Dairy sector being milked dry
Large commercial outfits push smaller producers to the wall
● SA’s dairy industry is running dry as small and medium-sized farmers battle to survive, with many having no choice but to close or sell to larger commercial entities.
“The milk industry is in a huge amount of trouble,” said Ian van Niekerk, CEO of Oakland Dairy, which processes milk and makes cream, yoghurt and cheese for retailers nationwide.
Van Niekerk, a former dairy farmer, said producers as well as companies such as his are “just looking at surviving”.
The trend of dairies closing has been increasing in the past 12 years.
Van Niekerk knows of six dairies that have closed in the past year. Each of these farmers produced between 12,000l and 30,000l of milk a day.
Nico Fouché, CEO of dairy industry body Milk SA, said since 2009 the number of dairy farmers has decreased by more than 61% and processors by 31%. Larger entities are snapping up some of the dairies.
The “South Africa Dairy Products Manufacturing Report 2021”, published by Research and Markets in March this year, said 80% of dairy now comes from large commercial farms.
The commercial farms are able to push down the price of milk to retailers and producers.
“The reality is that every time the big milk processors drop the price of milk, it makes it harder for smaller milk producers to remain sustainable,” Fouché said.
Dairy farmers’ profit margins are being skimmed by a decrease in price and higher input costs.
Smaller farmers are being paid less for the milk they produce and profits have decreased to about 20c/l, said Van Niekerk. Previously the profit margin was about 50c/l.
Dawie Maree, agricultural economist at FNB, said rising input costs, especially feed costs, are contributing to the slimmer margins.
The two largest constituents of feed, which the industry refers to as total mixed rations (TMR), are soybeans and maize. In January 2020, maize cost R3,120/t and this month was at R3,850/t. Soybeans leapt from R6,400/t at the beginning of last year to R8,000 this month, said Van Niekerk.
A cow producing 35l a day will need 50kg of dry feed a day, said Maree. A high-producing herd of 1,000 cows will need 1,500t of feed a month.
The biggest herd numbers about 3,000 cows and is in the Eastern Cape.
The high cost of feed isn’t the only financial strain on farmers. Rising fuel and electricity prices are also skimming the margins, said Maree.
Transporting milk, especially in the Free State, has become almost impossible, with milk collectors refusing to collect from farms because the roads are in disrepair.
The poor maintenance of infrastructure has caused an immeasurable amount of damage to the industry and the potential of the industry in all provinces, but especially in the inland provinces.
“Over the years, many producers had to exit dairying as the roads became increasingly inaccessible for collection,” said Fouché.
According to Van Niekerk, raw milk needs to be processed within seven days of milking. Every 30kl tank that cannot be transported to a processor needs to be disposed of.
The cost to the farmer is not just the R170,000 worth of milk, but an additional R30,000 disposal fee.
The rising costs and closures of dairy farms, with little support from industry body Milk SA, have led to a decrease in the amount of milk being produced, said Van Niekerk.
Fouché said the strategic intent of Milk SA is to increase the industry’s competitiveness, broaden the market for dairy products and to promote transformation.
He said the challenges identified, which it is working on in conjunction with the government, dairy business partners and labour, are animal health, supporting meaningful transformation in the industry, and basic service delivery, including suitable roads, clean and reliable water supply, reliable electricity supply and protection against crime.
Milk SA said that due to its work, milk production has increased.
But figures from the Milk Producers Organisation tell a different story.
In the first two months of this year, said Maree, SA produced less than during the same period in 2020. According to data from the Milk Producers Organisation, in January 2020, 289,149l were produced, which dropped to 275,072l in January 2021.
The same trend was seen in February this year, with last year’s yield of 254,354l dropping to 232,063l.
For new farmers a dairy operation is not an easy option. The high costs of setting up a dairy farm are a significant barrier to entry for emerging farmers.
Aside from the cost of purchasing suitable land, farmers conservatively pay between R15,000 and R20,000 for a dairy cow. For the farm to be viable, about 1,000 cows are required. This, said Van Niekerk, is a conservative figure. In addition to other equipment and running costs, Van Niekerk said a farmer needs at least R50m to get started.
He said Milk SA is meant to be a source of funding for emerging farmers.
Fouché said Milk SA collects about R60m a year in levies paid by farmers under the Marketing of Agricultural Products Act 47 of 1996. But Van Niekerk and Maree are not convinced that the money is being spent to further the cause of emerging farmers.
Fouché said that though Milk SA doesn’t know the exact number of emerging black dairy farmers in SA, it is involved in “commercialising” projects with 20 black producers of raw milk and four manufacturers of dairy products.
When asked about the efficacy of the activities in supporting the dairy industry with the levies the industry body receives, Milk SA did not respond to a request for comment.
The milk industry is in a huge amount of trouble
Ian van Niekerk
CEO of Oakland Dairy