Ontario organic dairy producers are feeling more blue than green of late, because of a significant drop in the premium they get on their milk products.

In 2008, organic milk producers received a premium of around 23 per cent above conventional milk producers. But so far in 2009 it is hovering around just 14 per cent. Also, where in 2008, Ontario’s organic dairy industry grew by 20 per cent, it has grown by 5 to 7 per cent so far in 2009.

So far this year, supply of organic milk has exceeded demand by 6 million litres in Ontario. As a result, the surplus milk is being processed for conventional milk, and farmers are not getting a premium on it. This is because according to the standards set by the Dairy Farmers of Ontario (DFO)—even if the milk is farmed organic—farmers only get a premium on what is processed into organic milk.

Several factors may have resulted in the surplus milk.

"For one," says organic dairy farmer Harry Peeters, "a lot of new farmers have come into the industry."

Currently, there are 75 organic dairy producers in Ontario. Peeters says the surplus could be a result of having too many producers and not enough market.

Over-production could also be a result of overconfidence in the market.

"The market has not expanded as much in the last year as had been anticipated," says organic dairy farmer Peter Dowling.

What is the reason for the lower rates of market expansion?

One factor could be the current economic conditions. Consumers may be finding it easier to go without the higher-priced milk products.

Another reason, says Peeters, could be that Ontario’s major organic milk brands did not market their products aggressively.

The reality, says former Chairman of Organic Meadows, Pieter Biemond, is that "organics is a niche market."

Organic milk accounts for less than one per cent of Ontario’s milk production and Biemond says it is likely to stay that way for some time. Biemond says organic producers should not be overly concerned.

"Profits are not plummeting, they’re depressing," he says. "The industry is still growing—just not as well as last year. And even if it’s only a 6 per cent increase, that still means you’re growing."

"Lower premiums will give some farmers a harder time keeping up with costs," says Dowling, "but I see the markets expanding in the future."

Biemond is also positive about the future: "It’s only going to grow because of the movement towards local and environmental lifestyles."