Via HuffPo, demand for organic milk is surging, so why doesn’t supply increase concomitantly? Purchasing contracts between organic dairies and wholesalers shift the risk of production costs onto the dairies, not the customers. I spotted this little gem of a quote with my super-special legal eyes:
The [organic] farmers’ plight illuminates an unusual feature of the U.S. dairy economy: Most farmers do not set their own milk prices. Organic farmers typically enter into contracts with processors. This provides stability compared with the month-to-month pricing of conventional milk, but it has caused problems once food and fuel costs took off.
Organic producers are decoupled from the commodity milk cycle, but must negotiate their own production contracts with organic milk wholesalers through their local cooperatives. Though they have the freedom to negotiate their own terms, the contracts they negotiate for themselves aren’t always favorable in the long term. The terms place all of the risk of input cost fluctuation onto the dairy. Not the best financial risk management strategy. Production contracts should not be entered into unless the prices are pegged to key input costs. Risk management begins with the contract. True for dairy and true for any other agricultural product.