Windhoek
The Namibian dairy industry – teetering on the brink of collapse at the end of 2015 – announced last week at its first meeting of the new year that the total production expense basket of dairy producers has increased by about 28 percent in the past year, while feeding costs increased by nearly 50 percent.
This will have a massive impact on the profitability at farm level and consumers can expect an increase in dairy products to ensure the survival of local producers.
Adding to the woes, the weakening of the South African rand and consequently the Namibian dollar also present challenges in terms of an increase in input costs. This is worsened by the effects of the drought.
However, even with the short to medium term challenges which the industry experiences, it remains positive and growth can still be brought about by good cooperation between producers and Namibia Dairies as the biggest partner.
The protection which is needed by the industry is still driven by government and the industry partners, despite all challenges.
The drought conditions resulted in large scale losses in terms of maize harvests in South Africa and the severe maize shortages caused huge increases in feeding costs in the past 12 months.
This is of special importance as feeding costs make up the largest part of the total production costs of dairy producers. According to the dairy production cost index of the NAU, the costs have been rising by a whopping 50 percent since last year.
Internationally surplus milk is still being produced, especially in Europe, which has been using the African market as an outlet. This causes additional competition and increases the pressure on local producers and processors even further, last week’s meeting concluded.
Namibia Dairies (ND) and the Dairy Producers Association (DPA) warned towards the end of last year that that a total breakdown of the industry is imminent if urgent intervention from the government and consumers is not forthcoming within the next three to six months.
ND and the DPA agreed that if the sector collapses it would have dire consequences for about 1 000 people directly employed in the industry, as well as for those indirectly involved in the sector such as transporters and suppliers, not to mention farmers and their employees.
The managing director of ND, Gunther Ling, explained that the quandary is a culmination of a number of factors that have caused a state of crisis in the global dairy sector and resulted in world dairy prices reaching a 13-year low.
Ling said contributing factors include an increase in dairy production by major producers like New Zealand, the United States of America and Europe. This increase in production has resulted in a surplus that cannot be absorbed by existing markets. The overproduction automatically leads to a drop in prices, which is then exacerbated by an influx of cheap imports.
“Namibia’s own dairy industry is not able to compete with these cheap imports flooding the market and the fact that these imports are often sold in Namibia at the same prices or lower than in their market of origin is testimony to the under-pricing of these dairy products,” said Ling.
“If we can sell our UHT milk for between N$16.99 and N$17.99 per litre for at least the next 12 months then the future of the local industry is secure,” added Ling.
The industry has already met with senior officials in the Ministry of Finance to recommend the exclusion of value added tax (VAT) on certain dairy products like UHT milk. This could provide some breathing space for the industry if government agrees to this intervention.
Ling said that there has been a drastic decline in demand for ND products as a result of underpricing of imported dairy products, which he noted is evidenced by a 23 percent decline in sales of fresh and UHT milk by ND in July 2015, compared to the same time last year. He added that with a capital debt of N$240 million, ND is not in a position to weather the storm.
Chairman of the DPA, Japie Engelbrecht, was quoted as saying: “Dairy farmers in Namibia have invested heavily to increase their production and build up the local industry. If we are to reduce the price of milk further our operations will no longer be viable, and we may as well concede that the Namibian industry cannot bear the onslaught of more developed countries,” said Engelbrecht.
Sven Thieme, executive chairman of the Ohlthaver and List Group, which is the parent company of ND, last year warned: “If we don’t fight for the survival of Namibia’s dairy industry, our farmers will exit the dairy business and once the dairy industry is lost, we will not be able to establish it again. Thereafter, if we no longer have our own dairy industry, Namibians will be reliant on imports. When this cycle of oversupply ends, and the world faces its next dairy shortage, Namibians will not have milk. This is something we cannot allow,” warned Thieme.