Market Review of the Organic Dairy Sector in Wales, 2007

Summary

In the UK, in January 2006, the total area of organic and in-conversion land was 619,852 ha. This represents a decrease of 8% compared to January 2005.
In Wales, in January 2006, the area of fully organic land increased to 5% of the total area of agricultural land. The number of organic producers and growers, including those in-conversion, increased from 618 in 2003 to 688 in 2006.
Organic producers represent approximately 4% of all farmers in Wales.
Welsh organic producers represent 16.6% of the UK total number of organic producers and growers.
UK organic milk production increased from 17 million litres in 1997/8 to over 300 million litres in 2005/6.
In Wales, in 2005, dairy and milk products represented 26% of the total gross product of Welsh Agriculture.
In March 2007, according to data supplied to ADAS by certification bodies, there were 86 fully-organic dairy producers in Wales and 12 in conversion. This represents 4% of the total number of dairy producers in Wales.
In 2005, an estimated 50 million litres of milk were produced on 108 organic farms with ca. 9,500 dairy cattle – the number of holdings is higher than the ADAS 2007 figure, but some may have been in suspended conversion due to the lack of a market, or have subsequently withdrawn from milk production.
The 12 producers who started conversion in 2006 will supply an estimated additional 12 million litres/pa of organic milk when converted.
There has been a marked increase in requests for OCIS advice from dairy farmers. These increased from 4 in 2004 to 71 in 2006.
Key challenges facing organic dairy farmers in Wales include milk price, forage production and optimising milk from forage.
The UK dairy sector holds the second-largest share of the organic market with an estimated £294m sales at retail level in 2005 and 22% of the overall organic market. The majority of organic milk enters the liquid market.
Organic dairy consumers are primarily ABC1. They have diverse shopping habits, use a variety of retail outlets and want information to assist in purchasing decisions and to justify price premiums.
There appears to be a positive correlation between increases in sales of organic milk and dairy products and the publicity given to research findings about the health benefits of organic milk.
Sales of organic liquid milk in the UK grew from 73.8 million litres in 2004 to 158 million in 2006. Because of increased demand, the UK market moved from oversupply to seasonal undersupply. Projected growth in demand, if fulfilled, will create new opportunities for producers willing to convert.
Key market drivers identified by stakeholders were publicity on the health benefits of organic milk, animal welfare concerns and increased interest from major retailers. Main constraints on the development of the organic dairy market were under-supply, lack of promotion, distribution issues, seasonality of production, increased feed costs and lack of processing facilities.
The main strategies needed to develop the organic dairy market identified by stakeholders were co-operation, increased conversions, consumer education, a higher profile for organic food and long term supply chain agreements.
The Welsh Organic Dairy sector has seen considerable product innovation since 2003.
Recommendations
1. A joint effort by the whole organic dairy industry is required to plan ahead to ensure that the number of dairy farm conversions will not lead to a repetition of the oversupply problem experienced in the past.
2. Consideration should be given to setting up an Organic Dairy Sub-Group in Wales.
3. The numbers of farms converted and in-conversion needs to be accurately monitored.
4. Advice and technical knowledge on organic dairy farming needs to be made available through Organic Centre Wales.
5. The industry needs to look into ways of encouraging more organic cereal and alternative protein crops to be grown in order to prevent the shortage of organic feed.
6. Continued research is needed to address the issues identified in this report.
7. It is important that organic dairy farming research should be continued at Ty Gwyn, Trawscoed.
8. There is a need to continue to increase the public awareness of organic farming and agriculture as a whole.
9. Welsh branding of organic products should be developed.
10. The Welsh organic dairy industry should examine ways of increasing sales particularly through outlets other than the multiple retailers.