Parmalat’s BEE milk premium debated

The CEO of the Milk Producers’ Organisation, Bertus de Jongh, said he is certain farmers would welcome any price increase, but warned that incentives designed to make farmers meet empowerment targets should be employed through mechanisms other than price.
Issue Date 16 March 2007

The CEO of the Milk Producers’ Organisation, Bertus de Jongh, said he is certain farmers would welcome any price increase, but warned that incentives designed to make farmers meet empowerment targets should be employed through mechanisms other than price.

De Jongh was reacting to dairy processor Parmalat’s announcement last week that its producers will receive a premium of 1c per litre for BEE scores of 35% or more, and an additional 1c per litre premium for a score of more than 40%. From 2008 the premium would be 2c/litre for a BEE score of 40% or more, with no premium being paid for scores below this level.

“The payment of incentives on producer prices could obscure market prices and be to the detriment of small farmers who are not required by law to practise the BEE charter. I therefore feel that Parmalat should rather make use of other incentives to motivate BEE,” he said. Parmalat CEO Theo Hendrickse said the incentive would encourage dairy farmers to participate in transformation.

He said a survey by PricewaterhouseCoopers (PwC) on BEE in the milk industry showed nearly 66% of respondents were adopting a “wait and see” attitude before making empowerment commitments, and a large proportion of these respondents were reluctant to transfer ownership to new partners.

Norman Pattinson, administration manager of the Creighton Dairies farmer group, which supplies milk to Parmalat, welcomed the move, saying it would soften the financial blow of implementing BEE. Basil Hempel, a Parmalat milk supplier from East London, said “Big commercial dairy producers might find it easier to manage AgriBEE on their enterprises than the smaller farmers would. feel more incentives are therefore needed from not only Parmalat, but also from other stakeholders such as government.”

Parmalat aims to purchase 50% of its 2008 milk intake of 500 million litres from producers who achieve a BEE score of more than 40% by the end of that year. Parmalat said it would use PwC to audit the AgriBEE compliance of suppliers, based on a generic AgriBEE scorecard. However, an official agricultural sector scorecard would be used once it became available. – Lloyd Phillips & Glenneis Erasmus