Iowa Public Television


Organic Dairy Producers Profit

posted on May 2, 2003

Almost every major player in the nation's so-called mainstream food industry is now invested in organic or "natural" products. Annual organic sales approach ten billion dollars and are increasing at a rate of 20 percent a year.

Despite the growth, the industry's pioneers remain true to their roots. Indeed, the growth has made many in the organic industry more appreciative of what they have earned. And they work all the harder to keep their enterprises on the track to prosperity. A case in point is a Wisconsin-based, farmer-owned co-op that has changed the lives of its membership. John Nichols reports.


Organic Dairy Producers Profit

Mark Kruse and his family run a small dairy in northeast Iowa. The operation is typical by most standards, but the raw commodity produced by the farm's 65 Holsteins is not. And that's because 15 years ago, Kruse decided to farm organically.

Mark Kruse: "To get organic certified milk it has to be from a cow who has been on organic certified feed for twelve months. And to get organic certified feed it has to be raised on ground that's been off of chemical fertilizer, herbicides, insecticides, anhydrous ammonia, that sort of thing, for 36 months. And then you can get that certified and feed it to your cows and produce the milk and then the next step is to have a market…"

Marketing has always been a source of frustration for dairy farmers as evidenced by this 1997 exchange between then Secretary of Agriculture Dan Glickman and dairy farmers in Pennsylvania.

Patricia Swetter: "In one month, the government cut the price $4.00. Why can't, in two weeks or a month, put the price back up by 4.00 – like that? It went down like that, put it up like that. We're going out…"

Former Secretary of Agriculture Dan Glickman: "It went down like that because the market went down like that. It may have been a manipulated market. The market went down and our basic formulated price is by statute to reflect the market. I did not snap my fingers and say, I don't like a $16.00 price, I want a $12.00 price tomorrow and push it down. I didn't do that. What, do you think I'm crazy? Would I want to do that to you? Of course not."

Typically, producers sell their raw milk to processors, and the price is determined long after the raw commodity has left the farm. But Kruse knows in advance almost exactly what his milk is worth.

Mark Kruse: "This summer I talked to a neighbor and he was getting under $11 per hundred for his milk for conventional milk. Our base price is in the neighborhood of $17.75 and then with butter, fat and protein as component pricing our milk checks for this fall have been coming in, in the neighborhood of $19.75 to $20.00."

Unlike conventional dairy farmers, Kruse receives a hefty premium for his milk by marketing it exclusively through Organic Valley of LaFarge, Wisconsin… the nation's largest, farmer-owned, organic dairy cooperative. George Siemon co-founded Organic Valley 15 years ago.

Gerge Siemon: "Right now we have approximately 515 farmers in fourteen states in the five different pools. The pools are like the dairy, the egg, the meat, the juice and the produce. And then we have 225 employees."

To say that the headquarters of Organic Valley are modest would be an understatement. Mimicking the thrift so common to successful farming, the coop has always believed in a minimal investment in brick and mortar. But don't let the humble surroundings fool you, this is an economic juggernaut. Since 1995, sales of Organic Valley products have grown steadily and last year the coop posted a record 125 million dollars in annual sales.

While supply management and other factors account for much of the growth, Siemon claims a stable price for producers is one of the keys to the Organic Valley success story.

George Siemon: "One of the most frustrating things about farming, I always joked, was walking to the mailbox and never knowing what you're getting paid. So, when our farmers sat down to start this cooperative they said we want to come up with a program that can deliver a stable price so when I go to my mailbox I know relatively what I'm going to get paid."

A look at conventional prices paid to dairy farmers over the past decade reveals significant volatility. In comparison, Organic Valley's price has been steadily increasing over the same period, and in 2002 was nearly seven dollars higher than the conventional price.

George Siemon: "The farmers sat down and said here is what our target price should be for organics and that wasn't just them being greedy, we just looked at the cost of production, we looked at the USDA studies, what does it take just to get a return on a farm whether you're organic or conventional and so we came up with a price and naturally I'm in management now so I argue with them, well maybe that's a little too much. But once they establish that target price we have a strict policy, we never sell organic products for less than that target price and if we have to over a supply situation we'll sell it conventional rather than hurt our target pricing."

In addition to helping with a 100-cow dairy, Wayne Peters manages 2,500 certified organic laying hens near Chaseburg, Wisconsin.

For Peters, the return to egg production, like his transition to Organic dairy farming 15 years ago, was a return to his roots.

Wayne Peters: "We do everything organically and if you farmed back in the 40's and 50's it's not really any different than my dad did back when I was a boy in '45 during World War II. But I could have never believed when we started back in '88 that organics was going to go this far this fast."

Farming organically is not without its challenges. Since organic certification strictly forbids the use of antibiotics, Peters claims to have removed many animals from his herd initially. His son, Rory, acknowledges a steep learning curve, but claims farming organically yields abundant crops, healthier cows, and superior farmers.

Rory Peters: "We're better farmers than we were back then. We're doing a better job for one thing and herd health is pretty good we would say. But we're better at it than we were back in '88 or even beyond that."

George Siemon: "Organic farming really works as a production system. It's just not just a niche market. And that's the most exciting thing for me is seeing farmers not only be rewarded economically but to get so enthused about their farming.

Enthusiasm is a rare commodity in rural America these days. In the past 25 years, millions of family farms have disappeared from the rural landscape. But the Kruses, who weathered the farm crisis of the early 1980's, claim farming organically has given them hope for the future.

Marcia Kruse: "Since we've been with Organic Valley and we have this steady pay price it's a completely different story and when he gets up in the morning he enjoys what he's doing, he enjoys working with Organic Valley, I think it's the whole sense of empowerment, we actually can make choices in our future and for the future of our children."

George Siemon: "I definitely feel like organics is one of the most biggest, brightest stars for saving the family farm. A lot of farmers who go organic literally say I'm out of options, I'm going to try this organic thing and if it doesn't make it I'm through."

Siemon claims Organic Valley is recruiting new farmers and supports them in their transition to organic production. And he believes Organic Valley's model of innovative management from the barn to the boardroom is a winning combination.

George Siemon: "I believe the model that we have, which is supply management, collective bargaining and value added branding, is the winning model."

For Market to Market, I'm John Nichols.


Tags: agriculture dairy industry money news organic