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Grocery Stores Are Running Out of Organic Milk

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About once a week the phone rings at the Dill Pickle Food Co-op in Chicago’s artsy Logan Square neighborhood with the same question: Got milk? Organic, to be exact.

“I’ll have people call up and say, hey, I know the truck’s coming on Tuesday, can you put aside three half-gallons?” said Dana Bates-Norden, 33, who works as the buyer of perishable goods for the store, which in 2014 started selling out of the glass-bottled milk it gets from Midwest organic dairies within two days. “When I first started two years ago, I felt like I ended up having to write off a lot of organic milk, and now, I really can’t keep it in stock.”

Americans spent an estimated $35 billion on organic groceries in 2014. About $5.1 billion of that went to dairy, more than doubling from a decade earlier, data from the Nutrition Business Journal published on the U.S. Department of Agriculture website show. With retailers like Wal-Mart Stores Inc. trying to attract more organic-food shoppers while McDonald’s Corp. uses the milk -- which can cost almost twice as much as regular -- in some McCafe coffees, producers are struggling to keep up with demand.

Even in Wisconsin, the state with the most organic dairies, stores are posting signs warning of shortages, the USDA has said. At Fresh Madison Market in the state’s capital city of Madison, sales of the milk have doubled over the past year and rising demand spurred a 10-day shortage in early January, owner Jeff Maurer said by telephone Feb. 9.

‘More Educated’

“You’ve got customers that are more educated on the benefits of organic,” Jim Hyland, a spokesman for Milwaukee-based Roundy’s Supermarkets, said in a Feb. 3 telephone interview. Some of the company’s 149 stores in Wisconsin and Illinois had shortages of the milk in 2014, even though store space allotted to organic dairy products has doubled over the last five years. This “is not something that’s going to shrink,” he said. “It’s only going to increase in demand.”

It’s not just hipsters going organic. About 45 percent of Americans seek out organic foods, according to a Gallup poll released in August. At Chicago’s Dill Pickle, the customers range from younger singles to families with children and older buyers, Bates-Norden said.

Sales of organic milk jumped 9.5 percent in the first 11 months of 2014 to 2.26 billion pounds, the latest USDA data show. By contrast, consumption for the regular variety is slowing, with demand down 3.8 percent. Purchases of conventional milk are still much larger than organic, though, with 43.49 billion pounds sold over the same period.

Prices Climb

Retail prices for organic milk climbed 8.4 percent in the 12 months ended Feb. 6 to $3.89 for a half gallon, according to the USDA. Conventional prices rose 14 percent to $1.92.

Here’s what consumers get for that $1.97 premium: Milk marketed as organic must come from cows that aren’t treated with hormones or antibiotics, and the animals must be able to graze on organic pasture and eat only organic feed -- grains such as corn that aren’t genetically modified and haven’t been treated with certain chemical pesticides. All that is regulated by the government.

Turning a regular dairy farm into one that can get certified organic is lengthy and pricey.

Under current USDA regulations, the process can take three years as farmers convert the pastureland and feed crops. In the third transition year, farmers have to feed their animals organic-only feed, which can increase costs by about $365,000 at a 500-cow dairy, according to Andrew Dykstra, president of the Chico, California-based Western Organic Dairy Producers Alliance.

Supply Hurdles

“It’s a big deal to transition over for most people,” Dykstra said in an e-mail Feb. 2. “It’s not something to take lightly.”

Adding to the supply hurdles, rising dairy exports have kept conventional milk prices high, with futures in Chicago reaching a record in September. That means profits for organic milk have trailed conventional for four years, according to Matt Gould, a Madison, Wisconsin-based analyst for the Dairy & Food Market Analyst newsletter.

Milk futures for February settlement slid 0.2 percent to close at $15.75 per 100 pounds Tuesday on the Chicago Mercantile Exchange. The price touched an all-time high of $25.30 on Sept. 25.

Organic Valley, the largest cooperative of organic farmers in the U.S., pays part of the cost for dairies to make the conversion. In an effort to encourage conversions, the coop this year increased that compensation by 75 percent, George Siemon, the chief executive officer, said in a telephone interview Feb. 2.

Twin Oaks

For Kathie Arnold, who owns 140 milking-age dairy cows at Twin Oaks Dairy in Truxton, New York, rising prices are allowing her to invest in new equipment. Arnold estimates her milk sold in January fetched about 14 percent more than a year earlier, the biggest annual increase since she went organic in 1998.

“It means we can do more upgrades on the farm,” Arnold said in a telephone interview Feb. 2. “We’re at the point with our facilities where we can’t expand without moving across the street. This is allowing us to put money aside to enable something like that in the future.”

Shoppers are expanding purchases of organic milk because it’s perceived as healthier, Bob Goldin, an executive vice president at the Chicago-based research firm Technomic Inc., said in a telephone interview Feb. 4. The healthy image isn’t tied to specific nutrients, rather consumers are drawn to the fact that the animals aren’t treated with hormones or antibiotics, he said.

“There’s a heightened sensitivity among a growing number of consumers about those issues,” Goldin said. “It’s not necessarily a logical link, but that’s what many consumers define as healthy. The definition of what’s healthy is changing.”

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