In a froth
Milk shortages likely to result in higher prices
SOUTH AFRICAN CONSUMERS will soon be paying more for their milk products as retailers report shortages in certain fresh milk products. The shortages stem from two factors: higher meat and chicken prices (resulting in consumers moving to cheaper milk products for protein) and persistently low prices being paid to milk producers (resulting in many farmers leaving the industry).
Retailers say the shortage is not yet serious and that they’d pull out all the stops to prevent passing on price increases to consumers.
“The current shortage up north is being driven mostly by drought and lift in the economy, with shoppers buying more dairy products generally. While shortages do tend to put upward pressure on pricing, Pick ’n Pay will hold off passing those on to the consumer for as long as possible,” says Pick ’n Pay food merchandise director Paul Connellan.
Connellan says that Clover is the only dairy supplier that has stopped producing some of its lines, including the one-litre sachet and longlife milk. “It will continue producing its twolitre milk, as that’s its most popular line.”
Spar marketing director Roelf Venter says the company’s experience has been similar, with one-litre sachets being the only line affected thus far. “A 20m litre shortage was forecast by the industry, but that’s been reduced to 2m litres and the industry has plans to eliminate the shortages.”
Clover deputy CEO Manie Roode says: “There are many reasons we find ourselves in this situation, but the bottom line is that there’s a bigger demand for milk as a protein and people turn to cheese as a result of higher red meat prices.”
For the six months to end-December, Clover reported a 23,8% decline in operating profit to R124,4m, saying the shortage of raw milk had affected its results. “Due to a timing difference between the expansion of the brand product market and the development of sufficient supplies of raw milk, Clover’s own producers were unable to meet the increased demand.” The company has increased the milk price in selected regions to stimulate milk supply, despite consumer selling prices having not increased in two years in cheese and long-life milk, two major categories.
Koos Coetzee, an economist at the Milk Producers’ Organisation, says a major component of the reason for the shortages is the price squeeze farmers have been subjected to by processors, which has been the subject of an extensive Competition Commission investigation. “The alleged actions by milk buyers helped them to keep producer prices down,” Coetzee says. Two years ago, producer prices decreased from R2/litre to a low of around R1,76/litre, Coetzee says. “Since then the price of animal feed and other inputs has increased substantially, which has forced many milk farmers to cut back on production or stop dairy farming completely.” Though the number of farmers in the milk industry has decreased substantially over the past eight years (from 7 000 to 3 900), there’s been consolidation, with cows being sold on to bigger operations.
Parmalat says that, while some of its milk producers exited dairy farming, “scrutiny of the figures shows a healthy trend among Parmalat’s milk producers, with many farmers increasing their herds and capacity”.
In January 2004 there were 453 farms that supplied milk to Parmalat, compared to 422 in January 2007. It had a milk intake for January 2004 of 29m litres and 40m litres in January 2007.
Parmalat says it will do everything in its power not to resort to importing milk to meet consumer demand, saying it views the SA dairy industry as a national asset.
Coetzee sees price increases for consumers – and, hopefully, for farmers – as the way out. “Retailers will have to pay processors more, and they in turn must increase producer prices paid to farmers substantially.” He adds that it will take a long time – up to two years – to rectify the situation.
Many reasons for the situation. Manie Roode