Agriculture

This article is part of our collection on Agriculture

Agriculture outlook: organic dairy

The sector’s current strength is being challenged by ongoing uncertainty related to international trade.

Last updated: 21 Jul 2020 6 min read

Share This

  • The global organic dairy market is expected to grow by 50% by 2023, reaching a value of about £22bn
  • In the UK, organic dairy is already worth some £351m, with strong growth in yogurt and butter in particular
  • Potential future growth lies in the international organic baby formula market, but the lack of manufacturing infrastructure in the UK and post-Brexit trade uncertainty could be an issue for some producers

Organic dairy is the single most valuable contributor to the UK’s organic food and drink market: out of a total value of £2.2bn, dairy is worth some £351m. This reflects a 3.9% share of Britain’s overall dairy market.

By way of comparison, the organic food sector in total is valued at just 1.5% of the nation’s entire food and drink market.

Source: Statista

Estimates value the global organic dairy market at $18bn (£14bn) as of 2018, and it is expected to grow by 50% by 2023, reaching about $28bn (£22bn). Organic dairy represents 20% of organic food sales worldwide.

This growth is being driven by rising demand from food manufacturers, and diversification away from traditional products such as milk and yogurt into specialist areas ranging from the sports and nutritional markets to infant formula. In China, for example, the organic infant formula market is now worth an estimated $200m (£150m) a year. At the same time, organic milk has faced increasing competition from products such as plant-based dairy alternatives like almond and soy.

Source: AHDB

Domestic organic dairy

In 2018, 474,000 hectares of UK land was devoted to organic, or under conversion to organic, a decline of 8.4% on the previous year. Of this total, 70% was permanent pasture and 13% temporary pasture.

Of the 324,000 head of organically reared cattle recorded by the Department for Environment, Food & Rural Affairs (Defra) in 2018, 27% were for dairy use.

Organic dairy subsectors

Organic milk is worth £156m in the UK; 5.1% of all retail milk sales are organic, and in 2018 this subsector grew in value by 1.8%. According to the Organic Milk Suppliers Cooperative (Omsco), the largest and longest established organic dairy cooperative in the UK, at least a quarter of British households now consume organic milk.

About 20% of UK organic milk production is exported, typically for use in food manufacturing in the EU – from where it is usually exported again, predominantly to Asia and to the US, where British organic dairy has a strong brand presence.

It’s thought that domestic organic milk sales are unlikely to see substantial growth in the near future, with much of it sold through supermarkets’ own labels (so-called ‘private labels’) and therefore deprived of significant branding or marketing opportunities in the UK.

Organic cheese, meanwhile, represents just 1% of the UK cheese market. According to Omsco, the domestic cheddar subsector is highly competitive and it is therefore difficult for organic to win market share there. However, organic cheese sales are rising well, albeit from a low starting point (a market size of less than £30m a year).

Nielsen, Soil Association

Organic butter and fats sales are increasing strongly – 21% year on year, according to the Global Organic Dairy Market Report 2019 – but overall the market share remains small at present.

Organic sales make up around 8% of the UK yogurt market, thanks to the strength of brands such as Yeo Valley and Rachel’s Organic. However, sales growth has been weak in recent months, due to increasing competition and pricing.

Technology

The Innovative Farmers programme – part of the Duchy Future Farming Programme backed by the Prince of Wales’s charitable foundation – is a national scheme that supports producers in all areas of organic farming to run trials and share knowledge, for example in terms of increasing milk yield or reducing disease rates.

Omsco, meanwhile, is using data to improve profitability for dairy farmers. Richard Hampton, MD at Omsco, says: “We have a groundbreaking costings model that we’ve rolled out to our organic dairy farmers: we are building a set of data around the cost of production using data from all our members. In turn, this can help organic dairy farmers reduce their costs.”

This model, Hampton adds, benchmarks a wide range of performance areas. “It will allow a highly detailed view of factors like the value of on-farm feeding, feeding rates versus yield, and how to maximise productivity with minimum inputs,” he says.

Global demand

Hampton says the most significant opportunity for UK organic dairy producers lies in international markets, given the relative lack of domestic growth. “The export market is complex and requires a lot of investment, but it is delivering both growth and premiums,” he says, pointing out that, while the conventional dairy sector is a net importer in Britain, organic is the only part of dairy that is a net exporter.

Source: Omsco

With around 20% of UK organic dairy exported, Hampton adds, there is greater potential for future expansion in more specialised markets, such as in processed milk and whey powders – for example, for the international infant formula market.

At present, the UK lacks adequate infrastructure for a number of manufacturing processes, which means a lot of organic dairy is exported to be processed in the EU. This link in the supply chain could be jeopardised by Brexit, however.

Hampton says some trade with the EU has already dried up because continental processors sought alternative suppliers in the lead-up to the original Brexit date of 29 March 2019. And while any tariffs imposed on exports to the EU could be an issue for producers, Hammond points out that a more significant problem could be the non-tariff-related barriers.

“Organic food standards from the UK will not be recognised in Europe when we leave, unless we leave with a deal,” Hampton explains. “We will then have to apply for third-country equivalency status. That will take a period of time, and during that time there will effectively be an overnight export ban on all organic food from the UK to Europe – and dairy is the overwhelming proportion of those exports.”

Hampton says that exports to the US have also been affected by the Trump administration’s introduction of tariffs worth an additional 25% of value.

Looking ahead

According to Omsco, the current uncertainties mean that the opportunity for conventional dairy producers to convert to organic is limited at the moment. The present challenge is to ensure that the sector can continue to sell all of its current UK production – and, indeed, Omsco itself still has a waiting list for membership.

However, if these uncertainties are resolved following the general election, Omsco believes it is possible that conversion could become a more viable prospect for UK producers.

Share This

Agriculture