Further milk price increases needed

While South Africa’s milk farmers are pleased with the price increases since the beginning of March, the milk production industry is hoping the increases won’t be the last for 2009.
According to a Koos Coetzee, chief economist at the Milk Producers’ Organisation (MPO), the country’s larger milk-buying companies such as Clover and Parmalat announced another milk-price increase of 20c/â„“ to 47c/â„“, depending on where milk producers are located, effective from the beginning of March. The current price increase will average between 24c/â„“ and 30c/â„“ to producers.
“These price increases will most likely be countrywide,” said Coetzee. “The average milk price to producers in January 2009 was R2,80/â„“, but it will increase on average to R3,05/â„“ and R3,10/â„“.
“The main motivation for this recent increase has been low milk supplies in some areas combined with the belief the situation is probably going to become more intense. All milk-buying companies will have to follow Clover and Parmalat’s lead or risk losing milk farmers to higher-paying companies.”
President of the KwaZulu-Natal MPO Mike Black said the latest milk price to producers in KwaZulu-Natal would likely be somewhat less than during the same period last year, and the province’s dairy farmers had been hit hard by milk price decreases later in 2008. “The year 2008 saw unprecedented increases in the cost of primary inputs, in particular fertiliser, fuel and feed,” explained Black. “Most winter feed for cows was produced at 2008 input costs, placing producers’ profit margins under great pressure.
He said last year’s decreases left many producers in a precarious financial position. Two motivators for recent price increases have been to try and maintain milk-producer margins at economically sustainable levels and maintain milk supply in the short-term. The second motivation is to encourage milk producers not to leave the industry, to ensure milk supply into the future.
Both Coetzee and Black agreed milk producers would have to use projected decreases in supply heading into the coming winter as leverage to negotiate further milk-price increases in coming months. “These are difficult times for milk farmers as consumers are under pressure,” continued Coetzee. “On the other hand milk price increases and potentially lower input costs might give farmers much-needed financial breathing space.”
Another positive factor for producers was the recently launched consumer-education campaign for dairy products which will hopefully boost demand for dairy. – Lloyd Phillips