Dairy industry in crisis because of imbalance

South African milk producers are finding themselves in a precarious situation because of an imbalance between the current milk price and the cost of feed. Dr Chris van Dijk, chief executive of the Milk Producers’ Organisation (MPO), recently addressed role players in die Southern Cape dairy industry about the price squeeze dairy farmers are facing at present. “Farmers started 2015 with excellent prospects, but since April 2015 the average dairy farmer has had great difficulty running his farm profitably. MPO figures show that the number of milk producers has already decreased significantly.”

An oversupply of milk in 2015, coupled with imported products, particularly long-life milk, contributed to pressure on the milk price and resulted in milk processors announcing sharp price reductions as from April 2015. Milk producers therefore started 2016 with a lower milk price.

International milk prices also fell over the past number of years following the scrapping of quotas in the European Union in May 2015, a lower Chinese demand and the Russian ban on EU imports.

Dr van Dijk added: “Along with all this at the end of 2015 the industry went through what is known as ‘the perfect storm’. The ongoing drought brought about shortages of maize, lucerne and natural pasture, which made the cost of feed shoot through the roof. Political fluctuations gave our country’s economy a big knock, resulting in the value of the rand weakening significantly and farmers’ operating costs becoming even more expensive.”

There has been a sharp increase in the cost of feed. Farmers used to pay about  65% of their total expenses on feed but this expenditure has now risen to 75% to 80%. Milk producers whose farms depend on full feed systems and who have little or no natural pastures, are experiencing the greatest difficulty. Many farmers are now producing milk at a loss, which contributes to them leaving the industry.

The retail prices of milk increased in 2016, but it is cause for concern that this increase was not reflected in the producer price. Dr van Dijk said: “The difference between what the farmer gets at the farm gate and what the consumer pays on the shop shelf is getting bigger and bigger, but the farmer does not receive the benefit of any of these price increases.” The MPO is having discussions with retail groups and banks to ensure that they are very well informed about current market conditions. Landbou.com. To read more, click HERE.