Mthobisi Nozulela|Published
South African consumers could face higher milk prices in the long term as rising production costs and lower prices paid to farmers threaten dairy farm closures and increase reliance on imports.
In an interview with Moneyweb, André van Heerden, chief executive of dairy co-operative Samilco, said Lactalis had cut the price it pays farmers by 70 cents a litre, a reduction of about 10%.
Lactalis is a major international dairy group that operates in South Africa and buys milk from local farmers for processing into dairy products.
He said farmers were already under pressure from rising fuel, energy and other production costs, leaving many struggling to remain profitable.
Farmers struggle to absorb price cuts
Van Heerden said the price reduction was difficult for farmers to absorb, particularly smaller and medium-sized producers in the Southern Cape, where many farmers rely on different farming activities to support their businesses.
“I presume most of these guys are running at a loss, especially when it’s a 70 cents reduction, which is, as you refer to, a 10% reduction that you just can’t afford anymore,” he said.
He said farmers had already been under pressure for years, with the number of dairy parlours across the country declining significantly.
“If we look at the last 10 years, we had in excess of more than 200 parlours, because some farmers do have more than one parlour, and we’re down to about 144 parlours on a national level,” Van Heerden said.
He argued that the pressure on farmers had left little room for further efficiency improvements.
“To my mind, there is nothing like an inefficient dairy farmer left, and you must bear in mind that we are job creators,” he said.
Van Heerden warned that farmers who could no longer make dairy production profitable might be forced to close that part of their operations and turn to other farming activities.
Export challenges add to pressure
Van Heerden said the loss of some export contracts, particularly in the Middle East, had added to the pressure on the local dairy industry.
He pointed to lost markets, including Saudi Arabia, as a factor contributing to what he described as a “fake surplus” of milk.
"I think that is probably one of the main contributors to what I call a fake surplus, or not a normal surplus in the sense of the word".
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