While muted consumer spending has resulted in an unforeseen oversupply of milk and a downward adjustment in farmgate prices, these reductions aren’t fully carried over to consumers. This is according to Freddie van Zyl, vice chairperson of the Producers (MPO), who added that consumer resistance remains rife as a result. H e advised farmers to reduce milk production by slaughtering unprofitable cows, adapting feeding to lower production and cutting down on input costs over the next three months. “If producers are able to produce less milk in the short term, it will help stabilise the market.”
Producers should, however, remain ready to capitalise as soon as market conditions improve. “Looking at economic indicators, it seems possible that the market can recover in the new year. Lower production is also to be expected during winter, should normal production patterns prevail,” Van Zyl said. The milk surplus has increased exports, while the weakening of the rand against major export currencies has resulted in a drop in milk imports. CEO of the South African Milk Processors Organisation Alwyn Kraamwinkel referred to the SA Income Services’ statistics estimate that imports of dairy products will be 16% lower in 2007 than in 2008, while dairy exports are forecast to be 100% higher than in 2007, albeit from a very low base.
Export prices achieved for milk, cream, milk powder, fermented products, whey and cheese are lower than in 2007, while the export market doesn’t make up for lower local prices. Kraamwinkel warned there’s uncertainty in the international market and any new occurrence could have a disproportionate effect on price. “There are similarities to the 2001 and 2002 occurrences. Prices also increased to record-high levels, decreasing sharply thereafter to levels that were slightly higher than those before the sharp increases.” He added that the international and local dairy markets are seeking a new balancing position, but further disturbances can be expected. – Glenneis Erasmus