.

Nevertheless, all preach caution to those considering conversion, emphasising that they must seek commitment from a buyer before undertaking the conversion process.

And producers must be sure that the profitability of the changed systems does not depend entirely on premiums.

New conversions must be planned against the background of a finely balanced market, says the Organic Milk Suppliers Co-operative (OMSCo).

More than 60m litres of conversion a year could easily tip supply from balance back to unsustainable over-production, it warns.

OMSCo is the largest and longest-established organic milk co-op. With 300 member farmers, it handles 60% of the UK’s organic milk output. Sales and marketing director Richard Hampton is keen to avoid a rush to conversion.

“Organic milk has moved from 2% to 3% of the market, so it’s not as if it’s heading for maturity. There is certainly a long term future.”

There are currently 75m litres in conversion, 45m litres of which started the process this year. Producers of a further 60m litres are said to be currently considering conversion.

Where do I start?

Advice and help is available from the Organic Conversion Information Service (England), including a free visit to assess potential for conversion of a business, followed up by a further visit to look in more detail at management and financial aspects of conversion.

These are carried out by the Organic Advisory Service at Elm Farm Organic Research Centre.

An identical service is available to farmers in Wales through OCSI (Wales) although advisory visits are provided through ADAS and the Organic Advisory Service.

The Scottish Agricultural College through its Scottish Organic Farming Service provides a telephone helpline, free telephone advice, farm walks, market information and demonstration farms. It also funds up to £300 or 50% of the cost of producing an organic conversion plan.

A free Organic Conversion Information Service is available to producers in Northern Ireland through the Department of Agriculture and Rural Development.

Conversion can be achieved on a stepped basis but most advisers advocate a whole farm approach.

How long does it take to become organic?

It takes two years for full conversion of land and nine months for dairy cows to be converted. It is possible to convert stock and land at the same time, so that from day one of the land being fully organic, stock and therefore milk production is also organic.

To achieve this, organic veterinary management must start nine months before the intended day of organic milk production and cows have to be fed to organic standards for six months before organic milk production can begin.

What are the main rules and regs?

  • Organic standards require the use of renewable natural resources including muck, legumes and fodder crops and pasture systems to build and maintain fertility.
  • Each converting holding must draw up a detailed Livestock Management Plan covering health management, feeding regime, housing, transport and a clean grazing programme.
  • Conventional NPK fertilisers, pesticides and herbicides are not allowed but some naturally occurring mineral fertilisers may be used to correct identified deficiencies.
  • Cow diets must be at least 60% forage. Currently, up to 5% feed from non-organic sources is allowed where ingredients are not available in organic form, but this is for a limited range of feed ingredients.
  • From December 2007, ruminant diets will have to be 100% organic. At least 50% of the diet must be produced on the holding or in co-operation with other organic producers.
  • Mineral supplements are permitted where a deficiency is identified and antibiotics and other conventional veterinary medicines are permitted as a treatment for individual animals with clinical symptoms. However, withdrawal periods are up to three times longer than in conventional production. Homeopathic remedies are permitted.
  • Stocking rates are limited by nitrogen being restricted to 170kg/N/ha (69kg/acre) a year.Units which are wholly organic are exempt from set-aside requirements.
  • For details see: www.defra.gov.uk/farm/organic/standards/pdf/compendium-sept 06.pdf

How often will I be inspected?

Most inspection bodies visit registered holdings once a year by appointment. Where action is required, there may be a follow-up visit. Some unannounced visits are also carried out.

There are 10 approved UK certification bodies, some of which operate to stricter-than-minimum standards. Most charge from £400 a year upwards for registration and inspection.

Generally, the larger the holding or the more complex the mix of enterprises, the higher the charge although the Soil Association charges on certified area alone. Some bodies have special rates for small-scale farmers and young farmers.

What are the main challenges and pitfalls?

Everyone in this sector stresses that securing a market for your milk and other products is essential before going into conversion. Many buyers are willing to give this commitment. For example, OMSCo is offering contracts beyond 2010.

Co-ops and processors are willing to commit forward with contracts for organic milk because knowing who is coming through conversion helps them to plan their businesses.

Aside from this, one of the main challenges is to produce enough high quality forage and to balance forage production with grazing requirements to maintain milk yields, especially in a dry summer like the past one, says Mr Douglas. At about £250/t, organic cake is an expensive emergency purchase.

Some producers have a problem where land holdings are split. Ideally the whole farm should be converted, but landowners will not always give permission.

“It’s very rare that a farm is not suitable for conversion, but sometimes the enterprise mix is not suitable,” says Mr Douglas. However, he and others warn that organic is not a low cost, easy option.

If you’re not on top of things as a conventional dairy producer, you’re unlikely to succeed in the organic sector, warn advisors.You have to change your approach and plan in the longer term to ensure the fundamentals of organic farming are taken care of, in particular fertility building and prevention of disease rather than relying on medication as a cure.

Attention to technical and business detail is perhaps even more important than in the conventional sector.

Many producers try to make the change not only from conventional to organic production, but to introduce other new enterprises or diversifications at the same time and this can be risky, warn advisors.

New ventures drain time, energy and money from the business when all eyes need to be on managing the process of conversion. They can also cloud the picture financially, making it difficult to assess progress.

While he is glad to see organic milk price premiums at a more healthy level, NFU dairy board chairman Gwyn Jones warns those considering converting not to overlook the fact that other countries, such as Denmark, can produce organic milk cheaper than UK producers and that this is a potential threat.

However transport costs of up to 7p/litre mean that imports cost at least 35p/litre to land in the UK.

Typical organic dairy output ranges from 5000 to 8000 litres, of which 3500-4500 will be from forage, says OMSCo. Forage yields are up to 10t DM/ha a year (4t/acre) from white clover leys and up to 14t DM/ha a year (5.7t/acre) from red clover and lucerne leys, while stocking rates are generally between 1.5 and 2 cows/ha (0.6-0.8 cows/acre).

The high forage input required for organic production means that late winter shortages will continue to be a problem for the industry unless milk buyers offer better prices for milk at this time of year, says the Soil Association

Tenants need to study their tenancy agreement carefully when considering organic conversion, warns George Dunn of the Tenant Farmers’ Association.

This may contain a general restriction preventing organic farming, or a restriction on applying for grant schemes such as conversion grants.

“If may be indirect problems such as the tenant having to take in sewage sludge (water company tenancies) which would cause problems in converting.”

“If you are clear that there is nothing in the tenancy agreement then you may still need to speak to the landlord if you have a FBT with only a few years left to run. You do not want to be investing money in turning organic if you will have to give the farm up in a few years’ time.

The same will apply if the landlord is considering development on the land and therefore may be looking to serve a notice to quit.”

There may be higher compensation available at the end of the lease for organic farming, he says.

What return can I expect?

Organic dairy producers have stocking rates around 10% lower than their conventional counterparts, and yields are also lower to roughly the same degree. At current costs they need a milk price of 28-29p/litre, says OMSCo.

Getting supply and demand in balance will be crucial in achieving sustainable returns, warns OMSCo’s Huw Bowles.

The organic farming schemes only partly compensate for conversion costs, particularly where there is no access to premium prices, warns Dr Nic Lampkin, senior lecturer at the Institute of Rural Studies, University of Wales Aberystwyth.

The seventh edition of his Organic Farm Management Handbook, an essential tool for all organic and potential organic producers, has just been published.

Budgets in the handbook show a projected gross margin for a typical 106-cow, 100ha (250-acre) specialist dairy farm in 2007 of £1146/ha (£464/acre) – a whole farm equivalent of £114,564. This is a £22,500 improvement on 2004, but £27,500 less than 2001 illustrating the rollercoaster nature of recent organic milk history.

“The financial implications, in particular cash flow during the transition phase, also need to be considered. A full conversion plan should therefore involve analysis of both financial and physical aspects of the whole farm business.”

The farm system should also be designed so that it can withstand shocks such as disease or drought.

“Most producers will face yield and stocking rate reductions during the conversion period but once they get on top of forage management and clover yields rise, they can get back to conventional milk yields within four to five years, says Mr Bowles.

What financial support is available?

Each UK region has a different method of supporting organic producers during and after conversion.

In England, Organic Entry Level Stewardship (OELS) pays £60/ha (£24/acre) in each of the five years of the agreement plus £175/ha (£71/acre) on “improved” land in years one and two while in conversion if the producer meets the points requirements for OELS.

Wales also supports organic conversion for five years, paying £175/ha (£71/acre) for grassland (and AAP ineligible land) in the first year, £105/ha (£42.50/acre) in year two, £40/ha (£16/acre) in year three, then £35/ha (£14/acre) in years three and four.

Lower rates apply for unenclosed land and grazed woodlands. AAP land and land in permanent crops attracts £225/ha (£91/acre) in year one, £135/ha (£56/acre) in year two, £50/ha (£20/acre) and £35/ha (£14/acre) in years four and five.

Smaller lump sums up to a total of £600 are available to help with training, advice and certification. The payments can be combined with Tir Cynnal, the Welsh equivalent of entry/higher level stewardship giving a similar level of support through the first five years as in England.

Scotland’s Organic Aid Scheme also distinguishes more heavily between arable and grassland, paying £220/ha (£89/acre) in years one and two for arable land and £60/ha (£24/acre) for three years thereafter.

Improved grassland attracts £120/ha (£49/acre) for the first two years and £60/ha (£24/acre) for years three to five. Other lower payments apply for rough and unimproved grassland.

Support for arable, fruit, vegetable and improved grassland in Scotland is subject to an upper limit of 300ha (741 acres) while there is a total ceiling of 1000ha (2471 acres). Scotland also has a capital grant scheme specific to organic conversion but it is discretionary unlike in other parts of the UK.

In Northern Ireland, the Organic Farming Scheme has similar land categories to those of Scotland and Wales. Also using front-loaded payments, it offers a total over five years of £450/ha (£182/acre) for AAP land and permanent crop land, £350/ha (£142/acre) over five years for ineligible (ie non AAP) land and grassland, and £50/ha (£20/acre) across five years for unenclosed land and grazed woodland.

Case study
Coombe Farms

crewkerne, somerset

“Convert yourself first before you start converting the farm. It’s about the philosophy, not just the numbers,” says Andy King, who has seen several dairy units through conversion for Coombe Farms, part of the A H Warren Trust, based near Crewkerne, Somerset.

The most recent is Greencoombe Farm, Winsham, which supplies milk to Waitrose for its own-brand liquid milk sales.

Making sure you have a buyer is another essential first step, even before conversion begins, recommends Mr King. You also need to understand what part of the market that buyer will be supplying.

“There is no blueprint. You’ve got to really think across the whole farm and plan what the farm will be doing for the next five to 10 years and how everything will fit together.

You are likely to be running an eight year rotation. The first wheat crop following red clover (at the end of year 3 or 4, will tell you whether you’re on the right track, says Mr King.

He is worried that some consultants may be advising producers to go down the organic route as a soft option. “A farmer who could improve his conventional dairy herd performance would not necessarily make a good organic farmer. Even greater attention to detail is needed to manage an organic unit properly.

“You have to be prepared to think about cropping slightly differently. We’re working to minimise the impact of pests, diseases and weeds. For example, we’ve got an area of grass which has a dock problem – we’ve put in stubble turnips to either give us something to graze or to go in as green manure to help us cultivate out a problem.”

Mr King advises anyone going into conversion to invest in reseeding as much and as quickly as possible, the year before conversion if possible. His other tips include:

  • Make sure you have a buyer who is committed to promoting organic dairy produce
  • Don’t underestimate the value of clover in building and maintaining fertility – it might not look much at the end of its first summer, but the second year will see it come back
  • Be prepared for a big yield drop – yields among the Coombe Farms herds were averaging about 9000 litres a cow before going organic – they now average between 7000 and 8000 litres.
  • Beware of seed mixes where clover content is too low – you might need 10-11kg/ha (4-4.5kg/acre) of red or 5-6kg/ha (2-2.5kg/acre) of white in a mix
  • Talk to like-minded people who are already organic – you can’t go on too many farm walks. Organic farmers are very open about discussing performance and experiences
  • Docks and thistles are probably going to be your biggest weed challenges
WHO CAN I CONTACT?
  • 2007 Organic Farm Management Handbook-7th Edition[ISSN 1354-3768]available from IRS, University of Wales, Aberystwyth,organic@aber.ac.uk
  • Elm Farm Research Centre-01488658298, efrc.com
  • Soil Association-www.soilassociation..org
  • DEFRA-www.defra.gov.uk/farm/organic/index.htm
  • SEERAD-www.scotland.gov.uk/Topics/Agriculture
  • Welsh Assembly– www.countryside.wales.gov.uk/fe.master
  • Northern Ireland-DARD local office or www.dardni.gov.uk
  • Greenmount Campus College of Agriculture, Food and Rural Enterprise [CAFRE]-www.cafre.ac.uk