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3.6. Organic dairy
The organic dairy sector is one of the fastest-growing parts of the Scottish organic supply network. Sales of liquid organic milk have increased by over 230% in the past 24 months (Scottish Organic Milk Producers Association ( SOMPA)). As liquid milk requirements continue to rise, the demand for milk to go into cheese, ice cream and yoghurt is also on the increase, with the market share increasing significantly. In support of this increase, the British Retail Consortium reports that 100% of organic milk sold by UK retailers is sourced from the UK.
3.6.1. Scotland's production and value
The figures for the Scottish organic milk sector were provided by SOMPA, who represent almost all the organic dairy farmers in Scotland. In 2004, there were approximately 24 organic dairy producers in Scotland, with over 3,000 cows producing 14.7 million litres of organic milk. There are a few producers who are producing milk on a smaller scale for their own use or processing. Due to national marketing problems, some producers have derogations from their organic certification body to 'defer' their conversion to full organic status and are therefore not included in the sample.
3.6.2. Marketing test
Of the 14.7 million litres of organic milk produced in Scotland during 2004, 75% was sold as organic. The reason for this figure not being 100% is due to the lack of collection and storage capability for organic liquid milk rather than lack of market demand and sales. Farmers receive a variable price at the farm gate for their organic milk, depending on market demands, time of the year and who they have their contract with.
One of the key points to any successful marketing venture is to deliver a strategy based on key unique selling points. In the case of organic milk it is believed that the most significant reason for the increase in demand has been the recent establishment of the health benefits associated with organic milk. Studies have shown that organic milk contains substantially more omega-3 fatty acids than non-organic milk. The brand management exercise of offering "Scottish Organic Milk" has also been a notable success. The first supermarket to sell and brand a distinctive Scottish organic milk product was Tesco in spring 2004. This gave the Scottish consumer what they had been looking for; a locally sourced, fresh, well packaged organic milk product.
3.6.3. Co-operation
Effective contract negotiation and marketing to the public, has helped SOMPA and its customers build greater availability and a greater demand. The organic milk market has been turned around due to input from the Scottish Executive, management and marketing from OMSCo and proactive supply network solutions from stakeholders (Robert Wisemans, Graham's Dairies and First Milk).
With assistance from SEERAD, SOMPA were able to employ a marketing manager. This role involves acting as a point of contact for processors and buyers who are then able to access production figures in order to maximise sourcing from Scottish producers. SOMPA's marketing manager has been credited for the increase in the amount of organic milk being sold as organic.
3.6.4. Processing
Dairy processing covers a relatively broad range of activities. Respondents to the processor survey are producing yoghurt and ice cream products. Therefore comparing volumes sold and a value from each market outlet is difficult. However some general comparisons can be made.
Supermarkets take approximately 68% of processed organic dairy products (by turnover). The next greatest share is from wholesaler spending - taking up an 18.5% market share and 13.5% was through small retailers. Volumes of milk sold were given for supermarket and wholesaler sales and this allowed the average price paid by each outlet to be calculated. On average processors selling to wholesalers received a better price for their product whilst the average price of sales to supermarkets was around 7 pence per litre lower.
3.6.5. Looking to the future
Figures suggest that by summer 2006 the market for Scottish organic milk could have grown by 30%, which is above the UK national average. It is therefore vital that all current members of SOMPA are supported and encouraged to continue milk production and those farmers that have deferred conversion should be encouraged to commence full organic production. In addition, the processing of more organic milk in Scotland should be encouraged to reduce reliance on imports from outwith Scotland.
3.6.6. Penetration
Scottish organic milk producers are successfully achieving 100% penetration of raw milk, which accounts for approximately 34% of organic dairy sales 25. Whilst the raw milk market has achieved 100% penetration, processed dairy products such as yoghurt and cheese, sold through the multiple retailers tend to come from outwith Scotland. For example, organic brands such as Rachel's Dairy and Yeo Valley dominate the market for organic yoghurts in Scotland. Consequently, this reduces the overall market penetration for dairy products to approximately 40%.
3.6.7. Summary
- 3,000 dairy cows produced 14.7 million litres of organic milk in 2004;
- In 2004, a lack of storage facilities and difficult collection logistics resulted in only 75% reaching the organic market;
- Raw milk from Scotland is achieving 100% market penetration but the overall market penetration level for organic dairy products is approximately 40%;
- Processed dairy products are increasing in production;
- The sector is likely to experience under supply by the end of 2005.
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