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Strategies for a Sustainable Pay Price for Organic Dairy: Field Days Session Summary

By Tamara Scully, NODPA News contributing writer

L-R: Jim Goodman, Siena Chrisman, Sharad Mathur, Tade Sullivan, Dan Smith, Ed Maltby

A panel of industry experts focused on one of the primary concerns organic dairy farmers have today - pay price - at the NODPA 2022 Field Days this past September. The session featured Sharad Mathur, Dairy Farmers of America (DFA); Dan Smith, New England Dairy Compact; Jim Goodman and Siena Chrisman, National Family Farm Coalition (NFFC); and Tade Sullivan, Maine Dairy Industry Association (MDIA).The following is a transcript from the session’s recording.

NODPA Executive Director Ed Maltby opened the session by emphasizing its relevancy today, as organic dairy farmers are struggling with high costs of production and low pay price. He noted that the USDA’s program to transition dairy farmers to certified organic production - the Organic Transition Initiative (https://www.farmers.gov/organic-transition-initiative) announced in August - is funded by billions of dollars, yet there is little if any money designated to assist the current organic dairy farmers, despite their ongoing struggles.

“Where is the priority there?” It is becoming increasingly necessary, as organic dairy matures, and heads further down the path to being a commodity, to look at different ways to survive, Maltby said. “If a market price isn’t going to sustain organic dairy farms in the Northeast, and across the country... then what do we need to look to the government to do; what programs are successful; are there answers on the State level; on the Federal level? Are there any answers at all?”

Industry Solutions

Sharad Mathur - speaking for himself, and not officially representing DFA - acknowledged that issues facing today’s small and mid-sized family organic dairy farmer are numerous. In the Northeast, smaller dairies and long distances between farms are a primary concern. “There are so many challenges. Farms are scattered all over the place. Farm size is a big issue. Load size going from state to state is a big problem,” he said.

A plant, that could be located somewhere in the Northeast and owned collectively by the farmers for processing organic milk from the region, is a very good idea. Branding the milk as a regional product is an important first step, even before shovels are put in the ground.

“It’s easy to build a plant. It’s hard to build a brand. First build a brand, co-pack and market the products, and after that, build a plant,” he said. “The plant would take two or three years to build, so doing so while simultaneously building the brand is a good option.”

Based on his experience, this method worked for Natural by Nature, and also for Fage, both of which were co-packed for years before they needed to build their own plant. Other brands built plants first, and then their products didn’t sell. That, he says, should be a warning. “The brand was built first, and then the plant came,” he said of these - and other- success stories in dairy processing.

Hauling is another major concern for organic dairy in the Northeast. If cooperative members don’t pay for hauling, the cost must be absorbed by the processor from sales. But if producers are charged for hauling, they’d receive a higher pay price, and “at least you would have known how much it cost to get the milk from your farm to your plant,” Mathur said. “The only solution is if we can figure out how to get the milk picked up together, regardless of who is processing it, or whose member you are.”

In Mathur’s experience, concerns about milk quality seem to be the biggest hurdle to co-hauling. But most organic farms in the region are high-quality farms, and there should be solutions to overcome this hesitancy by farmers. Balancing the milk is also an issue, as any over-production of organic milk currently goes into conventional products, and the organic’s value-added premium is therefore lost. Processing any oversupply of organic milk into organic dairy products is the solution.

Conventional processors in the Northeast swap and transfer milk regularly, despite being competitors. This benefits the companies, but also the farmers who have a market for their milk even if their own processor’s milk supply is overabundant, or not. By working together to keep the region’s milk balanced, everybody wins, Mathur said.

Technology, as well as economies of scale, has put pressure on small dairy farmers. Now that ultra-high temperature pasteurized milk can last for six months, and even standard milk can now have a shelf life of more than 22 days after packaging; delivering dairy products to local, rural areas is no longer an issue for larger, more-distant plants. The smaller processors, located in rural communities, were no longer able to compete.

State Level Initiative

Dan Smith, who has worked on milk pricing at the Vermont legislative level for many years, discussed some new initiatives from Vermont aimed at keeping dairy farmers in business. The loss of dairy farms in the past 20 years has been of great concern- about two-thirds of Vermont dairy farms have closed.

Historically, all of Vermont’s milk went to Boston, with 10 percent staying in-state. And almost all of this was fluid.

In the past several decades, that has changed, and the Vermont milk market is no longer so simple. The legislative ability of Vermont to regulate the milk pricing was nominal, as that occurs in the state where the milk is purchased.

Now, however, the milk market in Vermont has been transformed. Vermont now has regulatory authority over milk pricing, as approximately 60 percent of the milk produced in the state is currently being used by processors located in Vermont.

“When you add the on-farm processing and the smaller scale plants, it’s bumped up even more than that,” Smith said. “But at the same time, the state is shedding farmers.”

Vermont is trying to find out how to keep dairy farmers in operation, by looking at how the processing plants are paying for the milk, creating a task force to investigate the issue. While the volume of organic milk that’s produced in Vermont is not a significant number, the number of organic dairy farms is, he said.

While an exemption from the existing FMMO might be in order for the organic dairy industry, and is probably going to be considered in the next Farm Bill, it is important to know what is actually occurring in the organic dairy sector before implementing changes.

“As Class 1 sales continue to decline, the pool may actually work to the benefit” of organic dairy processors as there now is more organic value-added dairy processing, Smith said.

Tade Sullivan, who grew up on a generational dairy farm in New York, and now works on dairy policy in Maine, discussed how Maine is attempting to address ongoing issues in the dairy market. There are 177 dairy farms in Maine, with 56 certified organic. Maine’s organic dairies produce about 4.8 million pound of milk per month, which is known because the State collects production data.

Maine produces about as much milk as it consumes and isn’t controlled by the FMMO. Instead, they have their own State level system, which is governed by the Maine Milk Commission, and has been since 1935. It was established to benefit consumers, establishing minimum prices at the retail level, which are reviewed on a monthly basis.

Addressing the price the farmers are paid, and the cost of production, is a part of the Maine Dairy Stabilization "Tier" Program, in effect since 2004. The program is based on conventional pricing. A cost of production survey is conducted every three years - 2020 was the latest one - by the Maine Milk Commission. “It is intended to provide some assistance to producers when prices are bad,” Sullivan said. “In June, everybody starts over at Tier One. Some farmers never break the threshold, but there may be farm, on the larger side, that break that Tier One threshold the first month.”

An over-order price is based off the Federal Order, and is calculated based on the farmer’s tier, to create a State price. The monthly price is compared against the cost of production. Money comes from the Maine State Legislature’s General Fund.

“We are not calculating these payments based on individual payments to a farmer. It’s all based on an aggregate,” Sullivan said. “It does not make anybody whole. But it’s a tool to help dairy farmers in the State of Maine. It doesn’t account for the differences that I know every one of you experiences as organic producers.”

Organic producers receive Tier payments regardless of any premium they may receive from their processor, but they receive payments based on conventional cost of production levels. Those selling farm-gate milk are not in the program, as it is based on milk sold into the market.

National Advocacy

Jim Goodman and Siena Chrisman addressed solutions on the national level. The National Family Farm Coalition (NFFC) has been representing all family dairy farmers, conventional and organic. “We believe the best organic industry has strong rules everyone has to follow. We’ve always opposed industry consolidation because we think that takes away market power from farmers and market access for consumers,” Goodman said.

In 2019, the NFFC launched the Milk from Family Dairies Act, which is all about fair pricing for farmers, as well as stable, quality milk supply and fair consumer pricing.

“Over the course of developing this Act, the market has really changed,” Chrisman said. “Organic farmers in the Northeast still felt pretty cushioned by the premium, and by the way your markets managed their supply.”

The Act has three main concerns: fair farmer pricing based on their cost of production; a balance of supply and demand; and better dairy import and export control. Additionally, the Act promotes measures to break up concentration in the market, and to strengthen regional dairy structure. Increased enforcement of organic standards “would really go a long way towards shrinking the power of large, organic operations,” Chrisman said.

The Act would include the establishment of a board made up of dairy farmers. They would use existing USDA-ERS data, based on farm size and costs of production, to determine farmer pay pricing. Organic dairy could be handled separately from conventional. Regional farm boards could adjust the prices up, as needed, based on regional price differences.

“Each farmer will determine their production base, which is the amount of milk each farmer could sell into the market,” which once established follows the farmers, not the farm. These production bases cannot be bought, sold or combined, in an effort to curb consolidation, Chrisman said, and is an alternative to quotas, which have not worked in other industries.

“We are trying to correct for that,” she said, “and to avoid the high prices we see in other markets.”

Whether any of these solutions can effectively assist organic dairy farmers remain viable by buffering against unfavorable market forces remains unknown. But changes are needed to keep the once-thriving, family organic dairy farms in the Northeast, and other regions, alive.

“Feed inputs aren’t going to come down in price. There is no magic silver bullet. It’s going to take time to improve genetics, it’s going to take time to improve the quality of your pasture,” Maltby said. “What we’re trying to do here is to put out different ideas that can be taken by NODPA and other groups and individuals, from state, to regional, to federal levels, to stem the flow of losing organic dairy farmers.”

Contact information for the presenters can be obtained by contacting NODPA at 413-772-0444.