Organic losses continue as costs bite

Organic milk producers have continued to scale back on production as costs of production have continued to be at high levels and milk prices have shrunk.

In the milk year so far (April to September), organic production has fallen by 15%, which is a total of 35 million litres.

Whilst high input costs have been problematic for all, some organic farmers have reported even greater challenges with organic feed costs and availability being of particular concern. This may have prompted some farmers to feed more forage as opposed to hard feed, reduce their herd numbers and some will have switched back to conventional production.

We reported in July that organic demand has been more limited this year as consumers continue to be more price-sensitive and trading down.  The latest data indicates that this trend has continued with organic dairy demand falling by -14.2% year-on-year (Source: Nielsen, 52 w/e 09 September 2023). 

Although production decline is in the double digits, there are some signs the decline may be slowing – whilst year-on-year declines were at 17% in April these had fallen to 12% by September.

The big question for producers and processors will be how long this slump in demand is set to continue.  Consumer confidence is currently fragile and it may take the order of months, if not years to return.  Organic producers will need to work even harder to justify their premium to consumers, pushing taste, environmental, time at pasture and health benefits to attract those more affluent consumers who are still willing to pay more.   More added value products such as dairy drinks offering health benefits could be a beneficial channel. Exploring export opportunities to markets with a more pronounced interest in organic produce will be even more vital in the months ahead whilst we wait for domestic demand to build again.

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