Shortages in organic milk lead to price increases

Shortages in organic milk lead to price increases  Strong demand for organic milk will keep prices high enough to provide sufficient incentive for dairy farmers to produce more, according to one of the largest U.S. organic dairy cooperatives.

Grocery chains including Publix Super Markets, Inc., faced organic milk shortfalls over the past three months after extreme summer heat and soaring feed costs led to lower production. In November, organic milk sales fell 8.8 percent from the same month a year earlier, to 8.3 million pounds, according to the U.S. Department of Agriculture.

But even as prices climb, consumers probably will continue to buy more organic milk, said Elizabeth Horton, a spokeswoman for La Farge, Wis.-based Organic Valley Cooperative. The price premium that organic dairy farmers receive over conventional milk will also encourage production, she said.

"Organic growth is too great to be slowed by this, and disparity in pay price between organic and conventional too big for many farmers to give up organics," Horton said in a Jan. 4 e-mail. "The future of organics very bright, but… the main issue is input costs increasing."

Organic Valley is the largest U.S. organic cooperative, representing 1,658 farmers in 35 states, according to Horton. The cooperative had sales of $619 million in 2010.

Demand for organic milk has risen rapidly in recent years even with retail prices nearly double those for conventional product. During the first 10 months of 2011, organic whole milk sales rose 17 percent over the same period in 2010, according to USDA data. Organic accounted for about 3 percent of total U.S. fluid milk sales in 2008.

Still, the outlook for expensive feed throughout 2012 indicates dairy farmers and other livestock producers face an ongoing profit squeeze that intensified last year after corn prices surged to all-time highs. Corn averaged over $6.83 a bushel last year, triple the average from 2000-06, based on Chicago futures. Costs for hay and other feed ingredients also rose.

The demand growth results in organic milk supply tightness in much of the country, the USDA said in a report last week. A half-gallon of organic milk averaged $3.62 last year, up 51 cents, or 16 percent, from 2010, based on the national weighted average advertised price, the USDA said.

Higher prices "may be a result of the tightening organic milk supplies throughout the country and most notably in the Southeast," the USDA said.

Retailers also downplayed the prospect that shortages may hurt consumer purchases. Publix, which operates 1,046 stores in the Southeast, has had "sporadic" organic milk shortages since October, said Maria Brous, a spokeswoman for the Lakeland, Fla.-based company.

In October, Publix raised its organic milk prices by about 10 cents, Brous said. Publix has also posted signs in stores explaining to shoppers why certain organic brands weren't available.

"Since we carry a variety of organic milks, we will continue to have options for our customers, though their preferred brand may not be available," Brous said. "Since this isn't isolated to Publix, customers have been understanding and appreciate the in-store signage and communication."