Milk Industry Turning Sour: South Africa's Centuries-Old Dairy Industry Is Turning Increasingly Sour as Producers, Corporates and Retailers Seem to Be at Daggers Drawn over Who Should Get How Much from the Product

By Nevin, Tom | African Business, November 2013 | Go to article overview

Milk Industry Turning Sour: South Africa's Centuries-Old Dairy Industry Is Turning Increasingly Sour as Producers, Corporates and Retailers Seem to Be at Daggers Drawn over Who Should Get How Much from the Product


Nevin, Tom, African Business


In the last decade or so, South Africa's community of dairy farmers has dwindled from around 7,000 to the 3,000 still in business today. Many more face an uncertain future. The problem is the sharply divided nature of South Africa's milk-based industry with the antagonists being the primary producers on the dairy farms and the corporate sector that buys the milk and turns the bulk of it into a variety of powdered, condensed and long-life UHT products, and supplies the retailers and the cheese, yoghurt and cream makers. These sectoral components are at daggers drawn and such are the attitudes to one another it seems unlikely that peace will prevail any time soon.

The conflict centres on what happens to the Riobn ($1bn) revenue generated each year. In its simplest form, the problem involves the dairy farmers versus the rest, namely big time processors like Parmalat and Nestle, and the retailers from the corner cafe to the hypermarket. The farmers are enraged that the processors should decide how much they will pay for the milk they collect from the dairies while the retailers set the consumer price.

Each player in this uneasy triangle has a part to play, each considers its role vital and everyone wants to be paid fairly for their contribution. The problem: who gets how much? Tempers are frayed and harsh words are exchanged. Attitudes are as hard, however, and solutions will not easily be found.

Retailers seem ambivalent to the rumbles in the meadows as long as they can meet consumer demand and stock their shelves with fresh milk each day. Many in the farming community say they are caught in a price vice wielded by the corporate players that makes dairy farming unsustainable, a contention given credibility by the fact that dairy farms are falling like ninepins.

Dairy's corporate sector bristles at the notion that processors, which treat about 85% of the fresh milk South Africa produces into powder and other dairy products, are responsible for the diminishing number of primary producers and are squeezing out the remaining few.

They contend the farmers only have themselves to blame for ignoring market signals on price and other indications of the changing dairy business landscape. On the other hand, Steve Roberts, the representative of a group of Underberg dairy farmers in KwaZulu-Natal, says that revenues taken by processors and retailers have shown a steady increase over the years since formal record keeping began in 2007 while farmers' share actually decreased from 2007 to 2011 "with far from adequate corrections from 2010".

He also charges that corporate behaviour by processors brings "absolutely no advantage to the consumer because it can be proved that all these companies increase prices steadily while the farmer has received less than half. The difference between the two price increases amounts to about R9.8bn ($981m) sucked out of farms and into corporate coffers since 2007. Farmers need to wake up and break this corporate stranglehold".

Roberts maintains: "This is leading to the destruction of the South African dairy farming industry, changing the rural landscape and destroying livelihoods and many, many jobs."

He adds that "this collusional dominance is used to bully farmers to accept prices and systems that are unjust and unsustainable and will in the end lead to far higher prices for milk as the industry crumbles".

Dairy money trail

A glance at the money trail in graphic form leaves little doubt that the dairy farmers have something to grumble about. …

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