MPO Media Day highlights 2020 dairy market

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Dr Chris van Dijk, chief executive of the Milk Producers’ Organisation.

The MPO Media Day recently took place in Pretoria where Dr Chris van Dijk, chief executive of the Milk Producers’ Organisation (MPO), shared their vision for 2020 and beyond. The event also gave insight into the organisation’s customer-centric focus, their training initiatives for 2020 and allowed Bertus van Heerden, chief economist of the MPO, to shed some light on the international and local dairy market.

Economic growth

According to Bertus, economic growth is measured in terms of the gross domestic product, which is influenced by consumer and government spending, fixed investments, and imports and exports. While global economic growth increased by 2,9% in 2019, South Africa’s economy is set for a marginal growth of less than 0,5% in 2020.

“Currently, we are not successful at increasing our country’s level of consumer spending. You can only increase consumer spending through job creation, not with annual salary increases because these increases only cover inflation costs and allow for some growth here and there. This is the only way you can grow the economy.

“However, our economic climate does not mirror our local dairy market’s outlook. Compared to the beginning of 2019, international dairy product prices have increased by 21%, which is a very positive financial development for South Africa,” Bertus adds.

A spike in international dairy product prices

According to Bertus, a decrease in the production of unprocessed milk by countries that typically produce in excess caused international traders to tread more cautiously, which led to the spike in international dairy product prices.

“This had a significant effect on producer prices, which saw an increase of 34% in the United States and 13% in New Zealand, respectively, with European Union prices also exhibiting upward momentum. All of this bodes well for the South African primary dairy industry, which is currently one of the top ten producers in the world with the lowest costs. We will need to leverage this competitive advantage in order to develop an export-orientated value chain,” Bertus says.

Unprocessed milk production

Unprocessed milk production in South Africa stagnated during 2019 on the back of weak producer prices and because of the cost price squeeze, which accounts for the cumulative unprocessed milk production growth rate standing at 0,23%. Exports reduced slightly from 415 million litres milk equivalent (ME) in 2018 to 410 litres ME in 2019. However, South Africa remained a nett exporter of dairy products in 2019. Although the South African economy is struggling, and the disposable income of consumers is currently under pressure, the demand for dairy products is still positive.

“The 2019 imports remained at the same level as in 2018 at 332 million litres ME. The margin between the producer price and the consumer price is increasing at a tempo that indicates exploitation of the consumer, with the 2010 margin being R5,44 and the 2019 margin being R9,56. We should be seeing a sharp increase in the producer price of milk in South Africa in the coming months,” Bertus concludes. – Claudi Nortjé, Plaas Media