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Consumer demand drives organic milk industry expansion

Staff Writer |
Despite the current excess supply environment, rising demand points to a bright future for the U.S. organic milk industry.

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This is leading 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 steady demand growth will lift organic fluid milk market share and further stimulate product innovation.

“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 (near the widest point in the price spread) was $36.25 per hundredweight (cwt) compared to a conventional average of $14.89 per cwt.

This sizable pay difference and the extended pressure on conventional milk prices provide considerable motivation for dairies to costly three-year process.

In addition, the year-long contracts common for organic production may temper the monthly price volatility often found in the conventional milk market.

Consumers Committed to Organic 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.”

In 2016, half-gallons of organic milk commanded a more than $2 premium over half-gallons of conventional milk.

In spite of this significant difference, sales continue to increase. Valued at $1.174 billion, milk was the top organic commodity sold in 2015.

The strong sales figures suggest that consumers are willing to pay the premium and there is room to grow—barring a downturn in the overall economy. Demand growth will also be influenced by the normalization of organic milk in the eyes of consumers.