Milk buyers and retailers under fire for lack of commitment

The current CRISIS IN THE dairy industry demands that each player in the value chain shoulders their responsibility,” said Dean Kleinhans, the Milk Producers’ Organisation (MPO) Western Cape chairperson.
Issue date : 12 September 2008

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The current CRISIS IN THE dairy industry demands that each player in the value chain shoulders their responsibility,” said Dean Kleinhans, the Milk Producers’ Organisation (MPO) Western Cape chairperson. He was speaking at the recent MPO Dairy Development Initiative in Somerset West.

The agriculture minister in the Western Cape, Cobus Dowry, added his voice to mounting concern that the sustainability of the Western Cape dairy industry could be in danger, due to reduced prices being offered by bulk milk buyers. Dowry said that 960 farmworkers, with an estimated 3 000 dependants, could be out of work if milk prices decreased by between 20c/â„“ and 50c/â„“.

He said that there are currently 18 million litres of imported milk in our domestic market and during the past year, 44 000â„“ of dairy entered South Africa. With this in mind, Dowry questioned the ethics of milk buyers and retailers who were making life difficult for producers. “If established producers are being forced to leave the industry, what chances do our emerging dairy farmers have of making a living in this industry?” Dowry asked.

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Dr Thomas Grupp, chairperson for the German dairy producers organisation BDM, commented that dairy farmers all over the world face the same problems. He argued that the free market system is failing dairy producers in favour of mega retail groups. “Producers need to organise themselves better in order to have more control over the price of dairy products,” he said. Prof Chris Blignaut, chairperson of the Dairy Development Initiative, agreed with Grupp and said that dairy production in South Africa should be better monitored and controlled on the supply side to avoid situations of surplus, even on a regional basis, as milk buyers use this factor to push prices down. “Dairy producers should know their enemies, but also know how to work with them for the better of the whole value chain,” Blignaut said.

Grupp pointed out that Canada has the best-organised dairy industry in the world. “Milk in Canada and the US has the same consumer price, but in Canada, producers receive 50% of the end value, whereas in the US it’s only 30%,” Grupp said. Dr Dirk Troskie, a specialist agricultural economist from the Western Cape Department of Agriculture, told delegates that the dairy industry has been identified as a favourable industry for emerging producers by the current government. “But EU dairy producers are protected by a 33% subsidy, or roughly US$2 per cow per day (R16). Our producers in the Western are protected with a 7,7% levy, and although it’s significantly less than that of the EU, it’s still more than that of the thriving New Zealand dairy industry,” Troskie said.

Dr Koos Coetzee, chief economist of the MPO told delegates that there are currently huge opportunities in South Africa for dairy production and processing. He said that after years of high stock levels and export subsidies, world dairy industries now enjoy favourable conditions. “Product prices will decrease slightly from the 2007 peak, but settle at a far higher level than was the case in 2006,” he said. Coetzee said that prices should move side ways in the foreseeable future, but a weakening rand will continue to favour the South African producers.

 According to Coetzee, the immediate opportunities are substituting imports with locally produced dairy and the development of markets in African countries. e also argued that South African producers could become even more productive, as currently 20% of cows produce less than 10â„“/day of milk and one third of South African cows produce less than 15â„“/day. – Wouter Kriel