Advertise with

Milk prices may rise as farmers struggle
Milk prices may rise as farmers struggle

Milk prices may rise as farmers struggle


IOL Business - Apr 6th 2016, 10:37

Johannesburg - As consumers continue to grapple with high food prices triggered by the recent drought and the ailing economy, milk will soon be added to their list of costly staple foods. 

Dairy farmers are currently facing production shortages and will likely run into supply issues in the coming months.

Consequently, some dairy processors are already paying commercial farmers 60 cents more per litre on average for milk to ensure consistent supply in winter. Poor pasture conditions due to the drought and the sharply higher grain prices have squeezed margins at farm level, and the increase should help improve the situation.

The price is expected to further increase in May and will hike operating costs for the entire milk value chain, leaving retailers with no choice but to increase the price that consumers pay for milk and dairy products.

Paul Makube, Senior Agricultural Economist at FNB says the price of milk is determined by demand and supply from the market. However, because dairy farmers are price takers, they do not set the market price. Instead, when there are supply issues, milk processors often increase the price paid to dairy farmers to guarantee supply as they cater for the domestic and export markets.

“The challenge we are currently facing is that most dairy farmers are still recovering from the impact of the drought and will not be able to produce enough milk in the short-term,” explains Makube.

While South Africa does source certain dairy products from other countries, this did not help to alleviate increasing prices as the weaker rand in the past few months made imports more expensive despite lower international prices.

Furthermore, the electricity tariff increase coming into effect this month will severely drive up input costs for farmers and milk processors as they heavily rely on equipment that consumes a lot of energy.

On a positive note, the recent rains across the country in the past few weeks will go a long way to improve grazing conditions in the short term. The return of normal weather patterns in the new crop season should enable farmers to rebuild their herds and improve production from the current levels. This will play a key role in stabilising the price of milk and dairy products next year.

Makube says as electricity costs continue to increase it will be important for commercial and small-scale dairy farmers to explore sustainable and technology driven means to reduce energy consumption and costs, as this has a huge impact on their profit margins.

For instance, some commercial farmers are successfully using alternative energy solutions like solar power during peak hours when tariffs are at their highest. When implemented in conjunction with milking schedules, solar power can go a long way to reduce operating costs for dairy farmers.

Dairy products play an important role in the diet of consumers. Therefore, an increase in the price of milk will put more pressure on the already stretched disposable income, pressurising them to spend wisely and cut back on luxuries.From © Independent On-line 2016. All rights reserved. 

Read more about: south africa | milk | fnb | dairy farmers

Related News

SA dairy exports doing well
16/04/2019 - 15:42
Dairy imports for February were 4 110 tons at a cost of R172 million. South Africa imported mainly from France (28%) New Zealand (28%), Germany (13%), Poland (8%) and Ireland (4%). Dairy imports for this year are low compared to last year, largely due to limited UHT imports. The main dairy products imported in February were whey (34%), milk powder (22%) and cheese (18%). UHT as a percentage of total imports was less than 1%.

Three franchising trends to look out for in 2019
29/01/2019 - 10:03
A recent survey conducted by the Franchise Association of South Africa (FASA) revealed that the franchising industry has grown from contributing 13,3 percent to the South African Gross Domestic Product (GDP) in 2017 to its current figure of 15,7 percent despite the tough economic climate and its impact on franchises.

The signs are here that South Africa has reached its economic crossroad
03/12/2018 - 11:37
While South Africa attempts to shore up its own economy amid high inflation rates and a stuttering inherited financial system, the continent as a whole continues to grow. The big question, though, is whether South Africa will get left behind in terms of international investment if it doesn’t improve its financial situation, and how to avoid this.

Egypt lifts SA fresh goods ban as listeriosis threat subsides
20/09/2018 - 14:32
The department of agriculture, forestry and fisheries says Egypt's government has lifted its temporary suspension of fresh fruits and vegetable imports from South Africa, which stood as a precaution to prevent the spread of listeriosis there.

Foreword for Sowetan/Sunday World National Stokvel Survey
31/07/2018 - 13:17
Ubuntu is one of those uniquely African concepts that, for many, define what it means to be South African. A beautiful word that exemplifies a philosophy of caring for the welfare of every individual in a community – that special acknowledgement that “I am because we are.” Ubuntu is a spirit that ignites people to work together, for the benefit of all.