The dairy industry is expecting the supply of organic milk to surge by at least 40 per cent this year from a previous annual growth rate of 20 per cent, creating an excess of 94.6 million litres, according to some estimates.

Meanwhile, consumer demand for organic milk will continue to grow at 25 per cent annually, leading some industry experts to predict that a retail promotion war is imminent.

U.S. dairy processors and distributors such as Dean Foods, Stonyfield Farm and Organic Valley, a dairy farmers' co-operative that sells to retail grocery chains, are welcoming the news because it provides an opportunity to expand the market and offer more organic milk-based products.

“The oversupply situation is going to result in a pretty competitive marketplace,” said Molly Keveney, a spokeswoman for Dean, which owns the best-selling Horizon Organic brand of milk. “Until last year we were in a supply constraint situation. We weren't innovating at all.”

Greater quantities of organic powdered milk, yogurt, ice cream and cheeses are expected to hit store shelves as dairy processors divert their excess supply.

Consumer prices for organic milk, however, are unlikely to drop because the industry expects the glut to be short term.

“It would take a year before demand for fluid organic milk could catch up, assuming 0-per-cent growth in supplies the following year,” JPMorgan Securities analyst Pablo Zuanic said.

“But factoring in other potential uses for organic milk, we estimate the oversupply situation may last six months,” Mr. Zuanic wrote in a research note.

Source: Globe and Mail