The Soil Association says many of its members are being driven out of business because the price paid to producers for organic milk has dropped from 29.5p a litre last year to 18p, a third less than the production cost. So it is encouraging farmers to pool resources and join co-operatives to strengthen their selling power and increase organic milk's 1.5% share of the liquid milk market.
The largest of these, OMSCo, reckons that production ­ about 210 million litres ­ is double the volume needed, and is calling for more promotions to shift product.
OMSCo marketing director David Whiting says the problems stemmed from producers' naivety over forecasts about how much more milk could be produced and how much the market could be grown.
It looks as if many farmers will revert to conventional production, which should ease the problem in the short term. However Whiting says: "Now we have to explain to consumers why it's worth paying more ­ it's up to processors and retailers."
He says Tesco's move to cut prices won't pull in shoppers. In fact, he believes it will undermine consumers' perceptions of organic milk. People have to understand why they are paying more, he says.
Despite this, Whiting believes there's enormous potential, and says Cravendale is a good example of how brands can create interest. "It's a market in its infancy ­ after all, a lot of people still see organics as a cranky category."
Own label has helped create a £148m organic dairy sector ­ more than 18% of the total organic retail market ­ and now it appears it is up to the brands to move the category forward.
Rachel's Organic Dairy and Yeo Valley have introduced branded organic milk, and both companies believe their growing reputations should re-energise the sector.
Yeo Valley, with a turnover of £30m, recently launched its semi-skimmed and whole milk cartons into Morrisons in the belief that over-supply is a short-term blip which will be addressed as the market grows.
Business development director Karl Tucker says Yeo Valley is gauging how far the brand will stretch. It has a stable of 28 products including butter, yogurt, cream and cr譥 frae. "We've a very strong, loyal customer base. There's a fair chance we'll get good take-up." He says that for many products, the fact they are organic is of secondary consideration to the taste and quality. "There are still gains to be had and we aim to increase rates of sale and frequency of purchase through our marketing and encouraging trial." It also plans to target independents this year.
Organic stablemate Rachel's Organic Dairy doubled sales in the past year and the firm is now turning over £6m. It has evolved from a small Welsh farm and made a big impact in the multiples with a range of 35 products including yogurts, cream and butter, and believes its success has helped grow the organic dairy category. Sales director David Stacey believes the Rachel's brand still has plenty of growth. "Organic brands do much better than own label because people are interested in heritage and the story behind the food. Yogurt is a good example. There are huge opportunities in yogurts and we're looking at pack formats and flavours. We're also keen to see what other areas we can get to."
Supermarket buyers are keen to try out some of the approximately hundreds of organic dairy products currently licensed by the Soil Association.
Waitrose customers are some of the biggest fans; its organic milk makes up 15% of total milk sales. Yogurts and desserts also do particularly well (Yeo Valley reckons that organic yogurts make up 10% of the total market), while cheese is less popular. However Waitrose cheese buyer Graham Cassie says this may be because it already has a farm fresh' image. "Milk sales are racing ahead and grew 20% in the last year while desserts are growing even quicker. The organic market is not fully mature yet but consumers are very conscious of it because it is mainstream now and very important."