Farmer Focus: South African dairy industry averts crisis

December was a good month. We had good rains and it was not so hot. January was, unfortunately, a different story. It was dry and very hot. The result was milk yields dropped by 10-15% and pastures showed heat stress – a bad sign so early in the season.

Unfortunately, it was not only the weather that turned against the dairy farmers, but also the economic climate.

Since the beginning of 2013 we were subject to considerable increases in our input costs. First, the administratively determined prices such as electricity, labour and taxes of every kind increased well above the official inflation rate of about 6%.

Second, the value of the rand has dropped by about 18% since January 2013. This brought about steep increases in fuel, implement and particularly feed costs, including that of maize, soya and lucerne.

This all came to a head when – to use my own bought-in maize price as an example – costs increased by 25% in January.

These are the joys of being part of a group of developing countries – good markets, but a high degree of volatility. And most of it could be not of your own making. In this case the experts say the run on the currencies of the developing countries started in Argentina.

On the other hand, the prices of raw milk remained stagnant. This is mainly due to our retail market being dominated by just a few very big processors and supermarket groups. The result was a crisis of major proportions. The tension between input and output prices became too much.

But it appears the story has a happy ending. When the gravity of the situation became clear, the Milk Producers’ Organisation of South Africa made direct representations to the major processing and retailing groups.

The major argument was that unless there was an urgent and substantial price increase there was bound to be milk shortages. The latest figures already indicated a slowing down of production. In 2013, milk production only increased by 1.1%, compared with a normal increase of about 4%.

I am grateful to report that, as I write, the major South African processor has announced a general increase of effectively 15%. It is not enough, but at least it is in response to a crisis situation and at a time of the year when prices are not normally adjusted. As a result, a certain crisis has been averted, at least in the short term.

Some more good news is that our dairy exports have increased substantially. South Africa used to be a net importer of dairy products, but in 2013 we exported almost three times as much as we imported, which amounted to 15% of production.

Not much compared to the major dairy exporting countries, but definitely a start.

Danie Schutte is an organic Ayrshire dairy farmer who also processes dairy products on his 90ha farm near Pretoria, South Africa.

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