But higher prices of protein in animal feed and higher electricity tariffs will impact negatively on input costs. On average, electricity tariffs will erode about 1c/â„“ off farmers’ profit margin. “It doesn’t seem like much, but it is a substantial amount,” said Kleynhans, adding that there are currently only 2 699 dairy farmers left in the country.
“One farmer is leaving the industry each day.”However, the farmers who stay behind are producing more milk. And as their enterprises swell, the balance of power could shift in the farmers’ favour. Currently, five or six retail chains control 80% of the country’s milk supply, but Kleynhans said farmers will get to a situation where they can do their own marketing. “As they get bigger, the supply chain comes onto an even keel because farmers can better negotiate.”
MPO Western Cape chairperson Philip Blanckenberg said he didn’t expect to see the launch of farmers’ own brand of milk in 2011 in an effort to re-align the balance of power. “The only way to get into the milk market is to start with the cheapest milk and that would just start another downward price spiral,” he added.
He said farmers should rather build better relationships with milk buyers. “A few guys are getting that right in the Eastern Cape. Farmers are sending a representative to sit in on monthly financial meetings of Woodlands Dairy. It provides an open forum where both sides can talk about their problems.” Blanckenberg expected the normal cyclical slow-down in the flow of milk from December until winter 2011, which would push prices up.