North Bay dairies shift to organic milk production, seeking higher income and stability

Eighty percent of the dairies in Marin and Sonoma counties now produce certified organic milk, a change that allows them to command a premium milk price and also has sheltered them from a severe downturn that has buffeted the conventional dairy market for more than a year.

The North Bay’s shift away from the conventional dairy business, which has taken place over more than two decades, represents a striking contrast with the rest of California, where organic milk comprises less than 2 percent of total dairy production.

So many local farmers have switched to organic production that Petaluma-based Clover Stornetta Farms, the Bay Area’s largest independent dairy processor, has reached out beyond the North Bay’s coastal grasslands to the Central Valley to satisfy its need for conventional milk.

“We have had to move east where the milkshed is,” said Marcus Benedetti, president and CEO of the company with the iconic mascot, Clo the Cow. “And that will be a trend that continues.”

But even moving to organic won’t entirely protect the local dairy industry from volatile ups and downs, as the nation’s organic sector faces a milk surplus. Already two large local buyers of organic milk have announced what they characterized as small price cuts, and some dairies could have difficulty finding processors for their milk.

Some are predicting upheaval in the larger organic market, though not as severe as what the state’s conventional dairies have been suffering.

“You’re going to see farmers going out of business,” said Richard Mathews, executive director of the Western Organic Dairy Producers Alliance, which represents more than 275 farmers in 12 western states. “You’re going to see farmers downsizing and you’re going to see competition (among buyers) shrinking, which will further drive down prices to the farmers.”

Still, more local dairies are making the transition away from conventional production.

“On the 10th of August, I will be fully organic,” said Domenic Carinalli, 75, a longtime dairy farmer south of Sebastopol.

Carinalli, who sits on the California Milk Advisory Board and the boards of directors for the county and state farm bureaus, said he loves the dairy business, “but you have to pay the bills.” For him, organic production with his herd of about 95 Holstein and Guernsey cattle provides a better opportunity than the conventional market.

West Santa Rosa dairy farmer Doug Beretta made the same decision during a similar downturn a decade ago. The realization that he was working 12-hour days and still losing money prompted him to convert the family farm to organic production in 2007. From the beginning, he has supplied his milk to American Canyon-based Wallaby Yogurt Co.

“The dairy business has always been kind of a roller coaster,” said Beretta, a director at both the Sonoma County Fair and the farm bureau. “I still think with the organics, the dips have not been as bad as the conventional [milk] world.”

Organic milk, meats and other foods are produced according to standards set by the U.S. Department of Agricultures, with each farm’s practices individually certified by independent consultants.

Among other things, organic production prohibits use of antibiotics or genetically modified organisms, as well as most synthetic fertilizers and pesticides. For dairies, it also requires that the milk cows get a specific percentage of their diet from pasture.

In 1994 the Marin County farm of Straus Dairy, based in Marshall, became the first certified organic dairy not only for the North Bay but for all the states west of the Mississippi.

Today, Marin and Sonoma have 88 dairies, 71 of which are organic, according to the agricultural commissioner’s office from the two counties. Marin has 20 organic and five conventional dairies. Sonoma has 51 organic and 12 conventional.

The switch to organic milk mirrors efforts by Sonoma County farmers who have planted premium wine grapes, grown grass-fed beef, harvested organic vegetables and produced artisan cheeses. Survival in North Bay agriculture increasingly has involved switching from selling a commodity to finding a premium niche product.

“This has always been a high-cost area,” said George Mertens, a Sonoma dairy farmer.

Mertens, who has been farming for nearly a half-century, remains a conventional dairyman because he lacks the pasture needed for organic operations. “I’m one of the few left,” he observed.

In the local dairy sector, the difference in price helps explain the shift from one type of production to another.

Marin’s organic farmers reported the average price paid for their milk in 2015 rose 21 percent from a year earlier to $37.50 a hundredweight, according to that county’s crop report. A hundredweight is equal to 100 pounds, or about 11.6 gallons of milk.

Meanwhile, for the same period the average price for conventional milk fell 27 percent to $15.38 per hundredweight.

Last year organic milk made up 90 percent of the $45 million in Marin’s total milk production. Sonoma County does not track the difference in organic and conventional milk prices.

Conventional milk prices have continued to drop this year. The net price paid to conventional California dairies in April was $13.27 per hundredweight, according to the California Department of Food and Agriculture.

That compares to an average of $14.89 in April for all other states with federal market orders, as opposed to California with its own state regulatory system, said Annie AcMoody, an economist with Modesto-based Western United Dairymen, which represents a majority of the state’s dairy farmers. Moreover, she noted the state agriculture department has calculated that the cost of production for a conventional dairy farmer in California is nearly $17 per hundredweight, not including any return on investment.

This year the conventional farmers are once more losing money every day they milk cows, a too-constant occurrence that helps explain why so many have gone out of business, said Anja Raudabaugh, Western United’s chief executive officer.

Since 2005, Raudabaugh said, “We’ve lost almost half the dairies in the entire state.” About 1,400 dairies remain in operation in California, she added.

Organic farmers have a higher cost of production than their conventional counterparts - the state puts the average organic production cost at nearly $28 per hundredweight, AcMoody said. However, that figure is still below the price paid for organic milk.

Given the current surplus, observers said, organic farmers can expect to earn less money in the coming months. Organic Valley, a national cooperative of organic farmers, and Clover have rolled out price cuts to local farmers, and the Petaluma Creamery is asking its farmers to accept cuts in price and production.

Organic Valley has cut its payment by 1.4 percent to $34.80 per hundredweight, said Mike Griffin, the cooperative’s division manager for California. Clover on Oct 1. will reduce the price 3.5 percent or $1.34 per hundredweight, Benedetti said.

Both Benedetti and Griffin said they are collaborating with their farmers to prepare for the inevitable rises and falls in the market. The aim is to better stabilize both prices and production.

Some of the conventional market’s current woes are tied to a surplus of milk on the world market. One reason is that Russia quit importing dairy products from Europe, the U.S. and other countries in retaliation for economic sanctions on Russia after its intervention in Ukraine.

Observers expressed less certainty about the reasons for the surplus in the organic market, except for growth in production spurred by higher prices. It also was unclear to what extent the surplus now affecting the western U.S. is present in the Midwest and East.

What many observers agree is that in late 2014 some new groups of milk brokers came on the scene at a time when organic milk appeared in great demand.

For a time the extra competition provided “new doors of opportunity for dairy farmers to shop for someone who would pay a better price” for their product, said Mathews of the Western Organic Dairy Producers Alliance.

However, in the current surplus those brokers are having trouble finding a place to accept and process their organic milk, Mathews and others said. And the farmers who had come to rely on the brokers may face difficulties finding other buyers for their milk.

Griffin of Organic Valley said it’s hard to know how long the surplus will last but “we’re in a pretty good storm.” Even so, experience has taught farmers to expect that tough years will appear, as will better ones for those who can persevere.

“These trends are waves coming on the beach,” said Griffin, “and it’s a high time and it’s a low time.”

Carinalli, who will sell milk to Petaluma Creamery, said he understands he is leaving an “ugly” conventional market for an unsettled organic market. The laws of supply and demand still apply.

Still, he likes the long-term prospects for organic milk.

“I think it’s a niche product, particularly in the North Bay, that we can take advantage of,” he said.

You can reach Staff Writer Robert Digitale at 707-521-5285 or robert.digitale@pressdemocrat.com. On Twitter @rdigit