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No use crying
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No use crying: Dairy farmers in SA could soon be extinct


Financial Mail - Sep 13th 2011, 08:20

Dairy farmers in SA could soon be extinct, with almost two-thirds having already deserted the industry over a little more than a decade as their margins have shrunk .

And though the production of milk in SA has increased slightly over that time as farms have grown in size, the defection of almost 5000 dairy farmers has caused severe job losses .

The number of dairy farmers has declined from 7077 in 1998 to 2686 at the beginning of this year. A total of 646 of SA’s dairy farmers packed up in just the 10 months from March last year to January this year.

Koos Coetzee, chief economist of the Milk Producers’ Organisation, which represents about 85% of dairy farmers, says prices now being paid to farmers are on average 5% lower in nominal terms than a year ago.

In addition, input costs — maize, soya, diesel and electricity — are substantially higher and the combination of factors is squeezing dairy farmers out .

At least 10 jobs are lost for every farmer who exits the industry.

Dairy farmers are currently receiving an average of R2,98/l for milk. Shelf prices are R7,50/l-R8/l. All deals between farmers and processors are negotiated individually, and there is no set price for milk.

“Farmers’ share of the consumer’s rand has fallen from 45% to about 30% since 1998. The steady decrease is a source of concern,” says Coetzee.

A global trend of dairy farmers migrating to coastal areas has also affected the local industry.

“With higher grain prices it is cheaper to produce milk from pasture in coastal areas, but in SA the main market is in Gauteng,” says Coetzee.

It means that coastal dairy farmers have to pay high transport costs and get on average 30c/l less for their milk.

Coetzee fears that more farmers will be lost in the current climate, in which high beef prices mean exiting farmers have the option of slaughtering their cows rather than having to sell them on .

“If the producer price for milk is not increased, I can see us running out of milk producers,” says Coetzee.

And, once farmers have left , the capital-intensive nature of dairy farming makes it difficult to return to the industry, or for new producers to enter.

Milk cows can cost between R10000 and R30000 each and the machinery required is expensive.

“You need at least 200 cows at an average R15000/cow — that’s already at least R3m — to start at the bottom as a dairy farmer,” says Coetzee.

But the SA Milk Processors’ Organisation, which represents most of the secondary milk industry, such as the DairyBelle and Parmalat brands, says the industry picture is not as dire as Coetzee paints it .

The organisation’s business economist, De Wet Jonker, says the reduction in the number of dairy farmers represents the failure of uncompetitive and ineffective producers. “It is not just a phenomenon in SA but also in Europe and in countries like Canada.”

He admits dairy farmer numbers are falling quickly but says that does not mean it will “end at zero”.

“More competitive dairy farmers are simply getting bigger as the smaller ones drop out. We too would like to see more farmers and a more competitive environment, but what we have now is a result of competition.”

Standard Bank agricultural insights manager Lumè Kleynhans says that in her experience dairy farmers are operating successfully. “Dairy farmers on the bank’s books are doing relatively well, with surprisingly low risk profiles. Many dairy farmers integrate along the value chain to support their bottom line,” she says.  

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