Organic Economics: Producing Local Milk Is a Tough Business

Food quality and safety is a growing global concern and a potential business opportunity. As the developed world's population ages it has grown more health-conscious. Concern about the affect of pesticides and food additives has driven growth in organic and locally-produced products. In developing countries, food safety issues have created a similar market opening. Consumers in both kinds of economies have responded to surveys saying they would pay a premium for products that they thought were better and safer.

The actual business of trying to meet this demand turns out to be difficult. Costs, lack of scale and skimpy margins are the culprits.

Katie Zezima reports in the New York Times:

"Perched on the rocky coast of far eastern Maine, the farm owned by Aaron Bell and Carly DelSignore is stunning, both in its views of Cobscook Bay and in the distance that the milk they sell must travel to get on the shelves.

Their farm is a six-hour drive from most potential customers — so far that their longtime processor, HP Hood, gave up on them in 2009, convinced that no one would never make a profit hauling milk such a vast distance.

But the married couple, part of the eighth generation to farm on Mr. Bell’s family’s land, is determined to keep dairy a viable industry here in Washington County. They are of a small, farmer-run outfit called Maine’s Own Organic Milk — MOO Milk for short — which hopes to persuade New England foodies to pick up a carton of MOO’s organic, local, slow-pasteurized milk instead of reaching for familiar national brands like Horizon Organic or Organic Valley.

So far, success has been elusive. Ever since its milk began hitting shelves in January 2010, the company has barely managed to stay afloat, relying on a mix of investor money, grants, charitable donations and the kindness of neighbors buying half-gallons in solidarity.

“Our boat is made of duct tape and we’ve almost sunk a few times, but we’re paddling along,” said Mr. Bell, 33.

MOO Milk’s journey is a cautionary tale: true grit, a laudable philosophy and a hot trend aren’t enough to create a viable business.

“There are folks who support what we do, but there’s not enough of them up here,” said David Bright, a former newspaper reporter and the organization’s treasurer. “So far, I haven’t been able to find 6,000 people who will buy a gallon of our milk each week.”

Organic milk sales are expected to grow by 10 percent this year, according to the Organic Trade Association. But the competition is cutthroat, and small players tend to struggle.

“Milk sells for a very, very small margin” of profit, said Nancy Hirshberg, vice president for natural resources at Stonyfield Farm, a leading maker of organic dairy products. “It’s about high volume.”

MOO Milk got a lifeline in December, when 14 Whole Foods supermarkets in Massachusetts agreed to sell its milk. But it may not be enough to save it.

“The bankers don’t really have the sense of urgency about what we’re doing and that you have to feed these animals,” Mr. Bright said. “We’re going to bleed out on the emergency room floor.”

Mr. Bell is trying to stay optimistic. He can’t afford to give up yet — he and his wife are expecting their fourth child in May, and they are still paying back a $250,000 loan they took out to start the organic operation. Plus, there are few alternative job prospects in Washington County, which has an unemployment rate of 10.3 percent.

“The stage is set,” Mr. Bell said while driving a tractor on a frigid Sunday afternoon in January. “We’re a marketable brand. Our milk is good. We have a good, honest story. We have distribution and should be able to sell all of our milk in Maine, New Hampshire and Boston.”

Most of the farmers in MOO Milk got into the organic dairy business in 2005, when Hood approached them to help it meet the booming demand for all things organic. But when the economic downturn hit in 2008, consumers cut back on purchases of organic milk, which typically costs about $4 for a half-gallon, or double the cost of nonorganic milk.

Hood, which was processing the milk in Oneida, N.Y., ended the contracts. “The demand for organic milk had decreased, therefore our need for organic milk had softened,” said Lynne Bohan, a spokeswoman for Hood. In addition, distance was a factor. “There are certainly efficiencies in procuring milk from farmers who are closer to our plant,” she said.

Nine of the farmers decided to go it alone and set up MOO Milk.

The organization started on donations, including $50,000 from Stonyfield. MOO worked out a deal with a local milk truck driver to haul the product, and Smiling Hill Farm, a Maine dairy, lets MOO use its processing facility two days a week. MOO also uses a different pasteurization system than most other dairies. Rather than flash-pasteurize, it slowly heats the milk, resulting in what its farmers say is a creamier product.

But the company has little money for advertising, and it has struggled to persuade customers to choose MOO milk over its rivals.

“If you go to the milk cooler in your store and you walk up to it, all you see is a wall of white with little gobs of color on it. Your mind focuses on the label that’s in your refrigerator,” Mr. Bright said.

On a dreary Wednesday at the end of January, the organization’s chief executive, Bill Eldridge, was trying one time-honored tool in the food marketer’s arsenal: free samples.

“Would you like to try some milk?” Mr. Eldridge, dressed in a white fisherman’s sweater and jeans, asked shoppers at a Whole Foods next to Massachusetts General Hospital in Boston.

Dozens of people stopped at the table, picking up a small paper cup of milk and grabbing a cookie. One woman told Mr. Eldridge the milk tasted like what she used to drink as a child, and another put back the milk she had in her cart and purchased MOO instead.

“Our product does do the talking for us,” Mr. Eldridge said. “It’s a not particularly hard sell. Just let people taste our milk.”

Since MOO Milk began, three farmers dropped out of the co-op. The six who remain are still waiting for a few months’ worth of paychecks and are lagging far behind on their bills.

“It would be nice,” Ms. DelSignore said, “to be putting money in our pockets for the amount of work we do.”

In addition to the Whole Foods deal, MOO is hoping to get a boost from outside investors. The company is in talks with Coastal Enterprises Inc., a nonprofit organization, to invest $150,000. But under the proposed terms, MOO must first find other investors, Mr. Eldridge said.

Ronald L. Phillips, president of C.E.I., would not provide details of the negotiations with MOO but he said he viewed the co-op as a way to support local agriculture.

“We’re talking economic development here for lower-income communities, for rural areas, not just the product itself,” Mr. Phillips said. Heather McCready, a spokeswoman for Whole Foods, declined to give sales numbers for MOO milk, and she said it was up to individual dairy managers to decide whether to stock it.

“Whole Foods Market seeks to support small, struggling New England organic dairy farmers,” Ms. McCready said in an e-mail message. “We believe in the goals of this cooperative. MOO Milk produces a product that meets our quality standards.

While the mood at MOO seems to change by the day, all involved said they wouldn’t be making such sacrifices if they were not convinced that it would survive and that more people would become interested in supporting local, sustainable agriculture.

“I think if we can hold everything together,” Mr. McPhail said, “I really think that we’re going to make it.”