Reports are circulating news of organic milk potentially flooding the market this year, due to next year’s regulation change and higher profit margins available to producers. A sure change after years of organic milk being in short supply.
The dairy industry is expecting organic milk supply to surge by at least 40 percent this year from a previous annual growth rate of 20 percent, creating an excess of 25 million gallons, according to some estimates. Meanwhile, consumer demand for organic milk will continue to grow at 25 percent annually, leading some industry experts to predict that a retail promotion war is imminent.
U.S. dairy processors and distributors like Dean Foods Stonyfield Farm and Organic Valley, a dairy farmers’ cooperative that sells to retail grocery chain Whole Foods Market and others, are welcoming the news because it provides an opportunity to expand the market and offer more organic milk-based products.
Greater quantities of organic powdered milk, yogurt, ice cream and cheeses are expected to hit store shelves as dairy processors divert their excess supply. Consumer prices for organic milk, however, are unlikely to drop because the industry expects the glut to be short term.
Companies have used the grace period to encourage more farmers to go organic and lock in higher long-term supplies, on the expectation that consumer demand will eventually catch up. They have also planned uses for the short-term excess supply, or are stepping up promotions. Beginning 2008, organic milk supply is expected to trickle off as retail promotions expand the market.
Raw prices for conventional milk are also expected to hit new highs in 2007 on strong cheese prices, global demand for whey and skim powdered milk, and higher grain costs. “The conventional market now looks a lot more profitable so there will less incentive for farmers to move into organic.”