Milk producers find themselves in a serious price/cost squeeze/pincer

In a press release issued this week MPO chief executive Dr Chris van Dijk stated that milk producers currently find themselves in a serious price/cost squeeze/pincer.  Milk processors should seriously consider the level of producer prices in order to enable the producer to sustain production. Should milk processors not respond speedily, the supply of raw milk will be under pressure from June onwards.  Should production capacity be lost on a wide scale, recovering the capacity will be difficult and costly.  Timeous action can stabilise production.

Producer prices are currently at virtually the same level as two years ago, while input prices are much higher.  The serious drought has led to the steep rise in grain prices.  Yellow maize and soya beans are respectively 30% and 25% higher than a year ago, while the price of other feed components and inputs has risen exponentially.  Milk processors are reminded that there is no prospect of any decrease in the cost of roughage or concentrates and that the high cost of feed will continue until at least mid 2017.  The Milk Producers’ Organisation (MPO) is of the opinion that it is unfair that the dairy farmer bears the brunt of these cost pressures.  The increase in electricity tariffs (+15%) has exerted even further pressure on the producer’s profitability.

On the other end of the value chain sample surveys indicate that the retail prices on dairy products on the shelf began to rise as early as March.

The Milk Producers’ Organisation would to like to urge milk processors to give urgent attention to the negative price situation in order to protect the ability of the farmers to maintain production.  The MPO is of the opinion that in cases where processors have already succeeded in negotiating higher prices with retailers, they should invest part of that increase in ensuring the sustainability of the producers’ production capacity.