DEAR DAIRY
Crippling costs, feed shortages hit dairy farmers
How Clover will weather the milk storm
SOUTH Africa could face milk shortages towards the end of winter as some dairy farmers are either selling their livestock or land to survive the drought.
However, Clover Industries CEO Johann Vorster said his company would weather the storm.
“Clover will have milk. But I do not think the country will have enough milk towards the end of winter,” he said.
Clover, which owns brands such as Tropika, Super M and Aquartz, reported a 4% increase in net profit to R218-million in the six months to December. The group’s revenue rose 7.9% to R5-billion as a result of volume increases of 15.6%.
“Generally, there will be a shortage of milk towards the end of winter because there is not enough feed available.
“However, we are in a better position because we do not buy as much milk in the Highveld areas where there is extreme drought,” said Vorster.
Some dairy farmers were selling their cattle or land and he expected milk supply to decrease by between 2% and 3%.
“Once you have sold your dairy herd it is difficult to recapitalise your comeback into the business,” he said.
Vorster said the shortage of milk would not affect Clover because of the group’s quota purchasing systems.
“Farmers that we deal with are heavily invested in their farms because they know that they will have off-take for their milk. So we will be less affected,” he said.
Clover, which buys about 28% of the milk produced in South Africa, said it purchased the bulk of its raw milk from coastal dairy farmers, who were less affected by the drought.
South Africa is experiencing its worst drought in decades, with KwaZulu-Natal, North West, the Free State, Limpopo and Mpumalanga declared disaster areas.
“The protracted drought across most of the country has resulted in a shortage of feed and an increase of on-farm costs.
“In this environment, the only short-term solution to protect the raw milk source is to increase the price paid at the farm STRATEGIC: CEO Johann Vorster at Clover’s factory in Olifantsfontein, Gauteng. Clover buys milk mostly from coastal farmers less affected by the drought gate,” said Vorster.
The dairy producer had already provided further price increases to its producers and would continue to monitor this situation closely to ensure a sustainable supply of raw milk.
The Milk Producers’ Organisation’s dairy market trend report has already recorded a decrease in milk production.
According to the organisation’s January report, although milk production during 2015 was 5.5% higher than 2014, milk production was 3.5 % lower in December last year than it was for the same period in 2014.
“Higher grain prices, the expected increase in electricity costs, a scarcity of roughage as well as lower-quality silage, announced producer price decreases and the enforcement of production quotas did result in negative growth in December 2015.
“This trend will probably continue,” the report stated.
Peter Bodman, a dairy farmer in the KwaZulu-Natal Midlands, said the high price of maize made it difficult for farmers to feed their livestock.
Bodman, who supplies Tip Top Milk, said the milk producers’ price increase would not mean that much because input costs had increased.
The higher prices that milk producers are willing to pay is an indication that milk production is set to decrease.
“They are obviously looking to secure milk for the hard times,” he said
Bodman said dairy producers in areas such as the Free State were struggling to produce milk because of the drought.
According to a Free State Agriculture survey conducted in January, farmers in the province need about one million tons of feed to survive.
Free State Agriculture CEO Henk Vermeulen said the drought had cost the province’s rural economy R3.4-billion.
Vorster said the expected drop in milk production came against the backdrop of high raw milk production volumes experienced by the industry last year, which had resulted in oversupply as well as lower selling prices.
“Clover gave away serious margin, but we were able to recover that through cost management strategies that we have implemented.”
They are obviously looking to secure milk for the hard times