Survival getting tough for some organic dairy farmers

Organic milk
A cow heads to a milking station at Cedar Summit Farm near New Prague, Minn., May 31, 2006 as milker Scott Lambert, left, follows. The farm milks about 160 cows in its organic milk business and sells the milk in returnable glass bottles through upscale grocery stores and food cooperatives in the Minneapolis-St. Paul area.
AP Photo/Jim Mone

In the Midwest, organic dairy farmers are standing by while prices plunge and survival gets tough. Last year demand grew at a rate of 20 percent, but today it's nearly flat.

Bruce Drinkman has spent all 46 years of his life as a dairy farmer--most of that time producing milk the traditional way.

"I'm the third generation of my family to live at this location," Drinkman said. "We have five children, all grown, so it's just me and my wife that manage the farm all day."

Now, the Drinkmans have 50 organic dairy cows in western Wisconsin. Drinkman said he always farmed sustainably, and in 2006 he got his operation certified as organic and watched his income skyrocket.

Dairy producers are paid for every 100 pounds of milk. Drinkman sold his conventional milk for $13 per 100; when he went organic, he earned $27per 100.

"We more than doubled our income," he said. "We had about four or five months of that, then the price fell out from underneath us. They said there was an oversupply, [and] then it rebounded. But now we are down, we've lost 50 percent of our income since the first of the year."

If prices stay as low as they are, Drinkman said he'll be forced to go out of business. Drinkman was the only organic dairy farmer who agreed to be interviewed for broadcast. Other farmers said they feared reprisal from milk processors for complaining about low milk prices.

"... we're looking at a 20 to 25 percent drop [in demand.]"

But there's no question prices are down because there's a glut of organic milk on the market. Ed Maltby is the executive director of the Northeast Organic Dairy Producers Association, an advocacy group. He said several factors are causing it.

Maltby said one problem is demand. People aren't buying as much of the expensive milk in a bad economy.

"One could anticipate a 10 percent drop in demand," Maltby said. "But we're looking at a 20 to 25 percent drop."

Today, a gallon of organic milk is $6 and conventional milk is $3.50. But the organic dairy model has also changed. It had been regional with lots of dairies filling the shelves of co-ops. Today, three companies dominate the market: Horizon Organic, Organic Valley and HP Hood.

Maltby said those companies signed on a lot of producers and asked them to increase production. Now, most companies are trying to cut back.

"And in a lot of cases they have taken what was a three-year contract and asked the farmers to accept an amendment to the contract that reduces what they are going to get paid," he said. "And then Hood is dictating the price on a month to month basis."

Maltby and others say Hood isn't the only company that's cut prices. Horizon has, too, and Organic Valley has limited the amount of milk it will accept from producers. Farmers who spoke privately with MPR confirmed that they'd taken a pay cut and sometimes lost contracts entirely.

Industry experts say mega-dairies are another reason for the milk glut. Jim Riddle is the organic outreach coordinator at the University of Minnesota. He's also the former chair of the National Organic Standards Board, which advises the US Agriculture Department on organic agriculture policies and regulation.

"You've seen some very large confinement-type operations go organic by providing organic feed, not using hormones, not giving antibiotics, but the animals are not on any sort of significant pasture," Riddle said.

That's a requirement for organic dairy. But Riddle said the USDA's organic oversight unit has been overwhelmed and has not been enforcing standards. That's allowed some dairies to produce organic milk on the cheap.

Producers like Bruce Drinkman feel they are fighting a multi-headed beast. But he isn't done fighting yet.

"We made the decision early this spring, my wife and I, to throw in the last kitchen sink we had and fight like hell for another year and see where we're at," Drinkman said.

Some speculate the industry is just becoming more like the conventional milk market, subject to gut-wrenching spikes and troughs. But they don't know how many will survive the current trough, and if the next spike will be enough to keep the survivors in business.