Organic producers unhappy with milk premium changes

Tuesday, August 5, 2008

by SUSAN MANN

Organic dairy farmers are unhappy with changes Dairy Farmers of Ontario made recently to organic premium payments they receive on milk production, says Lawrence Andres, owner of Listowel-based Harmony Organic.

A surplus in organic milk production meant DFO had to change the way the organic premium is calculated. Starting June 1, DFO began paying the 23 per cent premium only on the organic milk used as organic. Farmers get a blend premium based on the percentage of organic milk used as organic.

Before June 1 organic dairy farmers received the additional 23 per cent premium on the total value of the organic milk shipped from their farm, says Dave Nolan, DFO’s director of marketing logistics.

The change means organic dairy farmers’ incomes will go down but Nolan says he didn’t know the average decrease.

Farmers are very unhappy with the change, Andres says. They depend on the 23-per-cent premium to pay for the extra expenses of producing organic milk, such as organic certification and organic feed. “The feed is really expensive.”

About the premium, Andres says: “It’s not gravy. It is absolutely needed for the extra expenses.”

Nolan notes there has been a little reaction from producers. But “by and large the farmers seem to understand and appreciate the circumstances,” Nolan adds, explaining farmers understand that DFO and others in the organic industry are working to grow the demand for organic milk.

Just how much of a surplus is there? “I don’t want to reveal that to you at this time,” Nolan says. The surplus organic milk goes into conventional milk and processors don’t have to pay extra for it nor do they know it’s organic.

DFO couldn’t afford to keep paying farmers a premium on all organic milk production because it doesn’t receive a premium from processors on organic milk that’s funneled into the conventional milk stream. “We don’t receive a premium from processors so we don’t have the funds to pay the producers,” he says.

When the milk is used for its organic properties, processors pay a 29 cents a litre in addition to the cost of the raw milk, which is priced depending on what class it’s used in. 

There are 54 organic milk producers in Ontario producing about two million litres each month. About one per cent of the 2.4 billion litres of milk produced in Ontario is organic.

Because organic is a small segment of the entire milk market, the “supply and demand is going to continue to have peaks and valleys,” Nolan explains. Six months ago the demand outpaced supply and everyone in the organic industry worked to increase supply by encouraging more farmers to produce for the organic market.

New production coming on quicker than expected and a processor temporarily stopping its organic milk purchases are the factors that have lead to the surplus.

But Nolan says those in the organic milk business are hopeful the supply/demand picture will change in six months and all the production will be utilized.

Andres says the surplus may be partly reduced by the fall because “the adverse weather situation this year has a regulating effect on milk production.” Poor forage quality means many herds’ milk production is down. BF