Dairy Event 2010: Organic dairy sector is getting tighter
Organic milk sales have fared better than other organic products during the recession, but there are mounting concerns about future supply, according to the Organic Milk Suppliers Cooperative.
Its annual market report found dairy was the biggest sector of the organic market, accounting for one-third of all organic sales in the last 12 months. Sales were helped by a “strong organic heritage”, low organic premiums, plus consumer marketing campaigns.
But while demand for raw organic milk was predicted to increase by 9% in 2010/11 on the back of new marketing initiatives, the report, released at the Dairy Event and Livestock Show, said supplies were set to fall for the first time in almost a decade.
Underlying concerns about the viability of organic production caused a “significant number” of producers to switch back to conventional production at the start of 2009, which, combined with ongoing exits, had resulted in the overall exit rate over the past two years being 19m litres higher than the rate of expansion on existing farms.
With no new converters arriving on the market, OMSCO said these factors amounted to a fall in available milk supply of 3% in the current year.
The situation had stabilised slightly, but recent increases in conventional prices were starting to show through in increased organic exit rates, OMSCO executive chairman Nicholas Saphir said.
“Cost pressures and lower returns over the year have resulted in little interest in conversion, indeed no new producers are currently in the pipeline.”
This growing imbalance between rising demand and falling supply was likely to result in a “gentle but steady upward pressure on milk prices” in the months ahead, he said.
Key points from the report:
• Dairy is the biggest sector of the organic market, accounting for one third of all organic sales
• Demand for raw organic milk expected to increase by 9% in the current year, driven by improved performance of existing sectors and demand from new markets
• Supplies have increased by 50% in the last four years, but expected to decline in the current year by 3%
• The market for organic milk expected to tighten further, placing upward pressure on milk prices
• The benefits of organic milk are less well understood by consumers than for organic food in general
• Organic sales account for less than 4% of total dairy sales, resulting in significant growth potential