Is The Dairy Farming Sector Curdling In South Africa?

SOUTH AFRICA - When demand outstrips supply, the theory is that prices should rise, thus encouraging more production, which in turn should increasingly satisfy demand and ensure that price increases are not permanent.
calendar icon 29 May 2007
clock icon 1 minute read
Is that what is happening in the SA milk industry? Does the unprecedented absence of long-life packaged milk from many supermarket shelves merely represent a lag in the cycle, or should we be seeing it as a warning?

Demand for milk in SA is rising by 2%/year, driven mainly by the expanding black middle class. Right now the supply is not responding. That's because the lower level of production that normally kicks in between February and July is accompanied by a global shortage that is expected to last for at least two years. So imports cannot provide easy relief.

The result is that farmers will expect the market now to work in their favour. For years they have felt unfairly squeezed by milk processors and retailers, who would doubtless reply that they themselves are in competition and must keep their prices down. In present conditions, a reliable supply - always taken for granted in the past - becomes more important.

Source: Financial Mail
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