Posted by: Mahdi Ebrahimi | September 6, 2007

Organic Milk demand grows 20% in 2007

The latest research conducted by AC Nielsen for Yeo Valley Organics show that the organic milk sector is now worth £ 145 million by mid-July 2007 as opposed to £121 million in the previous 12 months to July 2006.

This is good news for the Soil Association as it kicks off the ‘Wake Up to an Organic Breakfast’ Fortnight.

The only fly in the ointment is that demand for organic milk is now out stripping supply, an increasing factor in the organic marketplace.

“Though the growth rate of organic was held back by a shortage of supply at the end of 2006 and early 2007, it is still moving ahead strongly and advancing at a rate well ahead of the total milk market.”

At a time when milk suppliers have been facing huge financial difficultly and even the large supermarket chains realising that they can no longer force the price of milk any lower and expect their cash strapped suppliers to continue to stay afloat, the organic sector is seeing a combination of excess demand and higher yields.

On average, British conventional dairy farmers are being paid below the cost of production and over 6 pence per litre less than they were 10 years ago, the impact of which is further compounded by the fact that the costs of production have risen significantly in those same 10 years and continue to rise. At the other end of the dairy chain processors have managed to maintain their margins while supermarkets are receiving a larger share for milk returns.

Since the abolition of the Milk Marketing Boards dairy farmers have experienced a significant decline in bargaining power with processors and retailers. This lack of bargaining power has seen the farmgate price for milk decrease from 24.6 pence per litre (ppl) to 18 ppl in just over a decade while at the same time supermarket profits have increased from 3 ppl to 15 ppl. As result of these disparities in milk returns the relationship between farmers and supermarkets has become extremely strained.

Recent announcements by the co-operative First Milk’s decision to pay its farmer members an extra 2ppl raising the price to 20.6ppl and will affect 2,800 producers who supply around two billion litres of milk mainly to First Milk’s cheese business.

NFU dairy board chairman Gwyn Jones said: “This is good news for the industry and can be seen as the first proper price increase by one of the major players. It is more in line with what farmers should be expecting given the current strength of market conditions. I would like to congratulate First Milk – a dairy co-operative that is run by farmers for farmers.”

Prices of conventional milk are expected to continue to rise according to a spokesperson from the NFU, “In September we are exacting an average price of 22p per litre”. Organic milk on the other hand is now fetching farmgate prices of between 28 and 35p according to sources at the NFU.

Tesco’s at the moment charges 66p for two pints (1.136 litres) of standard milk, and 84p two pints for the organic own label. It seems they have slipped in a mark up for organic in there as well.

The number of milk producers across the European Union has fallen dramatically in the last 40 years, in 1969 France had 928,000, last year the number was 108,000. In the UK this process of concentration has been even more pronounced with only 13,000 milk producers left. Milk processing in the UK is dominated by only 4 large companies.

The more robust prices of the organic sector however will not in the short trem lead to a big jump in organic production. The Soil Association told naturalchoices that the average time taken for converting a conventional diary farm to an organic certifiable farm is around 2 years. Cash strapped conventional diary producers may find the process to expensive.



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