You’re probably already sick of hearing that ‘things are going up’, but unfortunately the list is still getting longer. Now milk will be added to the list of costly staple foods according to First National Bank (FNB).
“Dairy farmers are currently facing production shortages and will likely run into supply issues in the coming months. Consequently, some dairy processors are already paying commercial farmers 60 cents more per litre on average for milk to ensure consistent supply in winter. Poor pasture conditions due to the drought and the sharply higher grain prices have squeezed margins at farm level and the increase should help improve the situation,” the bank said in a statement.
The price of milk is expected to further increase in May and will hike operating costs for the entire milk value chain, leaving retailers with no choice but to increase the price that consumers pay for milk and dairy products.
Paul Makube, senior agricultural economist at FNB, said the price of milk is determined by demand and supply from the market. However, because dairy farmers are price takers, they do not set the market price. Instead, when there are supply issues, milk processors often increase the price paid to dairy farmers to guarantee supply as they cater for the domestic and export markets.
Three factors driving the price of milk up
The drought: “The challenge we are currently facing is that most dairy farmers are still recovering from the impact of the drought and will not be able to produce enough milk in the short-term,” explained Makube.
Our currency: South Africa does source certain dairy products from other countries, but the weakening Rand has made imports more expensive despite lower international prices.
Hike in electricity: The electricity tariff increase coming into effect this month (April) will severely drive up input costs for farmers and milk processors as they heavily rely on equipment that consumes a lot of energy, pointed out FNB.
Is there hope?
Winter is on its way and the recent rains across the country in the past few weeks will go a long way to improve grazing conditions in the short term. The return of normal weather patterns in the new crop season should enable farmers to rebuild their herds and improve production from the current levels. This will play a key role in stabilising the price of milk and dairy products next year.
In the meantime though, families’ finances will be squeezed. “Dairy products play an important role in the diet of consumers. Therefore, an increase in the price of milk will put more pressure on the already stretched disposable income, pressurising them to spend wisely and cut back on luxuries,” said FNB.