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Milk crisis looms as farmer's prices slump Print

According to Bertus de Jongh, CEO of the Milk Producers' Organisation (MPO), "Producer prices are on average 10% below the 2009 level, which is not sustainable."
"Producing enough milk for local consumption as well as some export is not where the problem lies. Doing this profitably is the biggest challenge to our farmers who are amongst the most efficient, non-subsidised milk producers in the world," he says.

Input costs

While producer prices decreased since 2009, input prices increased sharply according to Dr Koos Coetzee, chief economist at the MPO.

  • Maize prices increased by 80% and soya prices by 26%, resulting in a 61% increase in concentrate prices.
  • The milk to feed price ratio (an important indicator of dairy profitability) has weakened to its lowest level since the beginning of 2010.
  • Fertiliser prices increased by between 23% and 39% from September 2010 and the diesel price increased by 26%.
  • Farmers now pay 73% more for electricity than in 2008.

This combination of lower producer and higher input prices puts serious pressure on milk producers and limits any chances of higher production. Unless milk producers receive a substantial price increase soon, more farmers will leave the supply chain and milk buyers may find themselves in supply difficulties early in 2012.

Internationally positive market

In contrast to the South African situation, the international situation remains positive. Dairy product prices increased sharply after the 2008 slump and prices are still substantially above these levels.
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