Farmers being 'milked' on prices

The organisation said in its latest monthly report that "the gap between South African producer and import parity prices are at the highest level ever".

This showed how low the price paid to "under-pressure" SA dairy farmers by milk processors was, said Turner. International dairy prices are at a historic high, with official data showing that dairy product prices are, in US dollar terms, substantially above the 2007/08 peak.

"The South African processors all know that it is not sustainable to keep prices so low. If local prices do not move up, something is going to break," Turner warned.

"The costs for producers (farmers) in Europe is not that different from (those in) SA, but we are selling milk at a 30% discount to world dairy prices," he said. "Our basket of input costs has risen by 30% over the past year. Labour is up 50%, electricity up 25% and milk concentrate costs 30% more."

He said the most recent increase of 15c/l, or about 2%, paid to farmers by SA's biggest milk buyer, Clover, is "laughable".

Farmers exit industry

The exodus of dairy farmers from the industry is well documented. From about 7,000 dairy farmers a decade ago, just over 2,000 remain in business.

Turner says that some of the industry's "big guys" are now getting out of milk production. "They can't justify the investment any longer and they are running out of credit," he warned.

Dairy farmers are not easily replaceable. Turner said an economically viable dairy farming business comprises 600 cows and requires about R60m in capital to set up. "Returns from the business are insufficient to repay bank loans of this size," he said.

The seasonality of milk supply in SA made it difficult to say when prices would increase.

"If there were a constant supply, I'd say in two months. But there is traditionally an over-supply in spring and it is not conducive to higher prices, so I'd say either by November this year or by March next year."

Of the more than 300 milk buyers in SA, Clover is the biggest, buying 28% of the milk produced locally.

Clover chief financial officer Jacques Botha said the market dictates prices paid to farmers, although he conceded that market prices are very low, right now. "We appreciate that farmers are under pressure but it is very difficult if the market is not recognising that costs have increased," he said.

"There appears to be high stock levels of UHT (long-life) milk available from last year's high production," Botha added. Though the dwindling numbers of dairy farmers was worrying, he said it was an international phenomenon.

"We did increase selling prices in January but we must remain competitive with other processors although we recognise we cannot be irresponsible to the farmers," Botha said.

Source: Business Day via I-Net Bridge