COST PRICE SQUEEZE IN THE PRIMARY INDUSTRY IS IGNORED BY THE VALUE CHAIN

MPO Pointer 1/2020 (20 January 2020)

Despite the MPO reiterating that the producer price for milk is unrealistically low, the secondary industry maintained the current price trajectory. The current producer price is at comparable levels of the 2015 producer price. The effect of this persistence has now played out in December and for 2019 as a whole with the industry virtually stagnating.

Unprocessed milk production for December 2019 is estimated at 304 million litres, 1,5% less than in December 2018. Milk production in December contracted. Cumulative unprocessed milk production for 2019 (inclusive of December) is 3 419 million litres indicate a marginal growth of only 0,23%.

Monthly milk production is reflected in the figure below.

Source: Milk SA, November and December preliminary

The primary industry is clearly haemorrhaging due to the cost price squeeze, which is exacerbated by the unfavourable climatic and economic conditions. The low producer price for unprocessed milk together with the price increases of yellow maize and soya beans reduced the milk to feed price ratio to levels where the majority of dairy farmers will not break-even. The double dip in the above ratio that farmers experienced in 2019 will have a prolonged effect on supply.

The MPO implores the secondary industry and the retailers to urgently redress the current unrealistically low producer price.

Bertus van Heerden, chief economist, Milk Producers’ Organisation (MPO)