ANNUAL MARKET REPORT SHOWS HEALTHY FUTURE FOR ORGANIC MILK – AT A PRICE

07 July 2008

The Organic Milk Suppliers Co-operative (OMSCo) has today launched its third annual Market Report, covering the year to March 2008. The report, which offers the most comprehensive and in-depth analysis of the organic milk market, demonstrates that there is solid momentum behind demand in the market - but it also highlights the need for the industry to increase the price paid for raw milk to ensure continuity of supply.

The Report states that various factors, including supply constraints, have reduced growth in existing markets, whilst demand from new markets continues to emerge. As a result, demand for raw organic milk continues to grow – by 40 million litres over the last year. Market potential remains enormous - organic products still represent less than 5% of total milk production.

On the supply side, there have been real challenges despite the use of imports to cover much of the shortfall. Poor weather and large increases in production costs both had an impact on output so, despite increased returns, expansion from existing producers declined from an average of 6% per year for the two previous years to just 1% in the year to March. Availability in the year ahead is due to increase as new raw milk supplies come to market, but this volume is at risk unless returns improve.

The Report has identified that the key issue facing the organic milk industry is restoring the economic attractiveness of organic production. This is necessary to ensure existing organic producers stay in the industry, and provide an incentive for the appropriate number of new farmers to convert. Commenting on the issue of pricing, Nicholas Saphir, the OMSCo Executive Chairman, said:

“ The economic incentive offered for organic milk production has been eroded by a number of factors - in particular the increase in non-organic returns and the disproportionate rise in organic production costs. Two years ago, organic feeds cost 30% more than non-organic versions. Today they cost 80% more. The extra cost of producing organically now outweighs the farm gate premium, which is clearly unsustainable. The numbers speak for themselves. Two years ago 90 million litres entered conversion - last year this number halved. This year there has been a net reduction with 3 million more litres leaving the industry than joining”

He continued:
“Of equal concern is the fact that existing producers are also questioning the value of continuing with organic production. If the issue of pricing is not resolved, there is a real danger that supply shortages could reoccur relatively swiftly – if just 30 of the larger organic dairy farms revert to non-organic production, the industry will lose 10% of its supply base.”

The report concludes that re-establishing the appropriate organic premium in the months ahead is vital to deliver the confidence to encourage output this winter and convince producers to complete their conversions.

OMSCo is the largest and longest established organic dairy cooperative, representing the majority of the UK organic milk pool, which makes it ideally placed to produce this report. As the organisation focuses exclusively on organic milk, it has taken responsibility for the generic marketing of the product on behalf of the industry. It has also ensured that the supply chain, from producer to retailer, is provided with up to date transparent information on market trends.
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For more information, images or to set up an interview please contact:
Emily Taylor at Grayling 0207 255 1100
Camille Daltry at Grayling 01179 227799

Notes to editors:
• OMSCo represents the majority of the UK’s organic milk producers, managing around 300m litres of milk per year from 400 farms stretching from Cornwall to Aberdeen, and as such has a clear overview of the market requirements and supply situation.
• The sales data in the Organic Milk Market Report is based on information from TNS, Nielsen Scantrack and OMSCo’s own sales figures, as well as its wider analysis of the organic milk market. Supply data is sourced from a range of agencies including DEFRA and the organic certification bodies.