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Organic milk may yet provide North Coast dairy farmers with the niche market they need to survive, but this year it won't protect them from the pain of overproduction amid a sluggish economy.

"The recession has caught up with the organic business," said George McClelland, a Two Rock dairy farmer who sells both organic and conventional milk to Clover Stornetta Farms.

Clover, the North Bay's largest dairy processor, on April 1 will cut the price it pays for organic milk by 16 percent compared with a year ago.

John Taylor, a dairy farmer near Point Reyes Station, said both Clover and its 17 organic farmers mutually agreed on the cut and a planned retail price drop as the best strategy to fight back against increased competition.

"We're in this for the long haul," he said, "and it's very tough for everybody right now."

The price cut marks a reversal for a young industry that has enjoyed double-digit annual sales growth for much of the past decade. Demand is down across the U.S., and the bankruptcy and subsequent sale of Fernbridge's Humboldt Creamery has exacerbated the downward pressure on organic prices in the region.

"I've seen figures that organic milk is oversupplied nationwide as much as 20 percent," said Clover Stornetta President Marcus Benedetti.

Processors, he said, contributed to the oversupply by seeking more milk to meet the expected demand, and many farmers switched from conventional operations because it offered the prospect of better profits.

But in the past year, California dairy processors report that organic sales have slipped 2 percent.

One reason is that penny-pinching consumers have scaled back their purchases of organic milk, which often costs much more than conventional milk.

While it can periodically be found at lower prices on sale, the regular price for a gallon of Clover organic milk was $7.29 on Friday, compared with $3.99 for a gallon of conventional Clover milk at G&G Market in Santa Rosa.

Farmers suspect that many consumers decided to buy fewer organic products during the recession.

"People went back to conventional," said Doug Beretta, an organic dairy farmer in Santa Rosa who provides milk for Wallaby Yogurt Company in American Canyon. "Their pocketbooks couldn't handle it."

Over the past year, Clover purchased less organic milk from its farmers, Benedetti said, but didn't cut prices to them even when it began having trouble moving its inventory.

"For a full year, we bore the financial burden," he said.

Organic products make up about 40 percent of Clover's overall business. For the past decade, the company's organic farmers have experienced virtually nothing but price increases, Benedetti said.

Conventional dairy farmers have already felt the impact of a tough economy. Over the past two years, the state's average milk price dropped 37 percent, according to Western United Dairymen of Modesto. With little relief from high feed prices, most dairy farmers were losing money every day they milked their cows.

More than 100 California dairies closed last year, leaving about 1,650 in operation. As a result, the state's milk production dropped 2 percent in January from the year before, according to the state Department of Food and Agriculture. In the North Bay, Marin County reported a 13 percent decrease and Sonoma County a drop of almost 6 percent.

For decades, milk was Sonoma County's leading agricultural product, but it was surpassed by wine grapes in 1987. Sonoma still ranks 11th for milk production among the state's counties. But during the the past three decades, more than 130 dairies here have closed or consolidated into larger operations.

Today, more than two dozen of the nearly 100 remaining dairies in Sonoma and Marin counties are certified for organic production.

Organic milk comes from cows that don't receive antibiotics or feed grown with pesticides.

Many farmers maintain that niche markets like cheese production or organic milk offer them a better chance to stay profitable for the long term. In the conventional market, the competition is fierce against huge dairies, and prices can tumble quickly due to many factors outside the farmers' control.

Local organic dairies hope new federal rules adopted last month will help reduce the supply of organic milk.

The rules, which don't take full effect for more than a year, require cows at organic dairies to get a significant amount of their feed from grazing in pastures. The move is designed to ban the organic label for milk cows confined in dirt lots.

"I'm hoping that it just strengthens what organic is," said Albert Straus, founder and president of Straus Family Creamery, which this winter moved its offices to Petaluma.

Straus acknowledged he "took a lot of flack" for raising concerns to ensure the rules do not penalize North Coast farmers, whose growing seasons are different than those in the East and Midwest. Federal officials listened and the final rules are "something that everybody could feel good about," he said.

While not releasing figures, Straus said his company is still increasing sales, but "I don't think anybody's seeing the growth they used to."

On the conventional side, sales of dairy products are expected to improve this year due to increased international demand.

Even so, the conventional and organic dairy industries likely will continue to struggle until restaurants see more diners and shoppers have more discretionary income.

"We need consumers to get healthy," said Michael Marsh, chief executive officer of Western United Dairymen.

John Taylor and his wife, Karen, plan to survive until that day arrives.

The couple in 2006 took over Karen Taylor's 800-acre family dairy near Point Reyes Station and converted it to organic operation. He acknowledged he had hoped by this time to be milking 250 cows rather than being constrained by market conditions to a dairy herd of 150.

But he still believes that the Bay Area contains enough residents who will pay a premium for his milk.

"Even though people may think organic is a fad, the fact that people want to know where their food comes from is not a fad," Taylor said.

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

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