Sales of the Co-op’s Organics milk solids have risen more than 25% and farmers have had a record payout. We investigate what is driving the growth and how more farmers can enter this lucrative market.
Demand for organic milk products internationally is growing. According to a recent report from Euromonitor, the global organic dairy market is currently valued at around $US23 billion and growing at 6% year on year1. Fuelling this demand is increasing consumer awareness into health, environmental sustainability, and animal welfare.
The industry is now at the stage where demand is starting to outstrip supply internationally – something New Zealand has been able to capitalise on. The Co-op is New Zealand’s largest supplier of organic milk products and has seen sales rise more than 25% over the past year alone.
Established in 2002, the Co-op’s organic milk programme has grown by an average of 17% year on year over the past five years and now includes more than 100 farms across the North Island. Milk is transported to Hautapu, Morrinsville, and Waitoa where it is processed for the domestic and international market.
Co-op General Manager of Organics Andrew Henderson says organic consumers are prepared to pay a significant premium for products they believe to be healthier and more sustainable.
“Our pasture-based farming in New Zealand offers a real competitive advantage. Not only is it preferred by consumers, it has much lower input costs and a lower environmental footprint relative to overseas systems that rely on imported feed. This helps us to contribute to our Co-op’s strategy and maximise value for our shareholders’ milk,” he says.
The final Organic Milk price for the 2023/24 season was $10.92per kgMS – resetting the previous record high of $10.80 per kgMS the season prior. The 2024/25 forecast Organic Milk Price forecast has also risen to $11.80 (midpoint), on the back of strong demand, with 90% of our sales forecast now contracted.
All Co-op farmers benefit from the programme with 20% of the organics business revenue re-invested in the Co-op as a contribution to shared overheads and earnings. This is forecast to be $NZ32 million in the 2024/25 season.
Where do our organic products go?
The Co-op produces a range of organic milk products for distribution in New Zealand and internationally including whole milk powder, skim milk powder, UHT drinking milk, butter, cheese, milk protein concentrate, and whey protein concentrate.
The USA is the world’s largest consumer of organic dairy products (27% share of organic dairy) followed by China (24.5%), France (10%), and Germany (8%)2. South Korea is also an important market for our organic products.
While consumption is up, logistical problems with local supply grocery chains have had an impact in some countries. In Great Britain, local organic milk deliveries totalled 203.21 million litres in the 2024 season – down 23.1% from 2022/233. In the US, consumer demand has increased but the number of local supplying farms has decreased with farmers bowing out of the market4.
These issues have been positive for New Zealand and the Co-op’s organic farmers, with demand leading to higher prices.
“The 2023/24 season saw a shift from a surplus of organic milk globally over the prior four seasons to a deficit in the US and tighter supply across much of Europe. We were able to capitalise on this shift, which saw our sales volumes increase by 25% on a milk solids basis,” Andrew says.
“The tight supply of organic milk in the US and Europe is expected to have a positive impact on demand and pricing for at least the next few years.
The strength and sustainability of our organic programme lies in the diversity of products and markets, whether it’s UHT to China, proteins to the Americas or cheese to South Korea, we have the option to optimise where we put our milk in response to demand. It’s a huge benefit to be able to leverage the dairy expertise and global reach of our Co-op,” he says.
Organics Business Relationship Manager Stuart Luxton says because of the smaller size of the programme farmers often interact directly with the programme’s customers.
“Our farmers really like to hear from our customers and what they value about their organic milk. At our organic farmer conference last year we had a couple of key customers from the US dialling in to speak directly with our organic farmers. The sessions could have lasted for hours as the farmers were so engaged with them. I think it’s rewarding for them to hear that our customers truly value what they do back here. It’s recognition for all the hard work they put in – 365 days grass-fed, non-GMO,” Stuart says.
Expanding the programme
The Co-op is looking to expand its Organics programme to keep up with the growing demand.
Over the past four years the number of Co-op farms that converted to organic has doubled. There are currently 110 farms in the programme with 100 fully certified to meet organic standards set by the markets we export to.
The conversion to fully certified organic production takes three years, with farmers generally commencing their organic conversion during spring just& prior to when they are ready to cut silage on-farm. During the first two years, the Co-op offers a conversion incentive of 45 cents per kilogram of milk solid (kgMS) on top of the Farmgate Milk Price. In the third year, when the farm is eligible to achieve organic certification milestones (meaning their milk can be sold as organic into some markets), an additional utilisation incentive of 15 cents/kgMS is added. Once fully certified, Co-op farmers are paid the full organic milk price.
Once operating under a fully certified organic production system, farmers often report that their farm working expenses drop over time and their income per milk solids increases, leading to higher margins and a more profitable farm overall per hectare even if they slightly reduce stocking rates to become organic.
Fonterra has a dedicated team to assist farmers with the conversion process. Additionally, the organic programme’s farmer advisory group regularly helps farms connect and share feedback. Having experienced the process themselves, they provide support and advice to any farmer considering joining the programme.
Are you interested in going organic?
For more information phone Stuart Luxton on 0212418797 or email stuart.luxton@fonterra.com
1 - Euromonitor, Organic Dairy & Alternatives 2022 (Retail Value).
2 - Euromonitor, Organic Dairy & Alternatives 2023 (Retail Value).
3 - GB organic milk production. ADHB. November 2024.
4 - Organic milk is booming but its farmers are not. Chicago Booth Review. June 2024.