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Local dairy industry on the verge of imploding

2021-09-06  Edgar Brandt

Local dairy industry on the verge of imploding

Major players in Namibia’s dairy industry last week warned of the imminent collapse of the entire sector, and requested government to consider mechanisms to save both jobs and businesses. 

Producers and farmers have expressed concern as the country’s milk production has already dropped by 50% during the last three to four years, while feed costs have risen to account for between 70% and 85% of production costs. 

During a virtual meeting organised by the Namibia Agricultural Union (NAU) on Thursday, Namibia Dairies managing director Leonie Prinsloo said a legal framework is needed to protect the local industry. She suggested a Dairy Act or specific regulation to ensure the sustainability of Namibia’s dairy future. 

When asked how Namibia’s small producers can compete with larger international producers, Prinsloo replied that the dairy business is a value generator based on volumes. She explained that supporting local producers will not result in a price increase for Namibian consumers because “with more volumes, the producers can ask less for their product as the production cost will be less”.  

According to Commodities Analyst at the NAU, Petrina Sakaria, the dairy industry’s total value spend is estimated at about N$1 billion per annum. Out of this, Namibia Dairies’ total value spend was some N$577 million for the last financial year and about N$2.8 billion over the last five years, with no profit registered in 2020.

She noted that local farmers made about N$330 million from milk production over the last five years (as at 2020), and should the dairy industry implode, approximately 1500 direct jobs will be lost, with another 1500 indirect jobs lost to supporting industries. Furthermore, local dairy stakeholders bemoan the fact that while domestic producers deliver to most local towns, international importers only focus on major economic hubs. As such, Sakaria added, consumers would face the risk of not having dairy products available in remote areas.

Meanwhile, Roelie Venter, Executive Manager of the NAU, confirmed that dairy producers are exiting the local industry at an alarming rate, with only 11 Dairy Producers Association (DPA)-affiliated producers remaining in the country. 

He reasoned that a healthy number of producers would be 45 to fully supply the country, and warned of the ripple-effect of declining commercial producers, which would devastate the local value chain with serious overall consequences on the economy. “We then look at the lucerne farmers, transporters, packaging sector, cooling facilities and service providers, feed companies, livestock arts and animal health aspects’ impact on local economies,” said Venter. 

Namibia’s raw milk volumes are declining at a staggering rate. Average raw milk volumes between 2015 and 2018 were 24 million litres. In 2019, this dropped to 21 million litres, and in 2020 it fell even more to 17 million litres.  The expected milk production estimate for 2021 is 12 million litres, which means the supply of milk to processors is at critically low levels. 

Moreover, Venter stated that the availability of water for dairy production, the high local input costs for producers and the Southern African Customs Union (SACU)’s no-dumping rules should be strictly enforced. 

Pundits argue that trade liberalisation brought about by Namibia being a signatory to international trade agreements has led to the flooding of the Namibian market with imported dairy products. Meanwhile, government tried to protect the local dairy industry through the Infant Industry Protection (IIP) scheme between 2000 and 2007. However, SACU states that IIP only affords smaller economies protection for a maximum of eight years.

Even during the IIP, the sector failed to achieve the needed economies of scale by producing large volumes at low cost. After the lapse of the IIP, competition returned, and the industry appealed once again for protection, and import restrictions were imposed.

2021-09-06  Edgar Brandt

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