Help for KZN’s dairy farmers

2008-11-12 00:00

Agricultural financiers such as commercial banks and major supply organisations have pledged to assist dairy farmers in KZN with “rescue” options as many local milk producers move into crisis mode in the next eight to 10 months.

This is one of the key outcomes of a critical meeting of the Milk Producers’ Organisation (MPO), held in Pietermaritzburg yesterday. The meeting of farmers, financiers and feed company representatives was also attended by MPO managing director Etienne Terreblanche.

KZN MPO president Mike Black told The Witness that there are major concerns that some farmers will run into major financial trouble and not be able to pay off their production loans by February next year.

According to private consultant and farmer Derek Broom, the average local farmer’s return on capital will move into negative territory by May next year, from an already paltry seven percent.

Broom believes that farmers have positioned themselves very badly in the supply chain. Farmers’ share of the “consumer rand” has dropped from 50% in 1973 to less than 25% today, and the average farmer is experiencing a negative cash flow.

Local farmers have come under extreme pressure as a result of desperately low prices being received for milk, an increase in product supply and massive increases in input costs. Fertiliser prices, for instance, increased by between 150% and 200% in 2008, feed by about 50%, and fuel by 100%. Electricity tariffs also rose sharply this year.

Although KZN has about 10% of all dairy farmers in South Africa, the KZN dairy sector produces 23% of the national milk supply. A decline in milk supply in KZN is almost certain in the near future. Although financiers are ready to assist dairy farmers, they made it clear that they cannot carry farmers through a two- or three-year period. Solutions such as refinancing options (assets) and the rescheduling of debt will be handled on an individual basis.

“We’ve got structured products to carry a farmer through a year, as long as it’s a short-term thing of carrying a farmer through to next season …” said one financier, who represents a major supply organisation.

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