What will it take to ensure the local dairy industry is sustainable long-term?

What will it take to ensure the local dairy industry is sustainable long-term?
What will it take to ensure the local dairy industry is sustainable long-term?

Dairy farmers have long used benchmarking against various technical and financial measures to improve their productivity levels and remain competitive.

In the 1990s the local dairy industry was de-regulated. This, however, came at a cost. Declining producer prices – a result of the free market forces – and growing production costs has seen many dairy farmers leave the industry. Those remaining in the industry have been compelled to become more efficient in terms of managing both their input costs and production output. The trend has been towards less, but larger dairy herds with an increase in average production per producer.

Better efficiencies are the result of best practice benchmarks being identified in a number of different areas, explains agricultural economist Dawie Maree, Head of Agriculture Information & Marketing at First National Bank. These include benchmarks for herd health and reproduction, feeding and nutrition, various economic and financial performance benchmarks, capacity utilisation benchmarks and the implementation of a bio-security programme.

“When evaluating a dairy farm all the benchmarks need to be considered in a holistic way given that they are inter-related and can’t be evaluated individually,” says Maree. “Feeding, for example, has an impact on production and reproduction – and ultimately on financial performance.”

However, even though most local commercial dairy farmers have implemented benchmarking practices, they continue to battle to compete against dairy products imported from countries which subsidise dairy farming operations. To be sustainable in the long term dairy farmers have to be able interrogate these benchmarks even more closely, says Ian van Niekerk, CEO of Oakland.

The problem, he believes, is that each farmer thinks he or she is operating effectively and efficiently but needs to have the ability to measure themselves more closely against the industry average.

As a result Van Niekerk has proposed that the industry develop an online application which allows farmers to share their input costs under the same headings in order to understand the percentage of total milk sales. The app should allow farmers to then compare percentages such as the cost of power feeds, roughage feed, calf feed, medicine, labour and so on, relative to their turnover. These figures then need to be made available to the industry through a body like the Milk Producers Organisation (MPO) and published monthly so that every farmer can accurately benchmark themselves against the industry’s performance.”

He believes that an app of this nature will allow farmers to compare their percentages with other farmers in their geographic vicinity and more easily identify problem areas. “If a farmer’s figure is higher for a particular input cost is higher than the average, or that of their neighbour, they will be able to identify the particular problem area and quickly address the issue.”

In addition, Van Niekerk says dairy farmers need to become part of the processing and distribution chain in order to remain sustainable.

“The reality is that every time the big milk processors drop the price of milk, it makes it harder for smaller milk producers to remain sustainable,” he says. “What we need is open dialogue between supermarket chains and dairy producers so that the former understand the impact of feed price increases, as one example, on the cost of production.”

Furthermore, he adds, the Competition Commission should be getting involved to ensure that smaller players are not being squeezed out by the larger players.

“The dairy industry plays a vital role in South Africa’s economy and it is vital that there is a place for both large and small players to ensure a healthy and sustainable industry into the future.”

About Oakland Dairies:

Oakland is the Western Cape’s leading nutrition, health and wellness company. Our mission of ‘Celebrating local farmers that enable a whole ecosystem of Good Life’ is to provide consumers with the best tasting, most nutritious choices in a wide range of beverage and categories and eating occasions, from morning to night.

Oakland’s vision is to be a leading, competitive, nutrition, health and wellness company delivering improved shareholder value by being a preferred corporate citizen, preferred employer, preferred supplier selling preferred products.