Opportunities for pro-active milk producers

(Shutterstock)
(Shutterstock)
Cape Town - Various market conditions are creating opportunities for local milk producers, according to Willie du Plessis, head of agribusiness at Standard Bank South Africa.

"Global weather conditions, the rand’s weakness against the dollar and growing local and international demand for milk are creating opportunities for milk producers to take a fresh approach to their business, grab market share and increase profitability," said Du Plessis.

“As in other areas of agriculture, our advice to milk producers is to realise that volatility is going to be the norm for the foreseeable future."

He warned that pro-active steps are, however, needed to benefit from this roller-coaster in the market.

“This means being agile in one’s thinking and using excellence as the vehicle for cutting costs and increasing sustainability," he said.

"his could take the form of new technology, different pasture, herd or feed management or getting to market more efficiently.”

Conditions

In 2012, the drought in the United States pushed the prices of important feed ingredients such as maize and soya to very high levels.

This put upward pressure globally on the prices of raw milk and dairy products.

It was followed by unexpectedly dry and hot conditions in New Zealand in the first quarter of 2013, dropping raw milk production well beyond predicted levels and sharply increasing the price of dairy products worldwide.

The longer than normal winter in the northern hemisphere also limited production in that region’s peak production season, supporting the higher prices.

At the same time, consumption is increasing steadily, particularly in emerging economies such as South Africa.

About 40% of the local growth in consumption is attributable simply to population growth. The rest comes from a per capita increase in consumption.

Better health education and an increase in disposable income (by about 5%) are positioning consumers to drink more milk than they used to.

According to the Milk Producer’s Organisation (MPO), market demand for dairy products is growing at more than 4% per year.

Growing demand

Demand is also increasing internationally. As a consequence, South Africa is experiencing good growth in dairy exports, at 71% for the first five months of 2013.

With high international dairy prices and the weakness of the rand forcing processors and importers to pay more to bring dairy products into the country, imports have declined by 27% in the first five months of 2013.

“This unusual combination of factors means that both local and international markets are expanding for South African dairy farmers,” said Du Plessis.

“To exploit the opportunity, some of the biggest producers will need to shift their market focus."

For most producers there will be a need to expand output and, to some extent, expansion initiatives will be supported by the higher international price signals to our domestic circumstances, he said.

In his view it would be unwise to just wait for that to happen, however, as weather and other unpredictable variables could change the markets very suddenly.

"Producers should be proactive, and some of our clients are already investing in expansion projects," said Du Plessis.

- Fin24

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