Dairy industry on its knees

Namibia's dairy industry is in dire straits following a surge of cheap South African UHT-treated milk products into the market, which has resulted in Namibia Dairies making financial losses for the past two years.

Currently the company is selling milk products at an unsustainable loss of N$1 per litre to retailers.

The increasing volumes of cheap long-life milk products from South Africa are also threatening the sustainability of Namibian dairy farmers.

Over the past five years, milk production in Namibia has decreased by 5%.

According to Namibia Dairies MD Gunther Ling, serious concerns have been expressed over the future of dairy producers and processers in Namibia, due to unfair trade practices of South African UHT milk sold at competitively low prices in Namibia.

He says a further decline in raw milk prices, as well as a further reduction in sales volumes, could lead to job losses, unpaid salaries and debts to banks that cannot be paid.

“As a country, our dairy sector and we as Namibia Dairies already have huge concerns with cash flow.”

The annual raw milk production in Namibia is estimated at 25.3 million litres per year, of which Namibia Dairies represents 95% (23.3 million litres). The other 5% is produced by smaller local producers.

Ling says 16 producers, which includes the !Aimab Superfarm at Mariental, deliver 2 million litres of raw milk monthly to Namibia Dairies. The Superfarm produces about 55% of this volume. From 2012 to 2017, dairy production declined by 5% from 24.4 million litres to 23.3 million litres. Between 2016 and 2017 there was a 3% decrease (742 733 litres).

According to Ling, there should have been a 2% to 3% annual growth that correlates with a natural growth in demand driven by the population growth of 2.2% per year.

“The negative growth of local raw milk production of 5% compared to a population growth of approximately 10% over the last five years can only mean that the imported volumes are growing in market share.”

More than 12 million litres of milk per year is imported from South Africa, in addition to nine million litres of other liquid dairy products such as yoghurt. All cheese and butter products sold in Namibia are imported.

“There is no such thing as infant industry protection for local dairy production; this was stopped in 2012. Also the last efforts of quantitative support measures by government and industry were only valid for 12 months, ending August 2014.

“There is still a pending court case between the government and importers regarding previous quantitative support measures provided to the dairy sector.

“Namibian borders are therefore completely open for the past four years for any dairy products to enter into Namibia at any time at any volumes at any price.

“Meanwhile neighbouring countries like Botswana, Zimbabwe, Zambia and Angola have certain trade barriers in place to protect their own local dairy industries against imports,” Ling says.

The volume of local and imported dairy products sold in Namibia account for less than 1% of the South African market size. This means that South Africa needs only three days to produce the volume of milk that Namibia produces in a full year.

Ling says other reasons for the production decline in Namibia include the economic recession and the fact that Namibia lost its export trade to Angola in 2015. It used to export 1.5 million litres of dairy products to Angola per year.

Farmers also experienced prolonged droughts in recent years, which forced them to reduce their cattle herds.

Ling explains that it is specifically long-life milk that is causing major problems in the industry, because it can be easily transported and stored due to its extended shelf life.

For instance, South African long-life milk was sold for a mere N$11.99 at a shop in Otjiwarongo on Wednesday last week.

“These prices do not make sense,” he says.

“Producers are going to close shop if it continues like this. With these low prices we will not have milk anymore and then we can just as well pack water.” This statement was made in reference to the fact that a litre of bottled water is more expensive than a litre of South African milk.

“This is dumping of their products into our market. We can never compete with these prices.”

At cost price, Namibia Dairies produces milk at around N$11.60 a litre. This is just after it is packed at the factory and does not include any other necessary costs before it lands on the shelves of retailers.

Breaking this amount down: N$6.05 is paid to the producer, 38 cents for the transport of the milk from the farm to the factory, N$2.17 for packing and N$1.70 for labour and utilities. Then VAT still needs to be added.

Usually a litre of Namibian milk should cost between N$17.99 and N$19.99 per litre, including 15% VAT, Ling says. This is a sustainable and fair price when taking into account the complete value chain.

He explains that “in a perfect world” they would make 80 cents profit on a litre of UHT milk, but they are currently making a loss of N$1 or more on every litre that they sell.

Meanwhile, farmers have been receiving 20 cents per litre less since August last year. Another meeting is set for the end of April where another price drop of 10 cents per litre will be discussed. It is highly likely that this will become reality.

This would mean that in just eight months' time the price paid to farmers dropped by 30 cents per litre.

Certain farmers have indicated that they will not survive another price cut and are ready to leave the industry if this happens. Ling says another price cut on raw milk would also significantly affect the profitability of their own Superfarm near Mariental.

“We risk seeing producers closing down if the industry does not receive protection.”

He adds that Namibia Dairies' products are of high quality because the use of growth hormones to artificially increase milk production is not allowed in Namibia. He says it is disappointing that a “good Namibian product” is suffering because South African producers are trying to undercut each other's prices.

Ling says that is why Namibia Dairies no longer produces cheese.

“Our local product could not compete against South African products. Hence, the steep price of imported cheese on local shelves.”

The dairy industry creates about 1 500 jobs, with 700 employees directly employed at Namibia Dairies. The other 800 are employed throughout the value chain.

Ling says recent discussions with the agriculture ministry regarding industry protection and a bill to control imports and exports of dairy products were positive.

“We believe that we once again have the positive political will to see another round of industry support in the interest of Namibia. If all approval is there and with the support of Namibians, we are confident that the local dairy industry will survive and overcome this storm.”

ELLANIE SMIT