Local supply and demand situation in the spotlight

Consumers will not face empty shelves this autumn. According to MPO economist Dr Koos Coetzee consumers will not have to worry about the supply of dairy products this autumn. A recent press release created the impression that South African milk producers will not be able to supply enough milk to local processors to ensure that consumers continue enjoying a variety of high-quality dairy products at affordable prices.

Total milk production increased by a record 6,4% from 2014 to 2015. A decrease in producer prices in 2015 and the worst drought in decades, leading to sharp increases in the prices of grain and other farm requisites, resulted in farmers cutting back on concentrate and even on roughage feeding since September 2015. This led to a slowdown in the growth of milk production that resulted in negative growth since December 2015.  This trend will probably continue as farmers struggle with scarce and expensive roughage.

However, production is still higher than in 2014. Total production for the 12-month period to the end of February 2016 is at 3 061 million litres, 243 million litres (8,6%) more than during the same period in 2014/15, enough to ensure sufficient supply. The pressure on farmers continues as grain prices remain high and sharp increases are expected in the prices of imported goods and in administered prices.  Producer prices will have to increase soon to enable farmers to continue production.

The market for dairy products continues to grow. During 2015 sales of long-life milk increased by 14,4%, while sales of most other categories increased by 5% and more. The single exception was  sales of fresh milk that decreased by 1,6%. Based on the percentage market share of long-life and fresh milk, the liquid milk sector grew by 7%. Farmers will have to maintain and increase production in the short term to meet this growing demand. Increased producer prices are necessary to stimulate increased production.