Input costs, processors 'will crimp' milk supply

Terre'Blanche said the input costs of producing milk were punishing farmers and pushing some of them out of business. So milk firms should pay farmers good prices.

Farmers were getting R3.20 from a litre of milk, but it cost them R2.90 to produce it, added Terre'Blanche.

About two years ago milk companies forced milk farmers to slash the prices they had to pay for milk.

He said this had resulted in a number of farmers getting out of the business.

"Once farmers got out of this business, then it meant there would be a supply constraint in South Africa, and that is when we will have that deficit," said Terre'Blanche.

Input costs had gone up dramatically in recent years, increasing the price of milk by 70 percent in the past year.

He attributed this to high and continually increasing oil prices and costs for animal feed, farmers' most vital input.

In the recent past, the price of yellow maize had risen by 86 percent compared with 2006, while soya oilcake was 167 percent more expensive.

He said input cost pressures being felt by farmers could lead to another increase in the price of milk in the near future."But I think if the price increases, it will be by a small margin as compared to the past eight months."

Dharnesh Gordhon, the business manager of dairy at Nestlé South Africa, a unit of the international food conglomerate, confirmed that high input costs could force the price of milk to go up.

Rajan Gungiah, the South African business manager of coffee and beverages at the food giant, said although the South African unit was doing well, the company had noticed that the supply of milk was getting tighter in the country.

Gungiah said: "The resilience of Nestlé against challenges like these has been proven quite often by the strength of some of our products. These products have been able to carry us through."

Nestlé South Africa uses 28 000 tons of milk a year to produce its milk-based products, and South Africa uses 2.6 billion litres of milk a year.

Terre'Blanche said he was satisfied that the big companies such as Nestlé were beginning to realise that the input costs were getting higher and supply was getting tighter.

Meanwhile, the chief executive of Nestlé, Paul Bulcke, rejected claims that he wanted to make acquisitions with the $11 billion (R86 billion) it was paid for selling its 25 percent stake in Alcon in April.

"We have no plans for any acquisitions and there is actually no specific need for us to do so," said Bulcke.