Dairy farmers fear for future of organic milk

Going organic seemed the obvious step to take for Dorset dairy farmer Noel Marsh.

There would be a significant initial investment – but there was a grant to help with that – and he could look forward to a healthy premium for the milk produced from his 230 cows.

But 15 months after seeing the first tanker load of organic milk leave the farm, Noel has been knocked back on his heels.

Dairy Crest, the processor he sold his milk to since the break-up of the Milk Marketing Board in the early 1990s, has announced a 4p-a-litre cut in the price it pays Noel and its other organic suppliers.

Although it's not exactly a cut – Noel will still get the same price for his milk on paper.

But Dairy Crest is arbitrarily imposing what it calls a balancing charge. And that will have precisely the same effect – blowing a £70,000 hole in Noel's finances.

Dairy Crest, Britain's largest milk processor, blames the cut on falling demand for organic milk because of the squeeze on consumer spending, despite latest figures showing sales across the country rising five per cent year on year.

But it has been left with more organic product than it can sell, and embittered organic farmers say the processor has been victim of its own mismanagement – Dairy Crest has continued to recruit organic suppliers without, apparently, having a guaranteed outlet for what they would be producing.

The company denied the claim and hit back at critics like the NFU. It also pledged to talk to Defra to obtain a derogation to allow some of its suppliers to revert to conventional production temporarily to continue selling milk.

If only it were as simple. As Noel points out, it isn't.

"There's a significant amount of cost involved in going organic," he said.

"You have to ensure the highest health and welfare standards because you can't rely on antibiotics and part of that means ensuring your housing is the best there is."

N oel spent between £200,000 and £250,000 on building new housing and got a grant of £120,000 towards it – but there is still a problem.

"Once you have had the money you have to remain organic for five years. If you opt out you have to pay the money back," he said.

"There's no sliding scale. The amount you have to repay doesn't decrease with the length of time since you converted. So we would simply have to repay every last penny.

"To put it bluntly we are up the creek without a paddle. I cannot go back – I am wholly in the hands of Dairy Crest and quite honestly I have never seen such despicable behaviour from any company."

Dairy Crest painted itself into a corner by recruiting more and more direct suppliers.

It used to rely on its signed-up farmers supplying half its organic requirements and sourced the rest from the open market according to demand, but as its organic sales increased so did the proportion of milk it bought on direct contract.

Now virtually every drop of the 90 million litres it processes comes from people like Noel Marsh.

And scaling-back on organic consumer spending has reportedly left Dairy Crest 20million litres over-supplied – about £4.2m in a year – and nowhere to sell it.

Life for Noel and his wife, Mandy, on their 660-acre farm near Dorchester has suddenly turned very difficult indeed.

"Basically we have just been told that we shall be £70,000 out of pocket," said Noel.

"It is totally ridiculous – we are in a real mess. And what makes it worse is that we know Dairy Crest was still recruiting new suppliers until two weeks ago."

But all is not lost – Somerset-based OMSCo, ( Organic Milk Suppliers' Co-operative) is riding up like the white knight to offer a route out of the mess. Its 400 farmer members produce 300 million litres of milk a year and it is the main supplier to Yeo Valley, the country's largest organic yogurt maker.

And it has offered to take over all of Dairy Crest's 78 organic suppliers, who between them pump 90 million litres a year into the market.

The deal, put to the farmers last week, is an all or nothing one – all the suppliers have to agree or it will not go ahead. But there were indications at the meeting that three quarters of the farmers were ready to make the move, with the rest wanting to see the small print first.

It would be a brilliant deal for OMSCo, giving it control of about 90 per cent of the organic market.

But there is the matter of the Dairy Crest contracts.

"We can't just walk away," said Noel.

"But given the situation we are in there's a feeling that they would eventually have to give way and let us go.

"I'm happy to go along with it and it would certainly be far better than staying with Dairy Crest. All of us suppliers have totally lost confidence in them after this business and that's hardly the ideal relationship to have between farmer and processors.

"I am still gobsmacked by the lack of professionalism in all this. We can't turn milk on and off like a tap. We're producing between 1.5 and 1.6million litres this year and were planning to move up to between 1.7 and 1.8 million next year because that's what Dairy Crest said they wanted.

"I like being an organic farmer but I have to make a living from it. It's not easy: we have to pay £400 a tonne for cattle feed while the price for conventional feed is £180."

The biggest complaint Noel has for Dairy Crest is over his pay.

"We are paid 36 pence a litre for what we produce, while the price is the shops is 76 pence – so you can see where all the profit is being made," he said.

"And it seems at the moment farmers are being sacrificed to protect profits and shareholders.

"I see selling to OMSCo as a safer bet. We might not get the best price and we might have to sacrifice a penny or so a litre, but we can live with that because it would give us stability.

"And that, when someone is suddenly prepared to take more than £70,000 off you, is not something we can do at the moment. We cannot survive like this," the Dorset farmer said.