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
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.
A POPULAR SYSTEM IN NEW ZEALAND
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.
SOUTH AFRICA’S DAIRY LANDSCAPE
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.
COMMERCIALISING BLACK DAIRY FARMERS
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.
QUESTIONS AND ANSWERS IN THE STUDY
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 andre.louw@up.ac.za.
59% OF RESPONDENTS EXPERIENCED NO DISADVANTAGES TO THE SHAREMILKING SYSTEM