Dairy industry battling to make ends meet

Milk producers are battling to make ends meet amid enormous input cost increases and the threat of declining producer prices, the Milk Producers’ Organisation (MPO) said on Friday.

“The trend of milk producers leaving the dairy industry is intensifying and may soon reach critical levels,” MPO managing director Etienne Terre’Blanche said in a statement.

“For us, it is of great concern that well-known milk producers with big and established dairy farms, are now giving up milking because they can no longer produce milk profitably,” he said.

“This does not bode well for the dairy industry.”

Terre’Blanche said that while producer prices had increased 35% year-on-year, feed costs had increased by 60%, diesel by 63%, fertiliser by 170%, electricity by 27% and labour by 10%.

Added to this were the property taxes implemented on agricultural land and improvements.

He said the recent trend of milk producers leaving the industry was the result of contra-cyclical price signals sent out in 2005 when the milk price declined unexpectedly at the start of winter.

This was the time when milk producers traditionally obtained higher prices, because of a seasonal drop in production.

This led to significant milk shortages in the South African market in 2007, with producers unable to produce enough milk to meet demand. As a result, dairy imports significantly increased.

“The current price signals clearly indicate a repeat of that cycle and our prediction is that milk shortages will again occur towards the beginning of the next year,” Terre’Blanche said.

In the meantime, indications are that the retail price of milk and other dairy products was not dropping significantly enough to stimulate consumption among consumers, despite the price decrease to producers.

Against the backdrop of a worldwide shortage of food, Terre’Blanche believed there were clear indications that export opportunities existed.

“We need to explore and develop these opportunities as a viable alternative to ensure the continued existence of the South African dairy industry,” he said.

“What the dairy industry needs now is cool heads and rational decision-making.

“Urgent intervention by all role-players with an interest in the industry, and the future of agriculture, is required to avert serious damage to an otherwise efficient, productive and competitive primary dairy industry.” - Sapa

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