By Heather Haddon and Benjamin Parkin
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 3, 2018).
Organic milk sales have cooled as the very shoppers who drove
demand for the specialty product not long ago move on to newer
alternatives, leaving dairy sellers and producers grappling with
oversupply.
A yearslong surge in demand prompted food companies and dairy
farmers to invest in organic production, which requires eschewing
pesticides and antibiotics and allowing cows to graze freely. Now,
organic-milk supplies have ballooned just as demand has stalled.
Many shoppers have moved on to substitutes such as almond "milk,"
which contain no dairy.
Packaged-food companies that invested in producing organic milk
are cutting capacity or looking to turn it into cheese or other
products. Grocery stores that rushed to stock organic milk have
eased purchases and allotted more dairy-case space to plant-based
alternatives. Dairy cooperatives are slashing prices paid to
farmers, setting quotas and even selling organic milk as
conventional dairy.
"It's reached a market saturation," said Evan Rainwater, senior
vice president for manufacturing at supermarket chain Albertsons
Cos. Wal-Mart Stores Inc. and other big chains made the product
available so widely so quickly, that organic milk became less of a
specialty item, Mr. Rainwater said.
Kroger Co. is shifting more shelf space from organic milk to
nondairy and plant-based alternatives, a spokeswoman said. Wal-Mart
officials said they have seen demand for plant-based beverages
grow, while organic milk isn't on the same upswing that it once
was.
Dairy-industry executives say their forecasts were off for
organic-milk demand continuing at the initial pace, but also blamed
almond, coconut and other plant-based milks for grabbing market
share to an unexpected degree. Lactose has also emerged as one of
the leading allergens shoppers are looking to avoid, according to
Nielsen.
Companies with heavy organic dairy product portfolios are
responding to the shift.
Danone S.A., the French food company that acquired a stable of
organic dairy products with its purchase of WhiteWave Foods Co. in
2016, is turning some of its organic milk into organic cheese,
yogurt or creamer.
"The premium dairy business continues to be pressured by the
industry's oversupply of organic milk," Danone CFO Cécile Cabanis
said this fall. "We continue to take steps to reduce our
organic-milk supplies."
Organic Valley, the largest U.S. farmers' organic cooperative,
has lowered the prices it pays to its nearly 2,000 members twice
since 2016. The cooperative formed a joint venture with dairy
processor Dean Foods Co. in 2016 to place organic milk in more
stores.
Organic Valley also opened a $16 million plant in Oregon in
August to help diversify its offerings, including turning organic
milk into butter and skim-milk powder.
"The market slowed way down," said George Siemon, Organic
Valley's chief executive. "There are a lot of signals I may have
missed in hindsight."
Dairy industry executives project that the supply and demand
imbalance will eventually even out. Mr. Siemon said he expects
prices to stabilize this year and improve in 2019.
Organic milk had been a bright spot for the beleaguered dairy
industry. Fluid milk consumption has been declining for decades and
stood a fifth lower in 2016 than two decades earlier, according to
the U.S. Department of Agriculture. Sales of organic milk,
meanwhile, climbed for more than three years consecutively through
2016 thanks to younger consumers and new parents who viewed it as
healthier than conventional dairy.
A spike in global demand for U.S. dairy pushed milk prices to
record highs in 2014, prompting both conventional and organic
dairies to expand. The national herd of cows raised to produce
organic milk rose to more than 267,500 in 2016, more than a third
higher than in 2011, according to the USDA.
The honeymoon ended in 2017. Organic milk sales fell in volume
and dollar terms for the first time since at least 2013, Nielsen
data shows. Organic milk sales at select grocery and convenience
stores peaked at more than $1.42 billion in 2016, falling to $1.37
billion in 2017, according to Nielsen sales figures.
Demand sagged just as the added capacity came on line, farmers
and retailers said.
One big reason: competition from new alternatives to
conventional dairy, including milk from grass-fed cows and nondairy
options like almond and cashew "milk," which consumers increasingly
perceive as being healthier. They also tend to be cheaper than
organic milk, said Jordan Rost, Nielsen's vice price of consumer
insights.
Kay Santiago, a retired IT assistant, said she prefers organic
but buys soymilk instead because it is less expensive. Organic milk
"tastes so much better," the 55-year-old said as she shopped
recently at a Whole Foods Market in Chicago.
The dairy industry has pushed back at the intrusion of
plant-based alternatives, lobbying the federal government and
Congress to limit food labels using terms like milk and yogurt to
products with animal milk. Plant-based foods have formed their own
lobbying efforts in response.
Regardless, dairy farmers who invested to produce more expensive
organic milk have been hit particularly hard. A dairy farmer who
received nearly $40 per 100 pounds of organic milk at the start of
2016 -- more than double the price of conventional milk -- received
about $27 per 100 pounds in late 2017, according to government and
dairy-cooperative data collected by Rabobank.
Liz Bawden, who milks around 60 cows in St. Lawrence County,
N.Y., said the price she earns for organic milk has fallen by
around a quarter over the past year. "It's a big hit," Ms. Bawden
said.
Some farmers are taking drastic measures to survive. Sean
Mallett, owner of Harmony Organic Dairy in Twin Falls, Idaho, is
sending some of the cows he added to his herd in recent years to
slaughter before the end of their milking life.
"I'm having to basically cull good, productive animals," Mr.
Mallett said.
Write to Heather Haddon at heather.haddon@wsj.com and Benjamin
Parkin at Benjamin.Parkin@wsj.com
(END) Dow Jones Newswires
January 03, 2018 02:47 ET (07:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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