pricing

[Guest guest]

In the most recent edition of The Northeast Organic Dairy Producers Alliance newsletter, Englebert, a New York organic dairy farmer who sells his milk to Organic Valley and who is a farmer representative on the National Organic Standards Board wrote this commentary which gives a great insight into the challenges faced by family farms in the northeast: Cheap organic milk at the expense of family farms -time for brands to "walk the talk"I've read with a great deal of interest the announcements about meetings, conferences, workshops, etc. that are being held to help organic dairy farmers deal with the high cost of organic grain, as if there is something fundamentally wrong with the way we are farming.. When I first heard last August about organic shelled corn selling for $500/ton, if you could even find any, I reacted the same way most people did. Namely, with disbelief, and that such a high price is no more sustainable than an extremely low price. After more thought, I eventually came to a different conclusion.I realized that never before in my lifetime had any agricultural commodity sold for parity price, never. And yet, here I was bemoaning the fact that organic crop producers were indeed receiving parity price for their grains, or higher (Parity price is the purchasing power of a particular commodity relative to a farmer's expenses such as wages, interest on debt, equipment, taxes and so forth. The Agricultural Adjustment Act of 1938 states that the parity price formula is "average prices received by farmers for agricultural commodities during the last ten years and is designed to gradually adjust relative parity prices of specific commodities".) I had a sense of disgust come over me, almost to the point of becoming a sense of guilt. Why? Because I, like so many other dairymen, have had it drummed into my head for so long that farmers didn't deserve any type of windfall, that I reacted in the fashion expected. I've always believed that receiving a fair price for your product was one of the tenets of organic agriculture, and instead of expressing gratitude that at least one group of organic farmers was doing so, I instinctively condemned the situation. Not anymore. A speaker at the NOFA-NY winter conference, Bobbe, president of OFARM, stated that in agriculture, low prices always bring down high prices. I hope that in organic agriculture a new set of expectations will arise, and high prices will bring up low prices. I think we have reached a turning point in all of agriculture, brought on mainly by the world reaching 'peak oil'. The perfect storm of high oil prices, a burgeoning world economy, the low value of the US dollar, and poor weather have all combined to change the pricing dynamics in all of agriculture, organic included. I don't see any of the variables returning to the old standards, ever. The land devoted to supplying ethanol plants with 'fuel' will continue to do so, even if the 'fuel' changes to crops other than corn. Those multi-million dollar plants weren't built to sit idle.While everyone points to organic grain prices as the culprit, since they are an easy and visible target, the fact of the matter is, grain prices are a small part of the economic squeeze facing organic dairymen. Here are conventional milk parity prices (produced by the USDA) for a few key months over the last five years (prices that farmers should receive to be viable measured in dollars per hundred pounds of milk (12 gallons equal 100 pounds of milk):Jan. '03 $33.00Jan. '04 $34.10Jan. '05 $35.10Jan. '06 $37.90Jan. '07 $38.80Aug. '07 $40.50Dec. '07 $41.50Jan. '08 $43.80In five years, parity price has gone up almost $11/cwt., and in just one month, almost $2.50/cwt. Organic grain prices have risen, but they are but a small part of the economic crunch facing organic dairymen, because the USDA parity prices for conventional milk do not take organic grain prices into account. If organic grain prices had any influence on the calculation, parity prices would be even higher. (Parity price is the purchasing power of a particular commodity relative to a farmer's expenses such as wages, interest on debt, equipment, taxes and so forth. The Agricultural Adjustment Act of 1938 states that the parity price formula is "average prices received by farmers for agricultural commodities during the last ten years and is designed to gradually adjust relative parity prices of specific commodities".) The situation on most organic dairy farms is far more serious than grain prices alone indicate. Parity price represents an unbiased, accurate basis for establishing an organic pay price. The USDA publishes parity prices at the end of every month, and they represent a level of worth that would allow farmers to live like 1st class citizens, rather than the 2nd, or even 3rd, class people we are now. A true measure of our worth to society should be reflected by us receiving a fair share of what consumers spend on organic dairy products. The fact that organic dairy farmers receive a smaller percentage of the consumer dollar than conventional dairy farmers is simply disgraceful. Absolutely disgraceful. On our farm, we are dealing with high grain prices the same as everyone else; namely, we're feeding less. Even though we grow our own grain, we still push a pencil and feed as if we had to purchase our supply. So, we feed only 2.5 lbs. of roasted soybeans, and no shelled corn, ear corn, or any other grain to our milking string. Due to the extremely dry weather last year, we had to hire some corn silage chopped to have enough forage, so we're feeding 20-25 lbs. per day to our animals. If parity prices were 'reversed', that is, if organic grain prices were only 50-60% of parity and organic milk was at parity or above, we would be feeding more grain, to try to maximize the return on our time and investment. Instead, rather than put grain through our cows, we recognize more profit by selling most of the supply we produced.Much of the discussion I hear about how to deal with the situation revolves around changes farmers should make in their operations. I would urge everyone to give serious thought before making any major adjustments. While everyone should do their utmost to produce high quality pasture and forage crops, most farms in the Northeast don't have land that lends itself well to grain production, and to fight to grow crops where they aren't suited usually leads to trouble. Growing grains requires a lot of time, investment in machinery, many purchased inputs, enough storage facilities to hold a year round supply, and detailed planning, even for small grains. Most farmers who concentrate on their cows will suffer if they start expending a lot of effort to grow grain. Milking times will become more shuffled, herd health may not be tended to as well as in the past, family activities will lessen, and stress levels will rise. There are many factors to growing grain that are easy to overlook and hard to put into an equation. Breeding animals that require less grain takes time, and may result in a reduced cash flow situation, unless more are milked. In short, growing grain may make many family farms unsustainable in terms of finances, soils, and / or family life, which usually plays a large role in determining whether the next generation takes over the family farm.The problem then, comes back to the same old story - dairy farmers are not receiving enough money for their efforts. The best, long term solution remains receiving a fair price for our organic milk. The price wars going on are a result of the milk companies still not understanding the organic consumer. Some are losing market share, and in the conventional world the standby answer to that problem has always been to lower prices. Most consumers of conventional dairy are looking for the lowest cost products, and don't have a great deal of brand loyalty. As a general rule, organic consumers do not follow that mindset, especially as they learn more about organic agriculture. The truth continues to spread about companies who 'talk-the-talk', but do not 'walk-the-walk', and when organic consumers learn the truth, they switch brands and do not return, no matter how low the price. In fact, lowering the retail price during times such as these actually may have the opposite effect. Organic consumers begin to wonder why such a huge difference in selling price, and when they find out they've been 'had', they change brands, permanently. So, even though lowering the retail price may bring on customers new to organics, they will eventually leave that brand. If they feel too betrayed, they may even go back to conventional milk, or an 'all natural' brand.So, what the present situation all boils down to has been stated before: the organic milk market cannot develop properly when fraudulent, illegal milk is allowed to be marketed as organic. The corruption at the upper levels of the USDA has resulted directly in hardship for organic dairy farmers who follow the letter, and the intent, of the Organic Rule. If the courts take the correct action, "organic" feedlot operations will be closed down, and the organic milk supply can once again develop in the proper fashion. If the courts are also corrupt, and thereby fail to protect the citizens, then in all likelihood, we will begin making plans to exit the business of commercial organic milk production. Organic agriculture, to fulfill its promise to all who have placed their trust in its ideals, must follow a different model than conventional agriculture, not only in how food is produced, but also in how farmers are compensated for their time, effort, and investment.These comments were written as an organic dairy farmer, not as a member of the NOSB. Nothing should be construed to represent the NOSB, the NOP, nor the USDA in any way, shape, form, or manner.Sincerely, K. Engelbert