An 18-month period of low prices for milk, that has forced a number of dairy farmers out of business, is reversing itself in the Western Cape. This positive change is a consequence of a number of milk, cheese, yoghurt and other dairy product brand owners expanding into Africa, says Standard Bank provisional agriculture manager in the Western Cape Nico Loock.
“Not only are the brand owners calling for increased milk production to keep their African supply chains sustainable, they are also paying premium prices for raw milk in order to secure their supply,” he says.
“In the short term, this kind of competitive behaviour is good news for dairy farmers, as it takes the immediate financial strain off their operations.
“Standard Bank is pleased that the industry’s new African initiatives are focused on long-term supply. “This will render dairy farming sustainable again, ultimately enabling primary milk producers to expand,” says Loock.
“Having financial security in the form of continuous demand, as African markets are bedded down, will also give milk processors the time and the means to take advantage of diversification of markets. “This will protect local producers from adverse price fluctuations in the future,” he adds.
Several factors have worked in favour of the Western Cape’s milk producers. A number of South Africa’s major dairy product distributors and brands are located in the province, enabling them to procure locally to keep the price of their raw materials at a minimum.
Further, a number of the distributors are buying specific products such as cream from their own competitors, as the competitors have secured the supply.
The overall effect of increased activity in the dairy industry in the Western Cape will enable producers to both increase production and their margins.
“This is a confluence of events and market stimuli that come along only once in a farm’s life cycle and therefore encourage farmers to take full advantage,” says Loock.
“The temporary hike in the price of milk should have a positive impact on the dairy farmers, which will help to retain jobs on the farms. “It also has a positive effect on downstream processing operations. “We foresee that farmers will increase production to cope with the new demand. “This will reduce the price of milk, which will enable farmers to produce the kinds of volumes that will cushion them against reduced margins.
“Whichever way you look at this new alternative demand for milk, it holds positive outcomes for both the local and national economy,” he concludes.