By Robert Harris

A NEW organic milk buying scheme which guarantees minimum volumes and premium prices for dairy farmers over the next five years has been launched by supermarket chain Sainsbury.

The company claims it is the first big retailer to guarantee a market for organic food for such a long period. To meet demand, the Organic Dairy Initiative will eventually need supplies from the equivalent of 100 organic farms, says Angela Megson, Sainsburys director of dairy buying.

The agreement includes minimum volumes which match projected growth in organic sales.

Liquid milk demand has grown by half in the past year alone to 225,000 pints a week, 1.6% of Sainsburys total milk sales. The aim is to top 15% within four years.

“Unless we make a commitment to volume and price, we wont be able to guarantee price and supply,” says Peter Morrison, Sainsburys senior manager, dairy and cheese buying.

By 2003, liquid milk will account for 70m litres a year, sourced from processor Meadow Valley Farms. Another 20m-30m litres will be needed to make Sainsburys cheese and yogurt.

Organic cheese production is predicted to hit 1000t (180t now) and yogurt 13,000t (3500t now). These will be bought from Yeo Valley Organic and Alvis Brothers.

The minimum price agreed equates to 29.5ppl at the farm gate, says Mr Morrison. Such a premium is possible because consumers pay 41p a pint for organic semi-skimmed milk, 14p more than conventional milk.

The Organic Milk Suppliers Co-operative, whose 31 members supply 85% of UK-produced organic milk, describes the scheme as a breakthrough for the organic dairy industry.

“This announcement is enormously welcome,” says chief executive, Sally Bagenal. “It means OMSCo members and others thinking about joining can look to the next five years with real confidence.”

The price provides a fair margin to all in the chain, she says. “We may be able to edge the farm price up a bit due to economies of scale. And if inflation kicks in, then it will rise.”

For producers thinking about converting, the announcement is good news, says Michael Lambert, NFU milk chairman. “There are concerns about how long premiums will last. This gives farmers a chance to plan.”

Longer term, much depends on how the market develops. “If a lot more people move to organic production, will buyers be prepared to hold the price?”

Roger Metcalf of Agrifood Consultants shares those concerns. “But this is a good piece of niche market opportunism, and it should leave producers with a very tidy margin to market our milk.”