Talk to any dairy farmer and ask what worries them these days and they all say the same thing: it’s the low price of milk. But it’s not just conventional dairy farmers who are feeling the economic pinch. Organic milk prices are also down.
“We could be looking at, you know, a 15 percent pay cut in 2017 and ’18, as compared to the previous two or three years,” explained Bob Parsons, extension economist with the Department of Community Development and Applied Economics at the University of Vermont.
“And these are real dollars, and on top of that, organic farmers have been imposed a production quota … They get the organic price for about 90 to 95 percent of their milk and anything that they produce over that, they get the conventional milk price.”
Like the conventional milk market, there is also an oversupply of organic milk. But organic farmers are paid differently than conventional farmers, Parsons explains: organic farmers get yearly contracts for a base price, which provides some stability; for conventional farmers, the base price changes constantly.
“The biggest difference between conventional and organic milk [prices] is that organic producers are on a contract; ‘I will contract with you for one year at this base price.’ Conventional farmers have no idea what their base price is going to be next month,” Parsons said.
“So whereas conventional can go up and down throughout the year, once you have your contract, the organic producers know what they’re going [to] get for their milk for the coming months.”
Organic milk is still “a small part of the total milk market,” Parsons explains.
“The conventional milk market is where … 90 percent, you know, 92 percent of our milk is and it has to go to market from there somewhere. The organic, nationally, they have the advantage that if they have surplus milk, they take and dump it in the conventional market,” said Parsons, and that also contributes to the oversupply.
Vermont has just over 200 organic dairy farmers out of a total of around 775 dairy farms, Parsons says, but the organic farms still only produce about 8 percent of the state’s milk.
Many of the farmers who switched to organic for several reasons:
“One was the higher milk price. Two, was the stability of knowing what your price, milk price, was going to be,” Parsons said. “And three — and this is a big, big thing that we have to look at here in Vermont — is a lot of our small-scale farms that went organic would not be in business today had they not gone organic.
“They were able to maintain their same herd size, not make any changes to infrastructure — you know, they didn’t have to add onto the barn or build a new silo or buy any new specialized equipment. They could stay the same size without making any major investments to go organic and increase their income.”
Lower organic milk prices aren’t likely to put those farmers out of business, but they are less likely to make investments in machinery or barns this year. And Parsons says there are signs that the organic cooperatives are feeling optimistic and may take on more farms next year.
“When you look nationally and you talk to some of the processors and the co-ops, they think maybe in another year they’ll be taking on a few more farms,” Parsons said. “They were planning to take on some farms this year. They help those farms by paying a transition fee, kind of give them an extra payment, in the year that they’re transitioning from conventional to organic. And what they’re doing is continuing those transition fees.”
But those co-ops are not looking to sign on new producers.
“One of the things that is perplexing to a number of, you know, conventional producers is they would like to sign up for organic, but they don’t have a processor that’ll take them on,” Parsons said.
For dairy farmers, the only way to increase their income is to produce more milk, even when the prices are low and that’s what drives this oversupply of milk.
“There’s always this joke around dairy, [which] is: ‘What do you do when milk prices go up? You produce more milk. What do you do when milk prices go down? You produce more milk,'” Parsons said.
To understand that need to produce more milk, Parson said you have to look at the options each individual farm has: “‘On my farm, how do I increase revenue with the lower milk price? I don’t have any choice. I can add more cows’ — which is not what the industry needs. So until we have some farms going out of business and we have a cutting back of the dairy herd, that’s your major problem.”
Parsons said organic dairy farmers are still better off than their conventional neighbors, and that they can perhaps see the light at the end of the tunnel.
“I’m not sure what I would predict for the conventional in the next coming years,” Parsons said. “You know, we’ve got an industry that knows how to produce milk, but whenever your national milk supply increases at 2 percent a year and your national increase in consumption only increases 1 percent, we get extra milk.
“We have to send it to the overseas markets, and right now we’re sending about 13 percent of our milk production overseas.”
Increasing that overseas market could help, Parson says, but in the mean time dairy farms will continue to struggle.