South African dairy farmers are facing an extremely challenging environment, with market forces turning big producers into corporate giants and putting extreme pressure on the smaller farms.
Dairy farmer Judy Stuart says the dairy industry as a business is surviving, but not all dairy farmers are. Stuart, who started her dairy farm more than 30 years ago, says that surviving as a dairy farmer is tough. The days are long and holidays few, and the work is demanding both physically and mentally. Stuart also founded Future Farmers Foundation, an organisation assisting young aspiring farmers find internships on farms in SA and abroad.
“The dairy market is huge, but milk buyers are generally focussed on satisfying shareholders and they’re chasing profits,” she adds. Milk buyers call the shots in terms of prices. Producers often see drops in price to dairy farmers without corresponding decreases on the supermarket shelves.
Stuart says she’s seen the dairy industry change in most countries. “It’s no longer viable to milk a few cows. You need to milk 600 to 800 cows or more to be successful. Smaller farmers are losing ground and they cannot weather the price drops and neither can they survive the droughts.”
Milk spilt in vain
Bultfontein dairy farmer Danie du Plooy stirred controversy last year when he opened the taps of his milk tanks, spilling thousands of litres in protest over poor prices. This farmer’s desperate outcry doesn’t appear to have changed anything. Other farmers reacted indifferently.
Stuart explains that the survivors are the farmers who grow bigger and bigger. “Dairies are becoming corporates, where one company owns several farms and more than one herd. This means that risk is spread and reduced. It is not just happening in South Africa.”
Dairy farmer Judy Stuart says the dairy industry as a business is surviving but not all dairy farmers do.
She believes that there will be fewer dairy farm owners with bigger businesses. She predicts that dairy farm managers will be paid higher salaries and there will be a greater need for highly skilled people on dairy farms. “I believe that it is going to be more difficult to own a dairy farm, but only time will tell.”
Is the future as bleak as it looks?
Chief Economist of the Milk Producers Organisations (MPO), Bertus van Heerden, believes the future of dairy farming in Mzansi is not bleak. In 2018 the consumption of six of the nine dairy products monitored increased while the consumption of only three decreased. This, he says, “is despite the low economic growth, disposable income of consumers being under tremendous pressure due to low economic activity and prices of administered products increasing with more than inflation”.
He is convinced that if South Africa can get the economy growing at, for example, more than 5%, demand for dairy products will increase even faster, resulting in a bigger domestic market.
“In the long term, Mzansi’s dairy industry urgently needs to develop export markets and become a regional force in Sub Saharan Africa.” – Bertus van Heerden
He advises that dairy farmers have two main choices: Find a niche to produce for or enable scale benefits to get profitable. Scale can also be achieved by producers in a specific area grouping together to form a co-operative or another legal entity to share facilities.
According to Van Heerden small scale commercial farmers are struggling and if they don’t have a niche or some specific comparative advantage, they are exiting the industry.
Mzansi’s milk farmers are unprotected
Van Heerden explains that dairy farmers in Mzansi are producing in a free market environment with limited protection against imports from the world market. He adds that SA farmers are amongst the lowest subsidised farmers in the world. While exposed to imports, often from countries where significant subsidies are paid to farmers, SA farmers need to be efficient and highly productive.
This environment demands the employment of cutting-edge animal genetics, feeding technology, animal monitoring systems and feed composition. These technologies are expensive and only economical to use in large-scale operations.
“The SA dairy farmer faces an environment where scale benefits need to be present and captured to achieve a profitable operation,” he says.
