Milk statistics only tell half the story

The South African Milk Processors’ Oraganisation (SAMPRO) said the raw milk price index rose 59% in the past 41 months (January 2007 to May 2010) while dairy product prices rose only 36%.

Milk processor Parmalat used these statistics to justify their decision to slash 20c/l off the raw milk price from 1 September, saying the higher cost of raw milk had essentially been carried by manufacturers and had not been fully passed on to consumers.

With the exception of February 2009, December 2009 and January 2010, the production price index of raw milk increased in each month of 2009 and up to May 2010. “We’re still in a situation where the raw milk producers’ price is higher than the inputs price index, which equates to encouragement of production,” said SAMPRO CEO Alwyn Kraamwinkel.

Milk production has hit historically high levels in the past 10 months, despite extreme drought conditions in the southern and Eastern Cape. “It proves you can produce milk in the middle of the desert, depending on availability and price of feed,” said Kraamwinkel.

However, farmers are milking at a loss, said Swellendam farmer Thys Swart, who’s also a director of the SA Milk Co-operative. Year-on-year comparisons show an increase of 61% in imports to South Africa and a decrease of 8% in exports. To make matters worse, the Food and Agriculture Organisation (FAO) expects world production of dairy in 2010 will be 2% higher than in 2009, and that exports will be higher.

“As long as the rand is strong, especially against the euro, we’re in big trouble,” said Swart. “It’s cheaper to buy products in the EU. The supermarkets only need to buy 1t of cheese at R20/kg and use it as a bargaining chip to bring down the price of local cheese.”

He said there was a huge difference between the profitability of the top third of producers and the bottom third. “Many smaller farmers who are milking between 50 and 100 cows struggle, because they’re too small to negotiate lower prices on inputs. All the ‘bad’ dairy farmers are already out of the business. There will always be a lower third, even among the best farmers.”

And the industry can’t afford to lose the smaller farmers, added Swart. “In the end, we’ll have only a few huge mechanised farms and our platteland will have lost its identity.”

A strategic planning session was recently held with a contingent of concerned farmers and dairy industry representatives, including Milk Producers Organisation MD Bertus de Jongh and Prof Mohammed Karaan, dean of agricultural sciences at the University of Stellenbosch, to assess the dire situation facing dairy farmers in the greater Overberg region.

It was decided to investigate current transport routes, the possibility of a management mechanism in respect of milk supply, additional processing capacity in consultation with producers, and partnerships with existing processors and processing plants.