Problems in the Organic Milk Industry

Apparently there is something afoot in the organic milk industry.  According to the New York Times and other news outlets there is an impending shortage of organic milk.  In the New York Times article the culprit is fingered as rising production costs associated with the organic feed necessary to sell milk that is certified as organic.  The rising prices are also a product of the interplay between supply and demand.  Sorry to take people back to the economics course taken in the first year of college, but as demand goes up and the rate of increase in supply does not match prices will rise.  The invisible hand is so insidious.

Some of the other news outlets have painted a picture of shortages and dramatically rising prices.  On my weekly trip to Hy-Vee this is what the organic milk section in the Health Market looked like:

Sorry for the poor picture.  It was taken via cell phone camera with the awesome fluorescent lighting of a grocery store.

And the price was the same as I have been paying in recent memory.  I usually purchase a gallon of Organic Valley skim milk for $6.  Organic Valley is mentioned in the article linked above as having raised the price it pays per hundredweight of milk for the first time since 2008 and planning to do so again in 2012 in order to combat the trend of conversion back to conventional dairy farming.

In part, I choose to purchase Organic Valley products because the company is located in La Farge, WI which is approximately 150 miles from my home.  There are dairy operations closer, but none are widely available and organic.  Seeing that the company is making an active effort to combat the poor economic situation of dairy farmers makes me feel better.

As someone who is related to dairy farmers in Ohio, I know firsthand how slim the margin between a good year and a bad year can be.  Most of the time when a consumer sees an increase in the price of a gallon of milk in the refrigerator case that extra money is not making its way back to the dairy farmer.  Like a lot of packaged foods, it is eaten up by the vast machine that distributes and markets the product.  Just think about how ConAgra takes commodity corn and turns it into profitable “food” products.  On second thought, if you want to sleep tonight do not think about how ConAgra takes commodity corn and turns it into “food” products.

The articles point out that the shortage is an issue more regionally than nationally with some areas facing shortages that are combatted by shipping milk across time zones.  Maybe that accounts for the relative abundance of products that I see on my store shelves and the lack of price increases.

Or, this is a temporary aberration that will be corrected by market forces as more organic milk comes onto the market.  Considering it takes three years for a farm to become certified organic it is reasonable to assume that the aftershocks of price increases will take a while to work out of the system.  But looking back at other agricultural products that have seen large price spikes and have similar wait times for new supply to hit the market—e.g. coffee—there could be a downturn in prices ahead.  Who knows?

Apparently, the problem is not limited to organic milk.  Milk was the commodity that had the biggest price increase last year.

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2 responses to “Problems in the Organic Milk Industry

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