The latest Milk Producers Organisation (MPO) Pointer released on July 1 states that erratic producer prices for milk farmers over the past five years all but wiped out dairy farm resilience and increased the rate at which dairy farms closed down.
Although the industry exhibited growth in terms of volume produced (on average 2,1% per year over the period), it came at a cost that destroyed wealth at farmer and farm labourer level. To use growth as a yardstick in unprocessed milk production to determine the state of the primary industry is not an exact science.
The widening gap between what a dairy farmer receives and what consumers pay for dairy products is only one of the curtain-raisers in the dairy value chain show. The value chain needs to regain price stability against the backdrop of a primary industry that needs to recover from negative farm economics during 2018 and 2019. This on its own is bad enough, but we are also in the midst of a pandemic.
During the first 70 days of the restrictive lockdown period, demand for dairy products maintained a good position in the consumer basket. The inherent nutritional value of dairy played an important role in this achievement. Some import replacement is taking place, improving demand.
The level of demand is uncertain due to drastic changes in economic activity and the influence on consumer disposable income. At a macro level, total demand for dairy products should be less, with some products being affected more than others. However, retail pricing could use demand elasticity present in most dairy products to reduce the magnitude in demand shift. To avoid major swings in the dairy value chain, the flow of information from the retailer via the processor to the dairy farmer should be a focal point.