Rolling blackouts are costing the dairy industry R100 million per month. Now the Milk Producers’ Organisation (MPO) is seeking legal council in preparing a case against Eskom for losses incurred. Though there are only 3 400 dairy farmers in SA, MPO managing director Etienne Terre’blanche says the industry’s growth potential exceeds government’s 6% target – if Eskom sticks to its electricity supply contracts and with the right producer price for milk. David Steynberg reports.
On what grounds will the MPO sue Eskom for damages, and for how much will you hold them accountable?
The MPO holds that Eskom has entered into a contract with dairy farmers and must be held accountable. We can’t claim on behalf of our members, but we’ll help them identify lawyers and prepare cases. We’ve launched an action requesting dairy farmers to forward all documents pertaining to direct losses incurred to the MPO for processing. A legal team will take things further.
How much money have the power outages cost the industry so far?
Milk producers have spent over R240 million on generators. The loss in income due to lower production and higher input costs amounts to over R100 million per month.
With many dairy producers bound by supply contracts, what insurance do they have if they’re unable to meet demand?
Supply contracts make provision for over- and underproduction due to climatic conditions. There’s no protection as yet against scheduled power outages, but we’re looking at how we can address the problem.
What are dairy farmers’ options?
To buy very expensive generators. A basic unit costs R120 000, and running it is usually 70% to 80% more expensive than Eskom power.
Will this drive farmers to develop new technologies?
A situation such as this motivates people to look at alternative methods. In the longer term the MPO is looking at alternative energy sources such as biogas from manure.
Although this is expensive, the sale of carbon credits poses a possible solution.
The UK government subsidises dairy farmers with methane digesters, which process manure to generate electricity that’s then sold back to the national grid. Is this an option for our local farmers?
Yes, but it won’t meet the full needs of large dairy producers. The MPO is in talks with an international group about this technology. We’re exploring all avenues and hope to find one that will fit the needs and capabilities of our members. Eskom has spent millions of rand funding systems for irrigation farmers to use less electricity during peak times. We believe dairy farmers are entitled to the same consideration.
Will the production cuts drive up the milk price, and by how much?
Eskom’s inability to deliver electricity will add to the cost at producer, processor and retail level, which will impact on prices. But since the farmer is a price-taker it won’t have a big impact on producer prices in the short term. In the longer term, however, a sharp decline in production may also increase producer prices. Retail prices will definitely increase, partially due to higher processing and retail costs, but also because the electricity problems will give retailers a convenient excuse to increase prices.
Will load-shedding drive inflation?
Yes. Do you know of any other organisation that is planning to sue Eskom? No.
Could SA double dairy production if Eskom, the National Agricultural Marketing Council and the Department of Trade and Industry get their operations in order?
Very easily. We have huge capacity on the producer side and there are suitable areas of the country where very little milk is currently being produced, such as the former Transkei.
If farmers get the right price for their milk, what’s the industry’s growth potential?
Huge. More than government’s 6% target.
How many dairy farmers have already gone out of business?
In 1997 South Africa had 7 500 dairy farmers. Currently there are only about 3 400 left.
Did they go bankrupt?
Dairy farmers seldom go bankrupt. Farmers who left the industry either sold their farms or switched to other forms of farming.
How have the blackouts hit the rest of the value chain?
Milk is perishable. If the cold chain is broken it spoils and must be discarded. We don’t have figures yet, but losses were high.
