By the end of 2012, the South African dairy industry had reasons for guarded optimism—but not for complacency. International analysts expected milk and dairy-product scarcity to return in 2013, potentially lifting prices. Whether that outlook would benefit local farmers and processors depended on supply and demand at home, the exchange rate and decisions made throughout the dairy chain.
Demand and supply are moving on different clocks
Global milk production grew by 2.5% in 2011, compared with 2.4% in 2010. Yet the outlook reported later in 2012 pointed to slowing supply growth alongside recovering demand in developed markets and continued demand growth in developing countries. Rabobank’s September 2012 Dairy Quarterly called its analysis “Return of milk scarcity”: stronger demand and slower production growth were expected to put further pressure on product and producer prices.
The production picture was mixed. EU milk output for the first seven months of 2012 was 1.9% above the same period in 2011, but July output was 0.7% lower year on year. Adverse weather, farmer margins below the previous year and feed costs—including soybeans 70% more expensive than a year earlier—were among the pressures described. In the United States, production growth lost momentum; August output was down 0.3% year on year, while higher feed prices and firm cull-cow prices were associated with herd liquidations. New Zealand’s production was 10.4% higher in the first six months, but Fonterra announced a 5% reduction in its expected 2012/13 payout, to a level 13% below the previous year.
South Africa’s balance is local, too
South African figures available in mid-2012 showed production of 850-million litres in the first four months, 3.2% higher than the same period in 2011. Across January to May, production was up 3.7%, but increased exports cut net imports by 90%; total supply consequently rose by 3.1%, or 38-million litres. The report estimated 2011 retail demand at 2,675-million litres and said year-on-year monthly growth of 1% was needed to balance supply and demand in the first five months of 2012.
By August, preliminary trade figures indicated exports were rising and imports declining. In the first eight months of 2012, imports represented 197-million litres of milk equivalent and exports 236-million litres, leaving net exports of 39-million litres. MPO economist Dr Koos Coetzee argued that higher world prices would limit imports and create more export opportunities for South African processors.
Price signals and imports have consequences
The Dairy Mail’s commentary warned that a short-term bargain is not necessarily a sustainable supply strategy. A quoted price in the country of origin can omit the total cost of landing a product in South Africa. Importers must also allocate their businesses’ fixed overheads to imported goods; those costs may become apparent only when annual profits are calculated. Imports may make strategic sense for a limited period to balance supply, but the commentary said they cannot be maintained as a long-term practice.
That warning was relevant as local milk supply tightened. The MPO said low producer prices had persisted for nearly four years before beginning to recover in November 2011. Low prices contributed to farmers leaving the industry; production then grew more slowly than demand, creating the need for imports. The publication also noted that a weak rand made dairy imports substantially more expensive than locally sourced milk, improving the position of South African farmers.
Processors’ conduct can affect future supply. In July, the commentary said processors who had managed their raw-milk sources carefully by giving early price signals had so far enjoyed consistent supply. Inconsistent signals, it warned, risked instability in milk supply. After unexpected price cuts by a major buyer, a substantial number of producers reportedly changed buyers—a sign, according to MPO chief executive Bertus de Jongh, that some buyers were experiencing shortages. He urged milk buyers to manage their raw-material sources responsibly to protect the sustainability of the industry.
From cautious optimism to collective action
The September outlook also cautioned that international prices were volatile: importing during a period of low world prices to supplement local shortages could be a gamble. At the same time, rising maize prices and pressure on farmers’ costs could further restrain milk supply. The commentary framed this as part of a wider agricultural renaissance, in which food scarcity might show up not only in availability but in higher food prices—and where the balance of power could eventually return to primary producers.
The successful World Dairy Summit in Cape Town offered a different kind of lesson: the South African industry could undertake major projects collectively. The December editorial identified a national dairy strategy and an export strategy as possible next projects. International leaders and economists anticipated a better year for the primary dairy industry in 2013, with a general shortage of milk and dairy products and higher international prices. The editorial hoped that this would also benefit the hard-pressed South African milk producer and the secondary industry.
The practical thread running through the outlook is clear: sustain local milk supply by giving producers dependable price signals, assess imports on their full costs rather than headline prices, and use cooperation to build strategies that serve the industry as a whole. The brighter 2013 forecast was an opportunity, not a guarantee; making it count required responsible decisions across the chain.
Key points
- Global analysts expected slower supply growth and stronger demand to bring renewed milk scarcity and higher prices in 2013.
- South African supply rose 3.1% in January–May 2012 as exports increased and net imports fell 90%; later figures showed net exports of 39-million litres for the first eight months.
- Imports can help balance supply temporarily, but landed costs and fixed overheads matter; price volatility makes importing a gamble.
- Reliable early price signals and responsible milk-source management help processors maintain supply and support industry sustainability.
- The Cape Town World Dairy Summit demonstrated the potential for collective projects, including national dairy and export strategies.