Organic Dairy Profile
By Madeline Schultz, content specialist, AgMRC, Iowa State University, email@example.com.
Revised January 2013 by Diane Huntrods, AgMRC, Iowa State University.
In 2011 nearly 2.1 billion pounds of organic milk products were sold, a 14.5 percent increase from the previous year and the second year in a row that sales increased by double digits. That amount represented nearly 4 percent of all milk products sold that year. On the other hand, the volume of total milk product sales dropped for the second year in a row. (AMS, USDA)
Before the recent recession, organic milk cost considerably more than standard milk. At its peak, the national price premium for organic milk averaged $18.00 more per 100 pounds. In 2011 the average price of organic reduced fat (2%) milk was $3.75 per half gallon, while the average price of organic whole milk was $3.74 (AMS, USDA).
Organic milk first appeared in supermarkets in 1993 but is now available in nearly all retail food stores. From 2004 to 2006, the share of organic dairy products sold at supermarkets increased while the share sold at natural food stores decreased.
More than 2,000 farms in the United States produced organic milk in 2008. The largest number of farms were located in Wisconsin (479), followed by New York (316) and Pennsylvania (225). Less than 100 organic dairy farms were located in California. (2008 Organic Production Survey 2010)
As of December 31, 2008, nearly 202,000 dairy cows were certified organic, up from more than 87,000 in 2005 and nearly 2,300 in 1992. The states with the highest number of certified organic dairy cows were (in order): California, Wisconsin and Texas. (2008 Organic Production Survey 2010)
During 2008, the peak inventory of organic dairy cows was more than 219,000, with nearly 40,000 cows being sold that year. Texas sold the most organic dairy cows, followed by California and Wisconsin. (2008 Organic Production Survey 2010)
Organic dairies have an average of 53 cows in the Northeast and 64 cows in the Upper Midwest, compared with 381 cows in the West (ERS 2010). The larger operations in the West account for 31 percent of U.S. organic milk cows (USDA 2010).
Organic milk production in 2008 was 2.8 billion pounds. California produced 501.8 million pounds, or 18 percent, of the organic milk. Other states producing large quantities of organic milk were (in order): Wisconsin, Texas, Oregon and New York. (2008 Organic Production Survey 2010)
The average milk yield per cow on organic dairies in the West is 2,700 pounds more than yields on organic dairies in the Upper Midwest and 4,000 pounds more than in the Northeast. While the more productive operations in the West make up only 7 percent of organic dairies, they account for 37 percent of organic milk production. (ERS 2010)
The cost of production for organic dairies is greater than the cost for standard dairies. Organic feed costs more than standard feed, and organic production uses more labor and capital. When organic milk brings premium prices, profits are higher for organic dairies. Herd size matters to organic costs. Estimated total costs drop sharply as herd sizes increase.
USDA standards for organic food were implemented in 2002. Organic dairy is raised in a production system that promotes and enhances biodiversity and biological cycles and uses only organic feedstuffs and health protocol. It is based on minimal use of off-farm inputs. Dairy cattle producing organic milk are not given antibiotics and growth hormone stimulants. In general, organic foods are minimally processed with artificial ingredients or preservatives.
Organic dairy sales contracted in 2009, shrinking about 1 percent. However, organic dairy sales still commanded 15 percent of the total organic food market. (Only organic fruits and vegetables captured a larger share of the organic food market: 38 percent.) With factors such as price drops for conventional milk, consumers trying to save money were put off by the wide price gaps between conventional vs. organic. (Organic Trade Association 2010)
The total value of organic milk produced in 2008 was $750.1 million. California was the leading seller of organic milk, with sales topping $133.5 million. Other top sellers were (in order): Wisconsin, Texas, Oregon and New York. (2008 Organic Production Survey 2010)
The OTA believes organic dairy sales reached $3.2 billion in 2007. In 2006, organic dairy products accounted for $2.7 billion in sales, according to the OTA's 2007 Manufacturer Survey (2008).
Some dairy operations bottle and sell the milk and/or other dairy products locally. For national distribution, products tend to move from the farm to a cooperative processor/bottler and then to a private distributor before reaching retail outlets.
The organic dairy market has been significantly affected by large-scale investment from food processors. The first two companies to produce and distribute organic milk on a large scale were Organic Valley and Horizon Organic. As of June 2009, Organic Valley, a cooperative established in 1988, and Horizon Organic, owned by Dean Foods and producing organic milk since 1992, were the largest organic milk processors in Wisconsin.
In general, fluid milk competes with other beverages for sales. While skim milk consumption has increased over time and whole milk consumption has decreased, overall milk intake by Americans has dropped in the last 20 years. Bottled water is now the second most consumed commercial beverage. Consumption of fruit and sports drinks has also increased over time. Nondairy milk products made with soy and rice are competing for space in the dairy case and are advertising as having comparable dairy attributes like calcium.
Other factors related to milk competition include the fact that milk is viewed as a commodity. Few branded milk products are sold; most milk is private label. Therefore, milk competes against worldwide beverage makers with well-known brands.
Milk distribution is another factor. Milk is primarily sold at the supermarket. Compared to other competing beverages, its promotion is limited due to product perishability. Milk’s use of single-serve plastic containers and of new flavors are likely to become keys to innovation for branding, image improvement and increased marketing channels, according to a Beverage Marketing Corporation report.
2008 Mini Fact Sheet: Organic Industry Overview, Organic Trade Association (OTA).
Dairy, Economic Research Service (ERS), USDA.
Organic Agriculture in Wisconsin: 2009 Status Report, Center for Integrated Agricultural Systems, University of Wisconsin-Madison and the Wisconsin Department of Agriculture, Trade and Consumer Protection, 2010 - Wisconsin is the top-ranked state for number of organic dairy farms. In 2007, Wisconsin’s organic dairy sales reached $57.6 million.
Organic Dairy Market Hurt by Low Prices, Rural Cooperatives magazine, USDA, 2010 - CROPP Cooperative, producers of Organic Valley products, formed the first organic dairy pool in the United States. When the recession hit, the organic dairy market dropped from a 25-percent growth rate down to no growth. In response, the cooperative implemented a mandatory supply reduction of 7 percent from the average of the last 3 years of milk production.
Organic Dairy Sector Evolves To Meet Changing Demand, Amber Waves, ERS, USDA, 2010 - Despite being more costly to produce, organic milk production more than tripled in 5 years. More recently, growth has slowed in the wake of the weaker U.S. economy.
Organic Exemption, Ag Marketing Service (AMS), USDA, 2005.
Organic Industry Overview, OTA, 2011.
Organic Industry Survey, OTA, 2010.
Organic Milk Sales Volume, ERS, USDA.
Organic Production, ERS, USDA.
Organic Retail Milk Prices, AMS, USDA.
Table 10. Organic Livestock and Poultry on Certified and Exempt Organic Farms: 2008, 2008 Organic Production Survey, National Ag Statistics Service (NASS), USDA, 2010.
Table 11. Organic Livestock and Poultry Products Sold on Certified and Exempt Organic Farms: 2008, 2008 Organic Production Survey, NASS, USDA, 2010.
Profile written May 2005 and reviewed January 2013.