Organic milk sector extends premium over conventional market

Price volatility for dairy farmers in the organic sector has been less extreme than the conventional market in the past year, with falls in organic farmgate milk prices much less severe.

This is due to a contraction in the organic milk pool, limiting supply, combined with strong opportunities for value added organic exports.

The UK’s organic milk pool has dropped from 480m litres to less than 370m litres in the past 18 months to two years, according to industry figures, and is forecast to drop further this year.

See also: Losses build for dairy farmers as milk prices drop to 35p/litre

Looking at exports, the US remains a key market for UK organic products, however the Middle East, South Korea, and Singapore also offer valuable new outlets.

Arla is currently paying a 5p/litre premium to its organic producers, while Muller will pay a 10p/litre premium for organic milk in July.

Major organic dairy co-operative Omsco has maintained its milk price at 49p/litre since the start of the year, extending its premium over conventional prices and offering its members a more stable return.

Support 

Martyn Anthony, Omsco’s chief executive officer told Farmers Weekly the co-operative has sought to support its farmers against the backdrop of a diminishing overall organic milk pool in the UK.

“At a time when the cost-of-living crisis is impacting on dairy sales in general, demand for high quality organic products, although down, remains relatively strong and yet supply is becoming more constrained,” he said.

Farming is a long-term business, he added, and as such farmers generally want a stable milk price to help them plan and invest for future growth, rather than one that moves strongly up and down.

“At a time when there is so much volatility in the market, we and our customers understand that if we don’t behave appropriately now, the organic milk pool might not be there in 12 to 24 months,” said Mr Anthony.

“Overall, I believe the long-term outlook for organic dairy looks good; the market has just got to get its head around the fact that it might cost a little bit more to keep that organic product on the shelves.”

Adding value

There is still a high proportion of organic milk that is going into the liquid market, which offers less value added.

“We believe the right place to put organic milk is in value added products and deliver better value for our members, while still supporting our liquid customers,” said Mr Anthony.