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MPO press releases

20 February 2007

PRESS RELEASE ISSUED ON BEHALF OF BENNIE JONKER
CHAIRPERSON OF THE PRODUCERS’ ACTION COMMITTEE (PAKOM)

Pakom on milk prices

Last week Clover held a number of meetings in order to explain their strategies and price-related decisions to producers. According to these meetings, it would seem that Clover has decided to become more competitive in the market.

The Clover model, which includes countrywide and broad distribution of high quality dairy products with well-advertised trademarks, caused Clover’s prices to be significantly higher than that of the opposition. In the recent past, it was decided to cut costs and to lower price premiums.

The view of Pakom and other producers that attended the meetings, was that producers cannot afford to finance this strategy. The cost of animal feed components have increased by between 30 and 70% over the past eight months, giving rise to extra costs of around 30 cents/litre. In addition, other costs have also increased significantly. On the other hand producer prices were lowered by 22 cents/litre two years ago and are currently even lower than two years ago.

In this regard Clover relies on data presented in graphic form, indicating that prices have been moving along the inflation line recently and were too high two years ago. At one of these meeting it was, however, pointed out that these graphs were basically incorrect and that prices are moving below the consumer price index. Whatever that case, the cost increases in milk production are moving way above the consumer price index.

In the meanwhile Clover is apparently unable to provide in its market demand and world market prices have in recent months shown a drastic increase. Coupled with the decreasing value of the Rand, this has caused import parity to be 50-70 cents/litre higher than two years ago, with local milk prices now at least 30% lower than import parity.

Other milk buyers tend to follow Clover’s example and are also paying mostly poor prices. The whole industry is in other words moving on way too low a level. Clover is not the only guilty party. Whereas Clover previously used to take the lead, they are now waiting for the rest of the industry to act. This is a check-mate situation and for this almost childish game, producers are the ones paying, with many forced to leave the industry. The influence of supply and demand on price is therefore effectively cancelled out, as producers have almost no bargaining power.

Pakom feels that broad action is necessary to force all buyers to let the free market follow its course. Current strategies may be to the detriment of the industry, and ultimately the consumer. It may force especially the mid-sized and smaller producers from the market, and can make it almost impossible for small fledgling farmers to enter the market.

For more information, contact Bennie Jonker at 058 813 4129 or 082 422 4083.

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