Organic market decline creates problem for state co-op

Jan Shepel
An East Coast milk buyer leaves Scenic Central Milk Producer members in the lurch following a drop off in demand for organic milk.

MUSCODA - Late payments and reduced demand by one of its milk buyers, brought on by the sagging organic market, has hit Scenic Central Milk Producers with extra expenses on its year-end report to members.

The co-op is dealing with a $493,000 loss on its books as a result of the likely non-payment from that milk buyer. Officials said, “depending on the final settlement, there is the possibility for an additional loss this next year.”

At the annual meeting of its farmer-members last week in Muscoda, Scenic Central’s general manager Ron Statz and board chairman Clayton Bare explained that they are still hoping to reach a settlement with the east-coast organic milk buyer, but felt they had to allocate member money to make up for payments they currently haven’t received from that buyer. This is a buyer they have worked with for about eight years.

“The board felt it was important to plan ahead. So we decided to book the loss we’re anticipating. We’re in the process of negotiating a settlement and there’s a chance, though remote, that we could collect all of it,” Statz said.

The co-op’s board normally sets a goal to make $100,000 profit each year and was on track to do that, until those payments from the buyer of segregated organic milk never appeared.

Only a short time ago the conventional milk market was weak and the organic market was strong. These days, conventional prices aren’t great but those markets are at least solid and “the organic market is on life support,” Statz said.

Only a short time ago the conventional milk market was weak and the organic market was strong. These days, conventional prices aren’t great but those markets are at least solid and “the organic market is on life support,” Statz said.

There is a group of about ten producers affected by the non-payment; the cooperative has about 40 organic farmers in all, he said. Scenic Central had served as procurer of the milk from the small group of organic farmers and agent for the milk buyer, handling the payments to producers.

Scenic Central had to inform the group of organic producers who had been involved with the east-coast buyer that they would not likely have an organic sale for their milk through the co-op. Scenic Central has always tried to restrict its membership to those farms that had milk they could find a home for.

Statz said that only a short time ago, when organic demand was really strong, the co-op signed new farmers and moved their organic milk into sales out east — at about $40 per hundredweight.

For several weeks, the organic buyer had been moving much of their milk into the conventional spot market at half price, indicating that it wasn’t being used to produce organic dairy products.

The company’s owner explained that he had lost a couple of organic markets for his products, Statz said. Soon after that he dropped the organic farmers he had committed to and left the co-op unpaid.

Scenic Central considered legal options, Statz told his membership, but decided to continue to negotiate rather than wait to get whatever payments could be in the offing from potential legal moves. “Our co-op could hire forensic accountants,” Statz said, “and that could cost us up to $50,000. Our attorney’s advice was to get the most money we could through negotiations. Winning a lawsuit doesn't always guarantee you get any money.”

Board chairman Clayton Bare, who has been involved in the negotiations, said that the co-op chose “what we thought was the best course of action. Organic was in a free fall. It’s a race to the bottom,” he added.

Fellow board member Ed Chitwood added, “We don’t sugar-coat it. We let you know what’s going on.”

The board members and general manager defended their plan to use co-op funds to honor commitments to all producers, noting that “everybody helps each other” in their cooperative. They also noted that the losses would change the cooperative’s reserves.

The board of Scenic Central had decided long ago, and carried on with the policy, that they didn’t like the idea of retained earnings so they have never kept any of those from their member as most other cooperatives do.

Income statements showed sales for the co-op totaled over $108 million for the year, which is a lot of growth, Statz said, from the time he started as general manager when it was in the $80s (million.) Noting that the co-op is a very lean running operation, he said that 99 cents of every dollar collected by Scenic Central gets back to the farmer in one way or another.

In addition to the general payments for milk, 3 percent goes into quality premiums, 1 percent for volume premiums and 4 percent goes for hauling subsidies.

Scenic Central Dairy Cooperative marketed 523 million pounds of milk in the last year, which continues the upward trend for the group. Some of that growth came from additional members but much of it came from existing members growing their dairy operations with additional cows.

Statz also told the membership that last August the cooperative started up a group of farmers producing milk using all non-GMO feed. Those 25 farmers have been shipping milk through the co-op since that time and were all new additions to the co-op’s membership.

He explained that in the future, they hope to grow the program if existing members want to use only non-GMO feed. “Time will tell how the new non-GMO program will grow. We hope to grow that program as the opportunities arise.”

Members were also told that there is over $4 million that has been invested in members’ annuities since the cooperative began a program under which producers have money deducted from their milk check and the co-op matches it. Statz said these annuities are completely owned by the members and the co-op has no stake in them.

“This program has been expanded above and beyond our expectations and to my knowledge it is unique in the industry,” Statz said.

Statz, who formerly worked for Wisconsin’s National Farmers Organization (NFO) plans to retire from Scenic Central in June. The position of general manager will be filled by Terry Hanson. (See related story.)