Organic dairy woes show system ‘vulnerabilities’

By Ching Lee
California Farm Bureau

With their pastures starting to grow and new government assistance programs being rolled out, California organic dairy farmers are beginning to see a glimmer of relief.

Skyrocketing production costs, especially for organic feed, have pummeled organic dairies during the past two years, forcing some to sell their cows and leave the business.

Their plight got the attention of the U.S. Department of Agriculture, which last month offered up to $100 million in financial aid through the newly created Organic Dairy Marketing Assistance Program.

Perhaps more importantly, their economic hardships spotlighted some of the unique challenges that organic dairies face and gave way to “a political willingness” to help them, said Laetitia Benador, senior policy research specialist for Santa Cruz-based California Certified Organic Farmers.

“What these crises do is they really reveal the vulnerabilities in the system,” she said.

USDA’s assistance program, the funds of which are expected to be released in late spring or early summer, is intended to target small to medium-sized organic dairies. Administered by the USDA Farm Service Agency, payments go up to $40,000 and are capped at the first 5 million pounds of milk production. USDA said the amount is meant to cover up to 75% of a farm’s projected marketing costs in 2023.

Even before their current problems, organic dairy farmers have been struggling with thin margins for several years, Benador said. The state’s multiyear drought brought greater financial challenges as the availability of organic feed dwindled, with grain and hay costs climbing 30% to 60%.

Because of reduced irrigation water from the city of Santa Rosa, Sonoma County dairy farmer Doug Beretta was forced to fallow nearly 40 acres of silage crops used to feed his cows. The drought also cut his pasture season short.

Grazing ended in August last year when Beretta’s cows usually can stay on grass until the end of September. That meant having to buy more hay. Unable to afford the steep prices, he said, he was forced to sell more than 80 animals because he knew he would run short on feed.

Milking fewer cows reduced milk flow. The drought also affected the quality of the alfalfa hay he purchased, Beretta said, and that further cut milk production. “You could see it in the milk tank,” he said.

Due to water shortages, there was less hay being grown. Some organic hay farmers switched to growing conventional hay, recognizing that they could get more yield, said Dayna Ghirardelli, executive director of the Sonoma County Farm Bureau.

Competition for supply grew fierce among livestock owners—organic and conventional. She noted how the hay shortage forced some conventional livestock owners to buy organic hay “because hay in and of itself was hard to get.” This further shortened the supply of organic hay.

To maintain their certification, organic dairies do not have the flexibility of using conventionally grown feeds.

Organic dairy farmers also have little control over the grain feed they purchase, much of which comes from offshore, Benador said. That’s because the U.S. does not produce enough organic grains and has had to rely on imports from India and the Black Sea region.

The Ukraine-Russia war hampered shipping of organic grains from Eastern Europe, and a trade dispute with India further reduced grain supplies, with costs rising by about 50%, she noted.

Because he operates in Humboldt County, dairy farmer Zach Cahill said he has “the luxury of being able to turn on the pump” to irrigate his pastures and grow his own silage crop, unlike many producers in Sonoma and Marin counties that don’t have access to wells.

What’s affected his business is the soaring cost of freight to move feed to the dairy and milk out to the creamery, he said. His milk goes to Rumiano Cheese Co. in Glenn County, and his alfalfa hay comes from Klamath Falls, Oregon.

Cahill estimates about a third of his feed cost is in transportation “because we’re behind the redwood curtain.” Total production costs have risen by at least 30% to 40%, while farmgate prices have increased 5% to 10%, he said.

“At that rate, it’s just been unsustainable,” Cahill said. “People have been bleeding cash flow for two years now and essentially milking away equity on their farms.”

Cahill, who serves as president of the Western Organic Dairy Producers Alliance, said organic dairy farmers are not the only ones feeling financial pain, as processors—buyers of their milk—also have faced increased costs, and “there’s a genuine concern that cash is going to flow out of this industry.”

As founder and CEO of Straus Family Creamery in Sonoma County, Albert Straus has felt the pain on both sides, as he also operates an organic dairy in Marin County. Besides producing his own milk, the creamery sources from 11 other dairies in the two-county region. One of them went out of business, and others have had to reduce their herd size, leaving the creamery “at times a little bit short” on milk.

But he said he considers himself lucky because he has mostly been able get enough milk for his products, even though organic milk is now in shorter supply statewide. He noted at 10 organic dairies have shut down in recent years, with about 100 remaining in the state at the beginning of 2022.

In addition to price increases he’s paid to his supplying dairies, Straus said federal and state grants will now provide additional relief. More importantly, recent rains and warming temperatures will help forage growth, allowing dairies to rely more on pasture and less on purchased feed.

“I think we’re starting to stabilize them a little bit,” he said. “Springtime is the time that they can start making a profit hopefully and pay back old bills and debt.”

Longer term, there has been discussion of creating a federal safety net program tailored for organic dairies. Producers say existing risk management tools do not address their unique needs and failed to trigger payments that would have helped them.

“Ultimately, there should be a solution that is market based, where the price that the dairy farmer gets is a stable and consistent price that reacts to the fluctuations in the supply and the market,” Straus said.

Benador said she thinks the state’s new organic transition program and USDA’s organic transition initiative will both support an increase in domestic organic feed production, “and that will contribute to the long-term resilience of the organic livestock sector.”

Improving the availability of certified organic meat processing facilities also will help, she said, as dairies sell their cows for beef. Being able to earn an organic price premium at slaughter remains an important strategy for dairies to diversify their income streams, she said.

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at [email protected].)