Dairy Crest, a leading processor in the country, has announced that it may have to cut the price paid for its organic milk by up to four pence per litre from next week, as the current economic uncertainty burrows into the segment's profitability.
However, Huw Bowles, chief operating officer for UK-based organic milk supplier OMSCo, said that while the decision reflected “challenging times” ahead for the industry, particularly for demand, strong potential remained for growth in the market. His prediction comes despite some concerns over temporary oversupply of organic milk.
Growth slowdown
Bowles claimed that while the market for organic products was not growing as strongly as a few years ago, interest in the segment was not yet waning and there was still opportunity for farmers and manufacturers.
"It's easy to say that the market is suffering from the credit crunch," he stated. "But the market is certainly not falling off a cliff and we are still seeing an increase."
Product demand and supply
Bowles said that recent data supplied by TNS had shown that sales for liquid milk were thought to be up by four to five per cent during the year. While claiming that figures for UK sales of organic cheese in the country were more difficult to prove, OMSCo suggested that the market was also expected to increase.
Despite Bowles' general optimism for the industry, he conceded that there had been a number of UK-based farmers converting to organic agriculture during 2006 and 2007 that was creating some temporary oversupply.
However, the spokesperson added that with few new converters expected to enter the market during the coming years, parity in the market should follow.
Dairy Crest concerns
Not everyone in the industry appears to share these expectations, with Dairy Crest, which currently sources five per cent of its milk organically, looking to cut down on the price it is offering to farmers for the product in light of the ongoing credit crunch.
A spokesperson for the company told DairyReporter.com that despite recent strong growth for its organic products and milk, sales had stalled and were even falling slightly in recent months.
"Right now we have more organic milk than we can sell," said the spokesperson. "We having been taking the financial pain up until now, but we have had to make changes."
Farmer criticisms
Despite receiving criticism from groups such as the UK-based National Farmers' Union over its commitment to organic producers, the company said that it was expecting to cut price by a maximum of four pence per litre and the real figure could be less.
The spokesperson claims that Dairy Crest was already working with farmers to provide financial packages and support to suppliers affected by the cuts.