Rising demand has caused a record number of dairies to transition to organic milk production, according to a new report from CoBank. Organic milk generates the highest sales of any certified organic commodity, and this steady demand growth has the potential to lift organic fluid milk market share and further stimulate product innovation with the organic dairy industry.

“The substantial gap between organic and conventional on-farm milk prices, combined with more price stability, is driving the transition,” says Ben Laine, CoBank senior dairy economist. “We are seeing increasing herd sizes for many existing organic dairies looking to take advantage of size efficiencies and price premiums.”

The 12-month average national organic milk mailbox price in April 2016 was $36.25 per hundredweight (cwt) compared to a conventional average of $14.89 per cwt.

Dairies consider this sizable pay difference, and the extended pressure on conventional milk prices, considerable motivation to invest in the costly three-year organic transition process to become certified organic. The year-long contracts common for organic production that may temper the monthly price volatility often found in the conventional milk market are also attractive to today’s dairies.

Higher prices for organic milk have not dampened consumer interest. “While demand for fluid milk overall has struggled to slow its downward trajectory over the past several years, organic milk is one segment experiencing strong growth,” notes Laine. “The price premium for organic milk at retail is typically second only to the premium for organic eggs.”

Private label organic milk, the evolution of other organic dairy products including cheese, butter and yogurt, as well as new industry partnerships will likely add value and additional growth opportunities to the organic dairy industry in the coming years. Food service companies are also increasing investment in organic dairy products, leading to additional demand. These factors are expected to influence processing capacity over time.

A brief video synopsis of the report, “The U.S. Organic Dairy Industry – Booming Demand with Room to Grow,” is available on the CoBank YouTube channel. The full report is available to media upon request.