Dairy industry at risk
Milk supply is expected to come under pressure early in 2014 in view of the stagnant production growth in 2013.
THE Milk Producers’ Organisation (MPO) is seriously concerned about the future of the primary dairy industry.
‘Over the past five years, milk producers have been consistently experiencing unfavourable market conditions, with suppressed raw milk prices and escalating input costs.
‘Producer prices are still unprofitable despite record import parity levels since the second quarter of 2013,’ said MPO chairman, Tom Turner.
‘In contrast to the local scenario, the international dairy industry is booming.
‘This is the result of international markets reacting to increased pressures on farm level by ensuring farming sustainability.
‘Unfortunately, this is not the case in South Africa, and the situation is threatening the future of the entire industry,’ he said.
Buoyant international outlook
In contrast to the bleak prospects locally, the international dairy outlook is buoyant with product prices at record levels, growing demand the world over, and producer price increases in major dairy regions such as New Zealand, Australia and Europe.
International producer prices were on average 44% higher in October 2013 compared to October 2012.
Towards the end of last year, Fonterra announced an expected pay-out of NZ$8.30 per kilogram of solids, equivalent to R5.03 per litre for South Africa’s average composition.
According to international experts, there are no signs that product prices will return to lower levels.
Primary dairy industry under siege
Turner said that although producer prices vary regionally, the average South African producer price, which is in the region of R3.90 per litre, does not cover input costs.
This is making dairy farming unprofitable.
The situation is exacerbated by reports that loans to dairy farmers are at record levels and that numerous producers have recently exited the industry.
Aggravating dairy farmers’ cost squeeze is the recent unexpected sharp increase in South African grain prices.
According to Turner, increased prices have already resulted in higher mixed concentrate prices which, combined with a still stagnant milk price, have pushed the milk:feed price ratio to 0.99:1, an unsustainable level.
Uncertainty about the size of the 2014 maize crop, along with high exports have resulted in an increase in the Safex maize price to R3 080 as at 13 January.
Soybean prices have also increased sharply along with lucerne prices, with rising exports further aggravating the supply situation.
Supply under pressure
Milk supply is expected to come under pressure early in 2014 in view of the stagnant production growth in 2013 compared to the steady growth in demand for dairy products.
Total exports exceeded imports by 268 million litres on a milk equivalent basis in 2013, resulting in net exports representing 9.6% of estimated total local production for the year.
