Hendrickse, however, added that Parmalat’s actions should be viewed against the prevailing market conditions at the time. “Particularly the fact that supply and demand were in balance and the deflationary trend of a basket of dairy products presented a real challenge to us, made it very difficult in those limited circumstances to increase or maintain the price of our major input cost when our competitors moved in the opposite direction.”
Etienne Terre’Blanche, managing director of the Milk Producers’ Organisation (MPO), said it was good to see that one of the big milk processors was admitting that a mistake had been made. “This is the first step in a direction where the stakeholders can talk in a sensible manner with each other.” However, he stressed that the secondary milk industry had to realise that the same economic factors that played a role in their decision-making in 2005 would now apply to the decisions made by farmers.
“We cannot let the past repeat itself. Everybody is losers in the process and with this in mind the MPO is encouraging farmers to consolidate and take the power of negotiation into their own hands.” Terre’Blanche said the damage of the 2005 farmgate decision wouldn’t easily be erased. “The MPO is convinced that the dynamics of the milk industry has changed for good.”
Hendrickse also said that the global milk shortage continues to impact SA, but he believes this will normalise in 2008. “As a growing company we are determined to secure our milk supply and the current market situation has necessitated that we increase the prices paid to our suppliers – farmers in the Western, southern and Eastern Cape and in KZN – by more than 26% during the past five months.”
Parmalat negotiates with their suppliers through Samilco, who supply 90% of their milk, as well as with suppliers directly. “Parmalat is currently in negotiations with Samilco, but we view this as a private matter,” Hendrickse said.
Farmer’s Weekly reported last week that Parmalat sent out a letter to milk producers in which the processor stated it wanted to set a fixed price with producers until the end of 2008 to secure stability in milk supply. Informed sources said the price will probably be fixed around R2,60 or R2,70.
“Even though there is currently a bigger demand than supply of milk in SA, we should guard against milk price increases that are not sustainable,” Hendrickse said. “If we review historical trends since January 1990, we see that extraordinary milk price increases during times of shortage are inevitably followed by dramatic price decreases when the demand and supply situation normalises.” – Susan Botes
