DairyBelle defends price cuts

Milk buyer DairyBelle announced a milk price reduction of between 50c/l and 75c/l to between R2,55/l and R3,10/l from 26 June. Jacques Fourie, DairyBelle’s acting CEO said the cuts were based on economics.

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“There has been a substantial increase in milk supply since the beginning of this year but no corresponding increase in consumer demand. The national milk price rose by 22,3% for the year ending April 2012, according to the SA Milk Processors Organisation (SAMPRO). We can’t recover the price increases from the consumer,” Fourie said.

Cuts varied depending on region, but averaged at 12% of the milk price, from a low of 6% to a high of 15%, Fourie said.
DairyBelle, previously owned by Tiger Brands, was taken over by Dairy World of Pretoria (owned by the Meyerowitz family), and other shareholders in 2008. Standard Bank has a 50% shareholding in DairyBelle, according to its 2011 annual report. Nick Wentzel, former Parmalat CEO, was brought in by Fourie as a consultant to the board.

Under Wentzel’s year-long tenureship at Parmalat, a price cut strategy introduced in 2010 threw drought-stricken dairy farmers in the Southern Cape into a tailspin. Fourie said the Parmalat price cuts should not be compared with those introduced at DairyBelle, as DairyBelle’s need to cut prices was backed up by SAMPRO data. However, Bertus de Jongh, CEO of the Milk Producers’ Organisation (MPO), said DairyBelle’s sudden price reduction was not in line with prevailing market trends.

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“We thought stocks were low, consumption was high and supply was not keeping pace with demand. We don’t see that the market has changed drastically enough to justify the cuts,” De Jongh said. According to the MPO, production is about 3% up on last year but market growth was up by about 5% in 2010 and 5% in 2011. Dèan Kleynhans, MPO chairperson, said dairy producers faced continuous price increases in feed, fuel and electricity.

“We recently came out of a very tough four-year period. With price increases this year, we were finally in a position to stabilise the primary dairy business. We needed this period to come into a more profitable situation. Then the DairyBelle cuts came out of the blue.” Kleynhans said figures from the National Agricultural Marketing Council indicated that dairy showed the lowest inflation rate over the past year compared to other food categories.

Dairy retail prices from January 2011 to January 2012 increased by 4,3% compared to 10,1% for bread and vegetables, 14,3% for meat and 15,2% for fats and oils. Kleynhans said global dairy stocks were low. “At the first dairy auction of the season in New Zealand, prices rose by 3% to 4%.” Kamberg dairy farmer Brad Price said DairyBelle’s move was worrying. “There hasn’t been a good margin for producers. Being forced by buyers to produce milk all year round at a flat, constant flow is not sustainable.

‘‘Farmers are culling cows to pay their bills. We shouldn’t have to do that.” Other milk buyers are expecting an increased supply of milk in the spring. Parmalat, Clover and Fairfield have indicated price cuts would be implemented in August or September. Manie Roode, deputy CEO of the Clover group, said Clover would implement a 20c/l price cut from 1 August. Clover’s average milk price was about R3,79/l, ranging from R4,09/l to R3,70/l.