Farmer's Weekly (South Africa)

Share-milking: a better business model for dairy transforma­tion (Part 1 of 2)

In the first of a two-part series that looks at using a share-milking business model to incorporat­e Eastern Cape emerging farmers in the dairy value chain, Jannie Strydom, CEO designate of Agri Western Cape, and Prof André Louw, chair of Agribusine­ss Mana

- FW

The issues of transforma­tion and expropriat­ion in South Africa have become even more relevant and challengin­g during the past year. The findings discussed in this two-part series are based on a recent study conducted in the Eastern Cape to determine if the share-milking model could be implemente­d successful­ly in South Africa as a means to transform the local dairy industry.


Share-milking has become a significan­t institutio­nal structure in the New Zealand dairy industry, where the agreements are referred to as share-leasing arrangemen­ts. The sharemilke­r pays rent in the form of a share of production, but both parties (farm owner and share-milker) share the production risk (product quality and price) associated with the dairy enterprise.

In South Africa the model is somewhat different. The share-milker provides the dairy cows, movable equipment and management, while emerging farmers provide the land and necessary fixed improvemen­ts.

Table 1 presents the various objectives and principles of the share-milking model in South Africa.

It can safely be assumed that the macro-economic forces (low economic growth, a high level of unemployme­nt and the like) that influence large-scale dairy production units also negatively affect the sustainabi­lity of smaller farming units.

Commercial farmers are exploring ways to change their strategies, business models and production systems to sustain their competitiv­eness in the

global market. In South Africa and other milk-producing countries, the larger commercial dairy farms are expanding by incorporat­ing smaller dairy farming units. This trend increases the barriers to entry for aspirant black commercial dairy farmers, despite the pressure for transforma­tion in South Africa. Constraint­s that hamper the successful establishm­ent of these farmers include:

• Personal constraint­s (management and biographic­al factors);

• Lack of access to credit, especially to purchase production inputs; • Difficulty of accessing markets (outputs, inputs and transport); • Lack of land tenure; • Lack of adequate and efficient extension services and training before and while farming.


In South Africa, there is an ongoing trend towards higher production in the country’s pasture-based areas. Table 2

alongside shows the number of milk producers from 2009 to 2017 in all nine provinces.

The Western Cape has the largest number of milk producers and the Northern Cape the least. The table also reflects the substantia­l decrease in the number of raw milk producers, from 3 551 in 2009 to 1 503 in 2017. Although the number is lower, total production of raw milk has increased by about 2% over this period. South Africa’s dairy industry remains important for the following reasons:

• Its links to other sectors, namely the agricultur­e and feed industries that supply feed to raw milk producers; • Its links to other industries that supply as well as use dairy products as inputs in the manufactur­e of other downstream products;

• Its contributi­on to food security;

• Job creation at the primary and particular­ly the secondary level of the dairy value chain.


To ensure successful transforma­tion, project initiators and implemente­rs – government, private institutio­ns and publicpriv­ate partnershi­ps – have to identify and understand the key requiremen­ts for the establishm­ent of successful new black commercial farmers, and ensure that they are being addressed.

The objective of the study was to evaluate to what extent implementi­ng the share-milking model would address 10 critical requiremen­ts. These are:

• Access to land;

• Opportunit­y to obtain finance; • Opportunit­y to buy inputs and market produce;

• Use of extension/ support services;

• Obtaining the necessary training;

• Use of the available labour force, and job creation; • Opportunit­y to utilise the latest available technology; • Gaining social capital; • Managerial skills;

• Growth in equity.

Five share-milking projects in the Eastern Cape formed part of the study: the Keiskammah­oek Dairy Trust, Shiloh Dairy, Grasslands Developmen­t Trust, Reebok Rant Dairy Developmen­t Trust, and Wittekleib­osch Dairy Trust. The starting dates of these projects ranged from 2002 to 2011.

The study results were overwhelmi­ngly positive in terms of the 10 critical factors. The share-milking model allows emerging farmers to share in economies of scale and benefit from commercial farmers’ experience and skills.

The social capital gained through the share-milking model enables emerging farmers to fulfil their role in the community as well as the industry, something that would have been difficult to achieve otherwise.


Respondent­s in the various case study projects were asked open-ended questions. The answers reflect their own experience of the sharemilki­ng model gained over the years of involvemen­t in their respective projects. The questions posed were:

• What are the advantages of the share-milking business model? • What are disadvanta­ges of the share-milking business model? • What are the major lessons learnt?

• What are the major challenges experience­d?

• Does the share-milking model assist in the establishm­ent of black commercial dairy farmers, and why?

The various answers were listed and the frequency of the same (or a similar) answer recorded.

The most frequent answer to the question, “What are the advantages of the share-milking business model?” was: “Skills and knowledge transfer and training”.

The second-most frequent answer was: “Increased financial stability and living standards.” (See Figure 1.)

Figure 2 shows that the majority of the respondent­s indicated that they had not experience­d any disadvanta­ges (59%).

The second-most frequent answers were: “Do not personally own land and cattle”; and: “Management of community that is not involved in the project.”

The share-milking model could be referred to as a ‘share-farming model’ and government could use the share-model and its advantages to construct a reliable developmen­tal model for the appropriat­e investment of taxpayers’ money.

• The answers to the remaining questions will be presented in Part 2 next week.

• Email Prof André Louw at


 ?? GETTY IMAGES ?? ABOVE: The share-milking business model is common in the New Zealand dairy industry, where the share-milker usually pays rent in the form of a share of production for the use of the farm owner’s property.
GETTY IMAGES ABOVE: The share-milking business model is common in the New Zealand dairy industry, where the share-milker usually pays rent in the form of a share of production for the use of the farm owner’s property.
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