Dairy sector beats the odds

Increased sales in the last three months of 2015 appear to have bolstered Namibia’s struggling dairy industry. Feared last year to be on the brink of collapse due to what local producer Namibia Dairies said was a combination of cheap imports from South Africa spurred by global oversupply, and difficult conditions faced by local farmers, the sector has of late experienced some kind of a rebound. “The current state of the local dairy industry is better when compared to the crisis situation that was experienced from June until August 2015,” Namibia Dairies (ND) managing director Gunther Ling told Namibian Sun last week. “We are fortunate to say that our local dairy industry lost only one milk farmer during this crisis time, while all other producers held out. “We are also glad to share that the price cut towards milk farmers, of 20 cents per litre, has been reversed since November 1 to improve the farmers’ situation.” Mitigating losses In August last year, Namibia Dairies and the local Dairy Producers Association (DPA) sounded alarm bells over the state of the local dairy sector, calling on consumers and government to consider the effect on its survival of cheaper milk imports. Many of the factors cited then remain of concern, Ling said last week, including global oversupply owing to increased production in Europe and the United States, and decreased demand from major markets like China and Russia, foreseen to continue for much of 2016. “Oversupply of milk from South Africa still continues and therefore the pressure of imported milk from South Africa remains high,” Ling said. He however credited “outstanding support” from consumers in supporting local dairy products, and local farmers’ acceptance of a reduction in raw milk prices from the producer, for better fortunes towards the end of the year. Local farmers, Ling said, also had to resort to culling milk cows to counter the oversupply of milk, while ND introduced a number of processing cost reductions. These, he said, included freezing vacant positions and certain capital expenditure, as well as offering expensive discount deals on local UHT (long-life) milk. “These have been hurting the bottom line, however have ensured the reduction of very high UHT stock levels and continued offset of milk purchased from farmers,” the Nam Dairies MD said. These measures had the effect, he said, of bringing imported UHT milk to more competitive levels with the local competition, especially over the last four months of 2015. “While it was no exception to find a litre of imported UHT milk at N$11.99 during June, July and August of 2015, the price of imported UHT milk over the last four months has remained stable in the range of N$14.99 to N$18.49, with specials of N$12.99 on imported UHT milk becoming special prices, and not the everyday sale,” he said. Ling last year said the local producers’ consideration of a fair price of UHT would be around N$17.99. Still counting casualties The year did not end without casualties. These include the loss of one local milk farmer and economic challenges faced by Angola resulting in Namibia Dairies stopping exports to that country. Other challenges which remain, Ling said, are the current regional drought and an ever-weakening South African rand. “While milk farmers have escalated feeding costs, the processor located in Windhoek is faced with a huge water crisis in the central region. “The devaluation of the rand and Namibian dollar compared to US dollar and euro is a new challenge whereby certain input costs to the dairy industry have become more expensive by 30% over the last few weeks.” Supporting whom? A further solution to the local dairy crisis, Ling said, was currently being discussed with the Namibian government, though he reserved comment until the discussions had progressed towards a concrete solution. Having previously been affected by government intervention in the local dairy industry through ‘infant industry protection (IIP)’, South African producer Clover Dairy Namibia offered a word of caution. “As with the previous “closure” of the border, the impact of extreme quantitative controls bids catastrophic for any dairy business besides the company being protected,” Clover Namibia operations manager Christo Wepener told Namibian Sun. “The impact also spreads much wider than only around competing vendors, consumers are directly and significantly affected,” he said. “The history of such measures is obvious. Clover had to retrench half of its personnel, and had to stop providing to many of our points of sale. It affected not only Clover and those who worked at the company, but consumers of dairy products across Namibia.” The current crisis talk around the Namibian industry had left further plans for investing into the country sketchy, Wepener said, as it considered selective protection in the sector as creating an uneven playing field. Despite the difficult business climate, he said Clover was looking into opportunities to invest, including the possible establishment of its own processing plant in the country, as it has done in Botswana. DENVER ISAACS