UNPROCESSED MILK PRODUCTION IS TOO HIGH

MPO FLASH 3/22 APRIL 2020

Unprocessed milk production for March 2020 is estimated at 267 million litres, 1,45% less than in March 2019, however; cumulative unprocessed milk production for 2020 (inclusive of March) was 822 million litres indicating a growth of 0,74% for the first three months of 2020 (source: Milk SA).

Against the back drop of the South African economy to contract with an estimated 5,8% in 2020 (0,2% growth in 2019) and Sub-Sahara Africa to contract by 1,6% in 2020 (3,1% growth in 2019) (source: International Monetary Fund World Economic Outlook), demand for dairy products will be under pressure. The majority of South African dairy exports is destined for Sub-Sahara Africa and coupled with our domestic economic prospects that could only result in a noteworthy decline in demand.

The South African central bank cut 100 basis points from borrowing costs on 19 March 2020 and again on 14 April 2020 and is expected to cut another 100 basis points in May. This is among other announcements indicative of the intensity of economic activity decline.

Dairy farmers are encouraged to produce at the lowest cost possible to entertain reduced unprocessed milk production. It is critical to adjust in harmony with demand changes.