OF GABLES AND GALLONS: ORGANIC SUPPLY RUNNING SHORT

Christine Blank

Don't have an organic cow, but there's a bit of a supply problem with milk.

While grocers have not yet run out of product, deliveries have been cut back after demand began to seriously outstrip supply late last year.

"There is record demand and record sales," said Eric Newman, vice president of sales for Organic Valley, the organic dairy co-op in LaFarge, Wis. "We're disappointing a lot of people."

The company has a moratorium on bringing on new customers until this spring, while current customers are receiving less than ordered. Organic Valley has asked unprofitable customers to "temporarily de-list" their products.

While retailers are running short from time to time, the situation has not reached the point where consumers have complained, nor have they been forced to raise prices.

Giant Eagle, Pittsburgh, has experienced periodic shortages because of high demand.

"We are currently experiencing approximately 50% growth [over last year] in the organic milk category," said Brian Frey, spokesman for the chain.

However, the chain has been "very successful in maintaining product availability to satisfy our customer demand," Frey added. The chain expects the shortage to last through the first quarter.

Lund Food Holdings, Edina, Minn., has likewise seen increased demand for organic milk. While the stores aren't getting as much as they need, there have been no price increases or complaints from shoppers, said Bea James, the retailer's senior whole health manager.

James believes the reason for the surge in demand for organic dairy over the past year -- one of the top growth items in Lunds and Byerly's stores -- is the fact that mothers believe organic milk is more healthful than regular milk for their children.

"Many people are concerned that the growth hormones [in conventional milk] are contributing to children developing too quickly, and a resistance to antibiotics because of overexposure in the milk. Organic cows are never given antibiotics or growth hormones, and are given organic feed," James said.

Meanwhile, suppliers expect the shortage to last through this spring -- more milk will likely be ready around May -- and they're taking short-term measures to fill customer orders.

Another major supplier, Horizon Organic Dairy, Longmont, Colo., is temporarily switching all its Horizon Organic and The Organic Cow of Vermont organic milk to gallons only, instead of providing both half gallons and gallons.

"While the organic milk category is currently growing at 27%, our brands have outpaced the category, growing at 37%," said Ramona Kent, senior vice president of sales for White Wave Foods, which operates Horizon, in a letter to trade customers.

The "unprecedented" demand, coupled with the industry's constrained supply of raw milk, has led to service levels below the company's expectations, Kent added.

The shortage is not surprising, since studies have been highlighting growth in organic dairy that outpaces most other organic categories. Organic dairy sales jumped 20% in 2003 to $1.4 billion, the latest year for which figures are available, according to the Organic Trade Association, Greenfield, Mass. OTA believes the category probably grew even faster in 2004.

Still, demand last year and early this year was higher than even the organic suppliers predicted. In Organic Valley's case, the co-op had forecast that its sales would grow 20% in 2004; instead, sales jumped 34%. While Organic Valley had increased supply by 30% last year, that still left it unable to fill all of its orders.

Even though suppliers are bringing new organic dairy farmers on board, there is a mandatory, one-year transition period before conventional dairy farmers can commence organic operations. Some new organic dairy suppliers have come online, however. One such company, Aurora Organic Dairy, Boulder, Colo., began selling private-label organic milk to supermarket chains last year.

"It's a good time for someone like us to come in because there's a general shortage. We added milk to the market," said Clark Driftmier, Aurora's senior vice president of marketing.

This year, the dairy will complete the organic transition on a 3,400-head farm in Texas, adding it to a 3,500-head farm in Colorado already in operation.

As more supermarket chains add private-label organic dairy lines, Aurora may have trouble meeting demand as well, officials told WH.

"Milk is the No. 1 private-label item in terms of dollars. As organic grows and matures, more and more retailers are looking for [this milk]," Driftmier said.

Indeed, private-label milk was the top category by dollar volume, racking up $6.5 billion in sales last year, according to the Private Label Manufacturers Association's annual yearbook. It dwarfs the next highest category, fresh bread and rolls, which brought in only $2.4 billion during the same period. Private-label milk was also tops in unit volume, with 2.8 billion sold. The PLMA report does not break out organic's take of the category.

Meanwhile, some manufacturers are banking on brand name power to propel sales of organic milk.

Stonyfield Farm in Londonderry, N.H., long involved in the organic yogurt business, just entered the organic milk market with its Stonyfield Farm Organic Milk, slowly rolling out in half gallons to supermarkets and natural food outlets in the Northeast and Midwest.

"It's really a quiet launch. We have to wait until the second half of the year because there is such limited distribution right now," said Cathleen Toomey, the company's spokeswoman. Distribution is slower than expected because Stonyfield is "trying to get enough organic milk," Toomey said.

High Demand ... High Expectations, Too

Like any person, place or thing, demand brings greater scrutiny. Organic milk is no exception.

Last December, the U.S. Food and Drug Administration said tests showed perchlorate, a rocket fuel chemical, in samples of conventional lettuce, and in conventional and organic milk. Retailers said they haven't heard of any consumer concerns over the finding. The Organic Trade Association has been quick to point out that the chemical was found in both conventional and organic samples.

Meanwhile, Aurora Organic Dairy recently came under fire by The Cornucopia Institute, a farm policy research group, for confining its dairy herds in "an industrial setting," without access to pasture.

Cornucopia asked the U.S. Department of Agriculture's Agriculture Marketing Service to investigate Aurora in January, saying it isn't following USDA's national organic rule, which requires livestock to have a certain amount of outdoor access to pasture.

The federal rule only provides exemptions to the outdoor access in cases of bad weather, poor animal health, and certain "stages of production" of dairy herds.

Mark Retzloff, the dairy's president, disputed Cornucopia's claims, saying the company's entire dairy herd is outside 365 days a year, and has access to 30,000 acres of dry land pasture.

Raising the issue in this manner doesn't help the image of organic agriculture, typically associated with humane treatment of animals and improving the environment, Retzloff complained. "It paints a bad picture for the entire industry," he said.

USDA has asked the National Organic Standards Board to clarify the definition of "access to pasture" for the organic industry.