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November 24, 2008

As new South African farmers enter the industry, dairy margins get tighter

by Craig McKune

While the South African government is spending millions on boosting emerging farmers, they will be the first to go as dwindling profit margins squeeze them off the land.

This emerged at a dairy industry summit held in Stellenbosch on November 20 and called by MEC for Agriculture Cobus Dowry. He said that 70 percent of the Western Cape Agriculture Department's R344-million budget this year was being spent on emerging farmers, who were crucial roleplayers in food security.

'The industry is not sick, but it does have big problems'But with 10 to 15 cows to each of these farmers, compared with the commercial players' hundreds, "there is no way they can survive", he said.

The dairy industry was losing a farmer a day, Bertus de Jongh, a director of the Milk Producers' Organisation (MPO), said. He said the industry was down to 3 500 farmers, from 4 510 in 2005 and 15 400 in 1990.

But De Jongh also highlighted that in recent years the dairy industry had done almost twice as well as all other livestock industries. "The industry is not sick, but it does have big problems that must be addressed." He said the crux of the problem was a recent decline in the price farmers were paid for raw milk. "The consumer is paying more, while the producer gets less."

De Jongh and Dowry pointed to an unfair international playing field where subsidised farmers in the United States, the European Union and Canada were able to out-compete South Africans, despite much higher production costs.

In Canada, for example, a litre of milk cost about R4 to produce, compared with R1 in South Africa, but dairy farming remained profitable in Canada because of the hefty subsidies.

De Jongh and Dowry said the government needed to intervene by raising import tariffs on milk from the present 2 percent, a step that would go a long way in alleviating the strain on emerging farmers.

Dowry said that in the Western Cape, commercial farmers were "reaching out tremendously" to nurture and support emerging farmers, who contributed R12-million a year to the province's turnover.

"But the government needs to correct the wrongs of the past. We must help them to get through," he said.

Delegates also spoke of an air of mistrust in the industry, fuelled by the Competition Commission case against price-fixing by several local dairy processors.

"This is a necessary process, but because it is dragging on, everyone is reluctant to talk," said another Milk Producers' Organisation director, Etienne Terre'Blanche.

Bredasdorp farmer Dèan Kleynhans said: "The whole supply chain must create dialogue so we know what's going on in all aspects of the industry."

Farmers had no influence over prices. If there was a problem in the supply chain, farmers were the first to suffer, Kleynhans said.

Terre'Blanche said: "The import market is far too big. In one year, 48 000 tons of milk (products) have been brought in. It's not necessary to import."


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