Cows give more milk when the grass is good, and this winter was warm enough to keep the grass growing. That sounds like good news for a dairy farmer, right up until the buyer decides there is too much milk to go around. Lactalis, the company behind Parmalat, Président and Bonnita, cut what it pays Western and Eastern Cape farmers for raw milk by 20c a litre in September and by another 20c in October. It has confirmed a further 30c cut for November.
The price of raw milk moves with supply, and nobody sets it by law. Farmers and processors agree it between themselves, usually for a year at a time, and it normally dips in summer when cows produce more. This year the extra milk came in winter. National production was 1.5% higher by August than a year before, and up 4% in July alone, Bertus van Heerden, chief economist at the Milk Producers Organisation, told News24. He puts the warm winter well ahead of foot-and-mouth disease as the reason.
Lactalis says it is under pressure too. A spokesperson told News24, in a written response, that fewer chances to export and too much milk on the local market drove the decision, which "was not taken lightly".
What a litre is worth on a Cape farm
Samilco speaks for 195 farmers across the two provinces, who between them produce about an eighth of South Africa's milk, and about half of them sell to Lactalis. Its chair, Martin Steyn, told News24 that after the November cut Southern Cape farmers would be paid R6.80 or R6.90 a litre, against the R8 they got in winter.
The costs are going the other way. Steyn says diesel has cost his members 77% more this year, and that if the milk price had kept up with inflation since 2000, farmers would be getting R10.25 a litre. Lactalis is not the only buyer cutting, either: he says others have taken between 40c and 55c a litre off this year. Many farmers in high-cost areas, he says, now have to accept producing milk at a loss for the rest of the year.
Samilco goes to the Competition Commission
Samilco has approached the Competition Commission, the Daily Dispatch reports, warning that the cuts threaten producers already battered by input costs, natural disasters and disease. It is leaning on buyer guidelines meant to protect primary producers, and it is also weighing legal action to stop the November cut.
These are farm-gate prices, the rand a farmer gets for a litre before it is processed and sold. Unless the Commission or a court moves first, November will leave Lactalis's suppliers 70c a litre worse off than they were in August.
