October 20, 2017
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Organic dairy farmers ‘weathering the storm’ as milk prices drop, production quotas set

By Lauren Abbate, BDN Staff
Gabor Degre | BDN
Gabor Degre | BDN
Paul Philbrick, the owner of Ledge Rock Farm, sells milk to Organic Valley. Organic dairy farmers in Maine are seeing less money for the milk they produce due to a nationwide oversupply of organic milk.

When Paul Philbrick ceased operating his sawmill business, he was left with a barn and a need for a new profession. His younger brother ― a dairy farmer ― suggested he try his hand at raising a herd of organic dairy cows for milk production.

To Philbrick, organic dairy seemed like a solid prospect. He could raise a small herd of cows and enjoy a stable milk price that would be higher than the price paid to conventional dairy farmers.

In 2008 he started Ledge Rock Farm in Knox, and for the better part of the last nine years he’s reaped the benefits of his decision to go organic ― which requires farmers to follow specific regulations, such as prohibiting the use of chemical fertilizers and requiring that their cows are fed organic feed.

But in recent months, this hasn’t been the case, as an oversupply of product in the organic milk market is creating instability in prices and production ― leaving some farmers worrying what the future of their farm might look like.

“Where I’m at right now, I’m making sure the hired help gets paid, that the bills get paid and that’s it. [I’ve stopped] doing any projects. I wanted to add onto the barn, but I’m holding off on all of those projects,” Philbrick said. “That’s all I’m doing is breaking even, just trying to weather the storm.”

The downturn in production rates and pay price varies depending on the organic dairy processor farmers are selling their milk to, but the root of the problem stems from an oversupply situation that that has been brewing for over a year across the industry.

Two years ago, when processors were seeing an undersupply of organic milk to meet the demand, those in the organic dairy industry essentially put out a call to action for more dairy farmers to transition to organic.

“A lot of new farmers came into the marketplace,” Hans Eisenbeis, a spokesman for the cooperative milk processor Organic Valley said. “It wasn’t just us, everyone in the organic dairy industry said, ‘Oh my God, we can’t get enough milk, let’s go out and recruit some farmers.’ Everyone did that in a way and it directly influenced the oversupply situation that we’re in now.”

Less milk for a lower price

With more farmers in the market producing more milk, processors are trying to handle the oversupply situation by setting production quotas and decreasing the price farmers receive for their milk.

Organic Valley and Horizon are the two largest milk processors who purchase milk from Maine’s organic dairy farmers. According to the latest USDA data, there were 63 certified organic dairy farms in 2016, the latest year for which data is available.

Wisconsin-based Organic Valley buys milk from about 40 dairy farms in Maine. Their pay price is set annually by the cooperative’s board to try to create a stable price environment for their farmers. In some cases, this price is adjusted seasonally to reflect demand, and includes quality premiums depending on the product a farmer is producing, Eisenbeis said.

Nationally, the average Organic Valley pay price per hundredweight, which is about 12.6 gallons or 100 pounds, of milk is about $33.02, down from $34.10 in 2016. This year in Maine, the base pay price is $34 per hundredweight.

In an attempt to self-regulate before cutting prices, the cooperative voted to put a production quota in place in May ― setting a limit on how much milk they will accept from their farmers for the full pay price.

“It’s essentially, we don’t want you to create more milk than what you’ve agreed to,” Eisenbeis said.

In the past, Eisenbeis said the cooperative has generally been able to find a market for excess milk, but given the current oversupply conditions, that is no longer the case.

The limit is based on the average amount of milk a farm produced the previous year. If a farmer goes over that quota, the excess milk is purchased for about $20 less per hundredweight. When the quota was first put into place, Philbrick says he was docked for going over quota, but has since managed to stay in line with the quota because of the adverse effect the drought is having on his cow’s milk production. Nutrient-parched hay eaten by the cows results in lower milk production, but Philbrick said if that wasn’t the case he would have just dealt with being over quota.

In some other cases, farmers are having to reduce the size of their herd to stay on par with the quota.

“On most of the farms in Maine, you know your cows individually [and] putting them on the truck [for slaughter] is our worst day. And we’ve put a lot of the cows on the truck, more than we would have in the last two years. We’ve dropped our herd [size] 20 percent, and that’s a really hard thing to do,” South China organic dairy farmer Spencer Aitel said. Aitel runs Two Loons Farm with his wife and sells milk to Organic Valley.

Along with establishing the quota in May, the Organic Valley cooperative board also voted to take a $1 per hundredweight deduction from the pay price. In August that deduction was increased to $2. Eisenbeis classified these reductions as “temporary market-related deducts from payprice.”

Details surrounding the changes to Horizon’s pay price are not as clear. Horizon declined via email to share specific changes due to the “confidential nature” of their contracts with farmers, according to Farrah Lamoreaux, a public relations representative for Horizon.

Lamoreaux did say that the company has been evaluating its oversupply of organic milk, which has been above demand for about nine months to a year. In accordance with this oversupply, in May, Horizon made the decision to decrease the base pay price to farmers in some regions, after previously working with farmers on making voluntary cuts in production. Horizon could not comment on whether Maine was one of these of the affected regions, or what the decrease in price was.

A Maine dairy farmer who sells to Horizon, spoke to Bangor Daily News on the condition of anonymity, and said he has seen his price per hundredweight drop since the start of the year when his price was reduced by $1, in August he said the price cut increased to a $4 reduction per hundredweight. In addition to the drop in price, he has been operating under a five-percent reduction in production, which he said has forced him to get rid of animals to stay at that quota.

Under the current price, he is slated to lose $4,000 to $5,000 a month, leaving the future of his fourth generation family farm uncertain.

“We can’t plan ahead because we don’t know what the future hold. We can’t buy equipment or stuff like that,” he said. “There’s a big questions mark about whether things are going to work out. If it gets any worse, my son has even said things about wondering if he [still] wants to run the farm.”

Organic growth

Across the U.S. organic agriculture operations are on the rise, with USDA data showing a 13 percent increase in certified organic farms and businesses between 2015 and 2016. With this growth, organic dairy processors and farmers are having to wade through newly crowded territory in what used to be a niche market.

“We’re definitely in new territory here. In part, because the organic industry has never been bigger than it is now,” Hans Eisenbeis, a spokesman for Organic Valley said.

For Maine farmers though, it’s not exactly new territory. The Maine Organic Farmers and Gardeners Association has been certifying organic agriculture operations in some capacity since the late 1970s. The USDA’s National Organic Program which was established in the early 2000s, according to Dave Colson, MOFGA’s agriculture services director.

Following national trends, Colson said there has been a steady increase in recent years in dairy farmers becoming certified organic in Maine. Until recently, the increase in large part has been due to the stable milk price that organic processors have been able to offer, as opposed to the month to month pay changes conventional dairy farmers see.

“In the conventional market you actually don’t know what you’re going to be paid for the milk that you shipped until the milk check comes sometime in the future,” Colson said. “The joke on conventional milk pricing is there is only three people that ever knew how that works, and two are dead and one is too old to remember. It’s just so convoluted.”

Colson said he has heard from at least three farmers who were considering starting organic dairies in Maine, but are worried they won’t have a market for their milk given the current industry climate.

While there have been minor price drops and quotas in the organic milk market previously, nothing has been as uncertain or prolonged as the recent changes. Aitel, who has been an organic dairy farmer since the late 1990s, said in his experience, the price changes were generally always on the up.

This year, Aitel said his farm will be in a money losing position.

“[In the beginning] we rarely got a price change, and when we did, it was up,” he said. “It takes us all back to the scenario when we were all conventional dairy, which is wondering if we’re going to make it financially.”

On top of the quotas and decrease in prices, the high cost of producing organic milk is making the current situation even tighter for farmers. Under organic regulations, farmers must graze their herd on certified organic pasture and only use 100 percent organic feed ― which is more expensive than conventional practices. The use of growth hormones is prohibited in organic milk production, and cows must be on pasture for at least 120 days per year.

While the pay prices farmers receive are dropping, the cost of grain and other organic expenses have not. This year, the drought affecting parts of Maine is damaging the hay crop, causing hay prices to go up and making it harder for farmers to successfully graze their herd.

Mike Philbrick, Paul Philbrick’s brother, said if he was a conventional dairy farmer, he would be able to mitigate the challenges the drought was posing for his hay crop.

“Your grain price is so high, and we can’t use fertilizer. Which fertilizer is a wicked bargain. You could put fertilizer out there so fast and make grass grow so quickly,” he said. “It’s a crazy year isn’t it? It’s like the perfect storm.”

But with Maine’s ― and most of New England’s ― organic dairy farms maintaining smaller herds of dairy cows as compared to large farms in the western part of the country, folks in the organic dairy industry in Maine feel as though they’re feeling the consequences of an oversupply they didn’t cause.

“I think in Maine what we really need is an organic processor ourselves,” Colson said. “We basically make enough milk in Maine, both conventional and organic, to supply all the needs for all the dairy products in Maine. But the problem is most of it goes out of state for processing.”

Some are also wondering if the call-to-action put out by processors two years ago was the right move to make. “They should have been a little more conservative I guess,” Philbrick said.

Eisenbeis said Organic Valley is reviewing the quota and price at least monthly. The cooperative is hopeful that going forward they will be able to lift the quota, but for now they are just focused on keeping the cooperative stable for the benefit of all of their farmers.

“Are we worried? Yeah, we’re worried for sure,” he said. “We would love to see an upturn sooner rather than later, but it’s one of those situations where we hope for the best and prepare for the worst.”

In the meantime, Maine organic dairy farmers are just trying to make it through what they hope is a passing period of tough times. Philbrick doesn’t expect to see the industry turnaround for 2018, but is hoping 2019 will bring better prices and production levels.

If not, he said he’ll be looking for another profession once again.

Having been in the dairy business for over two decades, Aitel, now 63, said he and his wife are going to be sticking it out ― working longer hours themselves and hiring less paid help to weather their decrease in income.

But if he was young farmer just starting out, he said he wouldn’t be so sure about committing to organic dairy.

“If I were a 29 year old dairy person, I would think about starting to look around for other options,” Aitel, said. “We’re going to stick it out, but it’s only because we’re a bunch of crazies. Dairy farming does take a certain kind of crazy.”

 


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