Fonterra says it expects its organic business - selling the milk from 20,000 cows certified as organic livestock - to surge by 140 percent over the next five years on the back of burgeoning global demand for organic dairy ingredients.

"Dairy is the fastest-growing category in the international organic market, and having seen 60 percent growth over the past two years we are well placed to build on this," said Fonterra's organic global category manager Rick Carmont.

An organic sector report released tonight by Trade Minister Tim Groser showed $27.8 million of organic dairy products were exported in 2009, as the overall organic sector contributed a total of $485m to the economy with organic exports growing to $170 million, from $120m in 2007.

Over the same two years, total sales of organic dairy products grew almost 400 percent.

The domestic market for organic products has also grown, to $315m, according to the Otago University report commissioned by Organic Products Exporters (OPENZ) and Organics Aotearoa New Zealand.

Europe (37 percent), North America (22 percent) and Australia (19 percent) are the largest export destinations, and fruit and vegetables valued at $85.8m were the most valuable market segment.

Mr Carmont said Fonterra was in a very strong position to deliver such demand, because it supplied ingredients for more than 9000 major retail outlets across the world -- most of them in Asia, North America and Oceania.

Fonterra's organic dairy ingredients are used in cheese, milkpowder, proteins and butter.

Although organics provide only 1 percent the co-operative's revenues, farmers on fully-converted properties earn a $1.05 premium on each kilogram of milksolids, and the profits from organic ingredients are paid to all shareholders as dividends.

Mr Carmont said Fonterra had more than doubled its organic milk supply to its accredited manufacturing sites at Hautapu, Waitoa and Morrinsville over the past year to help meet demand and was over half way in meeting its target for organic milk.

"We are the only organics dairy supplier to meet the government standards for all 71 major organic markets around the world -- so we are in a leading position," said Mr Carmont.

It was still recruiting farmers into an organics conversion programme.

"Not only do Fonterra's fully converted organics farmers receive a $1.05 premium per kilogram of milk solids, but many of our current farmers have found organic farming a positive alternative that is more than just financially rewarding -- there are some real sustainability benefits," said Mr Carmont.

The report released today showed that organic soils stored 28 percent more carbon in soils, and that organic dairy farms had 43 percent more earthworms than their conventional neighbours, and higher levels of biodiversity in soils and waterways, said OANZ chairman Derek Broadmore.

This was likely to be partly due to lower nitrate leaching from organic dairy farms, and Massey University had said that leaching into waterways was reduced 58 percent through the adoption of organic practices.