New Zealand: Organic Milk Demand Outstrips Supply

When Fonterra launched a reboot of its organic programme in 2015, it did so on the Flipp farm in Manawatu. Ben Wonnacott, Deb Wonnacott, Bill Flipp and Matthew Kirkland.

There is a “crying demand” for organic milk but not enough cows to meet it, according to Bill Quinn of the Organic Dairy Hub Co-operative of New Zealand. He said New Zealand’s 17,000-strong organic cow herd is still much smaller than it was in 2010 when there were 29,000.

“The biggest issue with the domestic market is that we haven’t got 365 days’ supply. If it isn’t there for three weeks in winter, consumers will buy someone else’s product,” Quinn said.

The milk for the Lewis Road and Kapiti organic brands is sourced from the Organic Milk Hub and bottled in the same factory. To overcome the shortfall, the hub is boosting winter supply, with a further 130 per cent of June/July milk compared to last year.

There was an “unbelievable” level of enquiry from farmers interested in converting to organics. The hub would take on a further eight farmers this autumn. The hub supplies milk for a number of liquid organic brands, including Lewis Rd, Kapiti (a Fonterra brand), Puhoi and Meadow Fresh (both Goodman Fielder), and Zany Zeus.

Foodstuffs head of external relations Antoinette Laird said over the past 12 months organic milk sales had grown by 30 per cent and made up 4 per cent of all white milk sold in its stores.

Organic milk supply in New Zealand peaked in 2010 when 127 farmers signed contracts with Fonterra, but the dairy giant later cancelled them, citing high transport costs.

In recent years prices have skyrocketed, bringing fresh impetus to the market. For the 2016-17 season, Fonterra is paying organic farmers $9.20 per kilogram of milk solids, compared to its forecast of $6 per kg/MS for conventional farmers (not including the dividend).

Quinn said the hub took some credit for the premium paid by Fonterra to organic farmers, because the price they received coincided with the arrival of the hub and the higher prices it was offering. 

Fonterra refused to forecast what next season’s price will be, but Quinn believes it will rise above this season’s $9.20. It also declined to confirm the latest international price for organic milk powder, which was reported as being $14,000 per tonne last year, other than to say it remained “stable since the start of the season”.

ASB economist Nathan Penny said he would assume that, with a 30 per cent rise in conventional powder prices, organic powder would have risen at least 10 per cent. Asked if the rise in prices being paid to conventional farmers might see a brake on conversions to organics, a Fonterra spokesman said it was too early to tell.

“The organic milk price reflects the lower volatility in the organics markets where Fonterra operates. We are still seeing strong interest in converting to organics,” he said.

Fonterra had hoped to process an extra 600,000 kg/ms in this 2016-17 season, a figure it has met. It said there was a waiting list of farmers wanting to join its programme but would not say how many were already supplying the dairy giant. 

Lewis Rd founder Peter Cullinane said the long term prospects for organic dairy were positive. His own brand was growing at 30 per cent a year. 

“People are much more aware of the differences between different types of milk now compared to five years ago. They just used to think milk was milk.”

Sourcing organic milk was “always a problem. There’s only so much farmers and mother nature can do to keep pace with demand. It’s always problematic in small markets with rapid growth, but it should become more stable and predictable,” Cullinane said.

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Source: Stuff (08/03)