Organic Producers tough it out in uncertain times

Low premiums and high feed costs are forcing some organic milk producers back to conventional production. And according to The Dairy Group's Mike Palacio, several producers have already left or are considering leaving the organic sector.

With high feed prices and a reducing premium in relation to conventional milk prices, organic dairy businesses are in a difficult position. "The price has come down from 35p/litre in the past six months and for a herd producing 2m litres a year, that's an £80,000 hit", says Mr Palacio.

Two and a half years ago, the organic milk premium was about 10p/litre, when organic feed prices were nowhere near as high as they are now in relation to conventional feed costs. Currently organic feed costs between £360 and £425/t and the premium for organic milk is down to between 3p and 7p/litre.

Organic milk supply has in the past suffered from too many converters moving into the sector at a time of high premiums only to find by the time they have completed conversion, so many more have done the same that premiums are quickly eroded.

"We have no new dairy converters at present. Once the conventional milk price went back up to 25p/litre, the interest in organic conversion evaporated, "says Mr Palacio.

There were just 5m litres of milk in conversion in 2008, says the Soil Association's Phil Stocker. He suggests, with so few converters last year there will be opportunities for a limited number of conversions, so those producers may be ready to take advantage of an improvement in demand when the recession ends.