Organic Valley struggles, then surges in turbulent dairy market

After losing money in 2019, organic milk gets a boost during the COVID-19 pandemic

Cows graze on the Tranel Family Farm, Organic Valley farmer-member (photo courtesy of Organic Valley)
Cows graze on the Tranel Family Farm, Organic Valley farmer-member (photo courtesy of Organic Valley)

 Here’s more evidence of the hard times — but also of new hope — in farm country.

         Organic Valley, the nationally known organic farmers co-op headquartered in LaFarge, lost money for the third straight year in 2019, but observers say its economic performance has improved and more importantly organic milk sales are unexpectedly zooming in 2020.

         “Organic milk is just flying off the grocery shelves,”  says Joel McNair, who publishes a Wisconsin-based farm magazine called Graze. He says the co-op is “experiencing if not record sales, near-record sales” based on the comments he hears from Organic Valley farmers.

         An unexpected rise in sales in January 2020 turned into a flood in February and March when the coronavirus swept across the country, according to observers. As Americans retreated to the safety of their homes, they began stocking their refrigerators with organic milk.

         “People are eating more at home, and that is driving more in-store retail organic dairy purchases,” confirms Elizabeth McMullen, Organic Valley’s public relations coordinator, in a written statement.

         She describes the growth in retail sales as “unprecedented”.

         The co-op’s good and bad news was shared at its April 1 annual meeting — held not at its usual site at the La Crosse Center arena but “virtually” online for the first time due to the same contagion fears that are stoking organic milk sales.

         “This will be the first quarter in many quarters to show a profit,” says Mandy Mobry, office manager for family-owned R&G Miller & Sons, a large organic farm north of Sun Prairie.

         “It’s exciting,” she says of the co-op’s economic advance. “Hopefully we can keep it rolling. It’s such a weird time, though. You never know what’s going to happen next.”

         The fate of the co-op is a key issue for Wisconsin agriculture. Organic Valley, which is the largest organic co-op in the country, was founded in 1988 by a handful of idealistic farmers in the Driftless Area of southwestern Wisconsin.

         The co-op has grown into an economic powerhouse. As of last year, the co-op employed more than 800 people in the LaFarge headquarters and in neighboring Cashton where its distribution center is located.

         Organic Valley’s 1,878 farms are scattered in 34 states and three foreign countries, including 390 Wisconsin farms as of year’s end 2019. Almost two-thirds of those are dairy farms, according to McMullen. The 2018 nose count was 426. With a moratorium in place on OV adding new dairy farmers, McMullen describes the decline as normal attrition.

         Why the moratorium? Between 2017 and 2019 slackening consumer demand for milk and an oversupply of product crashed prices that organic dairy farmers received for their labors.  Conventional dairy farmers, who do not follow federal organic standards that require cows be grazed and not be dosed with chemical additives, were victimized by the same forces.

         Over the past five years an average of ten Wisconsin dairy farms shut down each week, leaving 7,198 still standing on April 1, according to state licensing data.

         Organic Valley hit $1.1 billion in sales in 2019 for the fourth consecutive year, McMullen says. Which is to say that co-op growth has stalled out.

         In 2017, Organic Valley reported an after-taxes $10 million loss — the co-op’s first money-losing year in two decades. In 2018, it was a $6.9 million loss after taxes. McMullen, while acknowledging that 2019 ended in the red, declined to give a dollar figure, saying they were unaudited draft numbers.

         Two longtime dairy industry watchers were shocked when told that Organic Valley had presented unaudited financial data at its annual meeting. Asked to comment, McMullen said auditors were still reviewing the books. She said the co-op would release a statement when it had the audited annual report in hand.

         While mum on the deficit, McMullen says it was mostly “non-cash and non-routine expenses” for severance packages for former employees, equity payments for departing co-op members and a balance sheet adjustment stemming from a major write-down for a cache of organic milk powder that had been carried on the books as an asset.

         “The general consensus is that the co-op is actually in better shape than it was 12 or 24 months ago,” says a co-op member who, on a condition of anonymity, discussed proprietary co-op information. He says the draft 2019 budget deficit was announced at around $30 million. But when looking at operations alone, it was only a $4.5 million loss.

         The co-op saw an abrupt leadership change last March when co-founder George Siemon stepped down as CEO and was replaced by chief business officer Bob Kirchoff. McMullen says new leadership helped bring “great savings and increased efficiency” to the Organic Valley operation.

         This included a cut of 62 staff positions, resulting in the departure of 54 employees. McMullen described their severance packages as “generous”.

         Most importantly for its dairy farmers, McMullen says the co-op held to its pay-price in 2019, meaning they weren’t subjected to the destabilizing gyrations of the milk market. (The average national pay price was  $30.25 per hundred pounds of milk — about $12 more than conventional dairy farmers received.)

         “As a cooperative,” she wrote, “we measure ourselves on our traditional mission, which is to create a stable economic foundation for family farms, and we held a stable pay price … in one of the most difficult years for dairy in the nation’s history.”

         Big challenges remain. If the economy crashes, a premium product like organic milk would likely suffer in the pullback as consumers seek cheaper alternatives. The co-op also may face collateral damage from the bankruptcy of the vanquished giant Dean Foods.

         Dean and the co-op had a joint venture where Dean processed and distributed Organic Valley products. Whether the co-op can strike a deal with the Dairy Farmers of America, which is buying Dean’s assets, remains to be seen. (Interested readers should follow The Milkweed dairy report for the most trenchant reporting on Dean and the DFA; most stories though are behind a paywall.)

         McMullen is optimistic for the future. “We are surpassing our goals and see a brighter 2020,” she writes in her memo.

         The co-op, in fact, is scheduling a face-to-face membership meeting for Aug. 17 in La Crosse.  Mobry, for one, is a big fan of the get-togethers. “It’s always nicer to meet in person, especially how Organic Valley does it,” says the Miller & Sons office manager. “Farmers from all over the country attend. You’re going to meet cool people and hear awesome stories.”