IN A POPULARITY CONTEST, organic dairy would win every time. Fresh tasting and healthy—what’s not to like? In fact, organic dairy, led by milk, is one of the fastest growing segments of the organic foods industry, and is driving sales within both mainstream and natural grocery segments. Nielsen LabelTrends reports that the segment experienced $1,475 million in sales (year ending August 9, 2008), up 20 percent from the previous year.

“Organic dairy products—primarily organic milk—are a gateway for consumers who are just beginning to choose organics,” explains Mark Retzloff, chairman of Aurora Organic Dairy, Boulder, Colo., and one of the founders of Boulder’s Horizon Organic Dairy. “Because dairy products are produced without the use of synthetic growth hormones, antibiotics and pesticides, consumers perceive them to be healthier for their families.”

Recent news of melamine-tainted milk from China is helping drive organics as well. “There is definitely a growing interest from customers about what they are eating and who made the food,” explains Tommy York, co-owner of specialty food store Morgan and York, Ann Arbor, Mich. “Therefore, organic everything is on the rise.”

Spending on Essentials
Even as consumers become more focused on their budgets, the organic milk market—which is made up of a handful of national brands, local dairies and a growing array of private labels—continues to attract attention.

“To the consumer, milk is the epitome of purity and wholesomeness,” says Eric Newman, vice president of sales for Organic Valley cooperative of farms, based in La Farge, Wisc. “Sales of organic milk have remained strong because consumers are not willing to trade down on milk when times are tough.”

At Mississippi Market Natural Foods Co-op, St. Paul, Minn., sales of organic milk remain strong, even with the increase in conventional products that are produced without growth hormones,” explains Dave Olson, grocery manager, who believes it is the concept of a fresh product made with care that helps sustain sales in the category. “The grass-fed organic milk we offer is so popular that our local supplier has a hard time keeping up with our demand.”

For Straus Family Creamery in Marshall, Calif., it is the organic lifestyle consumer who is helping drive sales of the company’s dairy products. Rich Martin, vice president, sales & marketing, notes the hint of the grass that the cows consume gives the company’s milk a distinctive flavor. “It may be the most expensive milk on the shelf,” says Martin, “but our glass-bottled organic whole milk is our best-selling item.” 

Local Appeal and European Style
As interest in locally produced foods increases, regional dairies are getting an attention boost as well. For example, Sky Top Farms’ regional yogurt and butter offers customers great flavor, organic certification and a sense of local, says Ihsan Ghurdal of Formaggio Kitchen in Cambridge, Mass. At Organic Valley, the recently introduced pasture butter, which has key Omega-3 and -6 fatty acids, features a taste that is different from conventional butters. “It has a flavor that is representative of where the cows graze, and that is something that consumers are really enjoying,” says Newman.

Sales of European-style butters are also increasing. Straus Family Creamery reports that several Northern California chefs use its butter due to its high fat content (85 – 88 percent) and low moisture, which makes it ideal for sautéing or for use in baking.

Likewise, overall sales for Straus’ European-style yogurts are up double digits from last year, with the most popular being the whole milk plain yogurt. “Consumers are using plain yogurt in a variety of ways. They are mixing it with fruits and granola, cooking with it, creating smoothies and even eating it plain. We’re finding that kids love eating the plain European-style yogurt because of its tartness, which children have a natural affinity towards.”

Flavor in the Forefront for Cheese
For specialty food retailers, organic is a part of quality, but not the main player. “Organic takes a back seat to flavor,” explains York. “We look for flavor first and organic second, simply because being organic does not necessarily mean that it will taste good, or that it was prepared correctly. If we can get a full-flavored product that is organic, that is always preferable, but it must taste good.”

That is certainly the case with retailers offering regional artisan cheeses. At Formaggio Kitchen, “we don’t need to yell ‘organic,’” explains Ghurdal. “I use the terms biologique or farmhouse and my customers understand the cheese is produced with great care.”

Ghurdal doesn’t seek out organic domestic or imported cheeses, although many of his selection are, “they’re just not certified,” he explains. “I am finding that the Europeans don’t believe that being certified organic will necessarily give them the edge. Many of them use organic methods, they just decide not to pay the cost of certification. When our customers taste the product and hear the story of the farm, they understand that oftentimes it is produced with great care, and it is often organic.” He does, however, sell a handful of organic cheeses from Switzerland, France, Belgium and Italy.

Egg Anxiety
Organic and conventional consumers are experiencing sticker shock with eggs. At Mississippi Market, the local egg supplier is struggling to keep prices competitive, but Organic Valley’s Newman says that he hasn’t seen sales of conventional eggs increase at the expense of organic eggs. “We take a low margin on eggs so that we can offer the most fair price for organic,” he adds.

Similarly, Ghurdal purchases organic eggs from a local Massachusetts supplier, but notes that his customers “like to purchase country eggs,” and are focused more on the farmhouse distinction, or, as he explains, “the look and taste of the product rather than an organic seal.”

Innovative Ice Creams
“Consumers are slower to commit to certain peripheral dairy categories such as ice cream or sour cream,” explains Newman. “What is exciting,” he adds, “is that companies are venturing out of vanilla, strawberry and chocolate, branching out into cultural flavors such as baklava.”

That experimentation is occurring in the San Francisco Bay area at Bi-Rite Creamery and The Three Twins, both of whom purchase Straus cream to make their ice creams. Orange Cardamom, Honey Lavender and Roasted Banana are just a few of Bi-Rite’s foray out of traditional flavors, and for The Three Twins it is Milk Coffee and Mint Confetti.

What’s in Store?
Despite the economic downtown, the organic dairy industry is optimistic about growth. Says Mississippi Market’s Olsen, “With the economic problems, we have seen less interest in high-end packaged organic foods such as frozen pizzas, sodas or pretzels. But for staples such as milk, butter and olive oil, our customers are still choosing organic.”

Retzloff of Aurora Organic Dairy, the leading producer of organic milk to retailers for their private-label programs, forecasts growth if the industry is made affordable and accessible to everyone, not solely the core natural and organic consumers. Product-wise, he also notes, “interest in Omega-3 or DHA-enhanced milk coming to market, along with kid-centric products that are healthy and low in sugar and fat. These include lunch-box friendly, single-serve packages such as yogurt tubes and aseptic milks. Further, private-label organic dairy products will continue to be a big trend in conventional supermarkets and club stores.”

Overall success, adds Retzloff, will require that the entire organic dairy industry focus on educating consumers about the benefits of the products—not only to people and animals, but to the entire planet.

Laura Everage is a regular contributor to Specialty Food Magazine.