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Organic Pay Price, December 2011

Update

ADDED December 6, 2011

There are two national organic procurement companies, Organic Valley/CROPP Cooperative (CROPP/OV) and Horizon Organic/WhiteWave. There are also some smaller regional groups of up to 50 producers such as LOFCO, Natural By Nature and Upstate Niagara, smaller cooperatives/companies, individual processors such as Butterworks Farm, Strafford Organic Creamery and Empire Organics, and a few established dairies that are expanding into organics such as Foster Farms and Cloverland Dairy.

Organic Valley/CROPP Cooperative pay price is decided annually at its December meeting by its producer-owner board.

Horizon Organic/WhiteWave negotiates individually with each producer.

Horizon Organic

During 2009 and early 2010, Horizon reported that many producers cooperated with voluntary requests for a 5% or more drop in production; that they did not terminate contracts, and honored contracts given to transitioning producers. They are now encouraging producers to increase production and have increased their pay price by adding $1.50 to their MAP for the 6 Northeast states from August 2011 to March 2012. Horizon has maintained its base pay price; an average base of $25/cwt in the northeast and a $3/cwt premium in October, November, December and January, although there is some variation in contracted pay-price. The contracts that Horizon is presenting to its producers have changed between 2008 and 2009. Some changes are:

  • Horizon representatives have complete access to organic files at the certifier’s office and elsewhere;
  • The company is able to terminate or suspend the contract immediately if the company believes the producer’s certifier “has questioned or is investigating” any part of the Organic Systems Plan for non-compliance;
  • Horizon can change the pay-price for an individual producer with 30 days notice and they only need a written agreement from the producer if the amount is greater than 25% of the new base price;
  • Horizon can terminate the contract if the producer can only supply 80% of the agreed volume and producers need company approval for any increase over 20%;
  • Horizon retains the right to decrease the agreed base volume they will purchase by up to 20% with 90 days notice;
  • Horizon retains the right to charge for hauling (currently there is no hauling charge);
  • Horizon has the ability to terminate for cause if the producer “engages in any activity which is not consistent with the principles underlying organic production” or if “that activity is subject to any publicity (including media or internet).”
  • Horizon has retained the “Mutual Confidentiality” clause that allows the producer to consult only with professional advisors on contract conditions and restricts their right to share information with other producers.

As Horizon renews contracts they will favor those producers who are located near processing plants, have consistently good quality milk tests, and have a good relationship with the company. Horizon says it needs the contract changes in order to compete against other companies in buying raw milk. Many producers are concerned that the contracts are now more restrictive and give the company more power to alter their agreements as market conditions change. In the competitive market for milk, producers may be able to obtain changes to the standard contract.

Organic Valley

OV sales in 2009 were $523 million, down 1.3 percent from the previous year, and it was the first time the 23-year-old company had experienced lower year-over-year sales. 2010 sales were $621 million slightly down from the November projection of about $630 million in sales for 2010, although in line with previous projections in September ($622 million) and in June ($603 million).

Organic Valley has a new agreement with Stonyfield which will add about $60 million to its 2010 annual sales for production of Greek style yoghurt and the expansion of its New York Fresh brand bottled at Elmhurst Dairy in NY. Members of Organic Valley, including the new members from the Stonyfield pool, received their 13th check for $0.47 per hundred pounds in June. In response to the increased on-farm costs in 2011, the CROPP/OV Board voted to pay out the profit sharing portion for the farmers with a 100% cash payment instead of the traditional 20% cash with the balance in Preferred Stock E-2. This cash payment was sent out this summer and was equal to approximately 16 cents/cwt for all milk shipped in 2010. Farmers have the option of investing money from their cash payment back into Preferred Stock.

In addition, the CROPP/OV Board decided to increase pay price which equals a cooperative-wide cost of $1/cwt through the end of the year. The increase came in the following 3 parts, and started on August 1, 2011:

  • Increase butterfat component premium from $1.95 to $2.00/#, which will represent a $0.20/cwt increase coop wide
  • Add $0.30/cwt to the present national premium
  • Pay a $.50/cwt Market Adjustment Premium (MAP).

Their Northeast pay price has changed to:

Base Component Price: $27.12/cwt.
Based on component levels of 3.5% Butterfat; 3.05% Protein; 5.65% Other Solids

COMPONENT PRICING:
CROPP will use a pay price program based on product utilization.
Butterfat $ 2.00 per pound
Protein $1.86 per pound
Other Solids $1.65 per pound
MARKET ADJUSTMENT PREMIUM: $0.50 per cwt

HAULING:
There IS a $180.00 ($2,160/ year) stop charge per month for CROPP producers.

SEASONAL PAY PRICE VARIABILITY:

  • A $1.00/cwt deduct in pay price will be applied for the months of May, June and July to offset the financial burden of spring flush utilization, transportation and inventory allowance.
  • A $3.00/cwt increase in pay price for all milk that is received in January, February and December 2011.

DAIRY POOL CAPITAL BASE PLAN:
To meet the requirements of the Dairy Pool Capital Base Plan, CROPP farmers are required to purchase preferred stock equivalent to 5.5% of their annual base gross income. Calculation of this is based on:

  • The pay program of the Member’s region
  • The individual Member’s components
  • The Member’s established production base

OV is discussing new policies on off-farm diversion, farm conditions, cooperative conduct and maximum herd size. OV is also being pro-active with their own animal care program in anticipation of the work of the NOSB and concerns of customers. CROPP is watching the increase in feed prices and working with its members in anticipation of expected rise in price and availability of quality feed. CROPP is looking to simplify its programs and stabilize its component payments.