South African Milk Processors’ Organisation
The voluntary organisation of milk processors for the promotion of the development of the secondary
dairy industry to the benefit of the dairy industry, the consumer and the South African society.
KEY MARKET SIGNALS FOR THE
DAIRY INDUSTRY
MAY 2015
This report is available to any interested party and copies can be obtained from
the Office of SAMPRO – telephone 012 991 4164. Enquiries regarding the
content of the report should be directed to Alwyn P Kraamwinkel, Tel 012 991
4164 (or yvonne@sampro.co.za)]
No1 9jun
KEY MARKET SIGNALS FOR THE DAIRY
INDUSTRY
MAY 2015
CONTENTS
Page
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
13)
14)
15)
16)
17)
18)
19)
Notes
2
Synopsis
3
CHAPTER 1
CHAPTER 2
CHAPTER 3
CHAPTER 4
ANNEXURE A
ANNEXURE B
The International Markets for Dairy Products
The Raw Milk Markets in Major Dairy Countries
The Raw Milk Market in South Africa
The South African Markets for Dairy Products
South African Import and Export of Dairy Products
Mass of import and export per month by South Africa
of selected dairy products
15
34
49
77
106
109
This report is available to any interested party and copies can be obtained from the Office of
Sampro – Telephone 012 991 4164 or yvonne@sampro.co.za. Enquiries regarding the content of
the report should be directed to Alwyn P Kraamwinkel, Tel 012 991 4164 or to
Yvonne@sampro.co.za
SAMPRO is a member of: The Global Dairy Economist Group, Global Dairy Platform, the National Committee of the International
Dairy Federation, Milk SA, Dairy Standard Agency, The CEO Forum, and the Service Delivery Forum of the Minister of Agriculture,
Forestry and Fisheries.
NOTES REGARDING THIS REPORT AND THE BACKGROUND OF THIS
REPORT
 Effective competition, as envisaged by the Competition Act, requires clear market
signals which should be available to all players in the markets concerned.
 Effective competition will normally prevent major imbalances between supply and
demand.
 Major imbalance between supply and demand does not serve sound economic
development, the optimal use of scarce national resources, the interest of the
consumer and the objective of effective competition.
 On 25 July 2008, the Management Committee of SAMPRO confirmed that:
i. The task of the Office of SAMPRO in respect of the economic aspects of the
dairy industry, is to objectively analyze the available information in respect of
market signals;
ii. The analysis referred to under i) should be conducted by the Office of SAMPRO
independently from the commercial interest of any and all the members of
SAMPRO;
iii. The analysis should strengthen the knowledge of participants in the markets in
respect of market signals in order to promote effective competition which is
the prerequisite for a market economy;
iv. The Office of SAMPRO should interact with institutions in the public sector and
private sector on issues regarding the development of the dairy industry and
conditions in the dairy industry, on the basis of objective information and
objective analysis.
 This report also contains information which appeared in previous quarterly editions
of “Key Market signals for the dairy industry” due to:
(i)
The need to consider the present situation in the context of the past;
and
(ii)
To assist first-time readers of the quarterly reports.
 The figures and analyses in this report are of macro nature and the position of
individual raw milk producers, processors of milk and manufacturers of dairy
products, may differ meaningfully from the macro position.
 Key variables of the international and South African dairy industries, such as
production conditions in production regions or demand conditions in major markets,
can change quickly and unexpectedly. As a result, realistic expectations at a
particular point of time can (due to new developments) quickly become unrealistic.
2
SYNOPSIS
General
Events in 2012, 2013 and in 2014, clearly demonstrated the impact of weather conditions on
the dairy industry in the world.
In 2012 the drought in the USA pushed the prices in the world of important feed ingredients
namely maize and soya, to very high levels and the higher feed prices resulting from it, put
upward pressure on the prices in the world of raw milk and dairy products.
In the first quarter of 2013, unpredicted dry and hot conditions in New Zealand suddenly
destroyed the expectation of record high raw milk production in New Zealand and this shock
resulted in sharp increases of the prices of dairy products in the international market. Further
support for high prices for dairy products in the international market and raw milk in the major
raw milk producing countries of the world, originated from the adverse weather conditions in
the spring of the Northern hemisphere.
The abovementioned high prices and favourable weather conditions in major dairy countries of
the world, in the second half of 2013 and in 2014, resulted in higher production of raw milk and
dairy products in major dairy countries. The higher production resulted in sharp decreases in
the prices of dairy products in the international market which commenced in the first quarter of
2014 and which continued up to now. The prices of raw milk in major dairy countries followed
the downward trend.
THE INTERNATIONAL MARKETS FOR DAIRY PRODUCTS
a) From June 2011 to July 2012, the prices of dairy products in the international market
showed a downward trend and in June and July 2012, the prices were on lower
levels than in the previous 31 months;
b) The downward trend of prices described under a) was the result of high raw milk
production and weak economic conditions in the world;
c) From July to December 2012, the prices of dairy products increased but the FAO
price index for dairy products remained below the lowest monthly index of 2011;
d) From December 2012 to April 2013, the FAO price index increased with 24.7
percent;
e) The sharp increase in the FAO price index for dairy products from December 2012
to April 2013 was the result of the negative impact of an unexpected spell of dry and
hot weather in New Zealand on raw milk production;
f) The initial reaction of prices in the international market to the drought in New
Zealand was an over-reaction and FAO price index declined with 5.0 percent from
April to July 2013 but unfavourable weather in the spring of the Northern
hemisphere limited raw milk production and, as a result, prices in 2013 remained
much higher than in 2012;
g) From December 2013 to February 2014, prices of dairy products in the international
market increased (according to the FAO price index), to levels higher than earlier in
2013, due to:
3
-
Good demand for dairy products; and
The negative impact on raw milk production in New Zealand during the end of
the 2012/2013 peak production season, and adverse weather conditions at the
beginning of the peak 2013 production season of the Northern hemisphere;
h) The price index of the FAO in February 2014 is a new record high but is only slightly
higher than the previous record high index which was recorded in November 2007;
i) The FAO price index decreased sharply from February to December 2014 due to
the higher production of dairy products in major dairy countries as a result of the
above mentioned high prices and favourable weather conditions and feed prices in
the second half of 2013 and in 2014;
j) In January 2015, the FAO price index remained at the level achieved in December
2014 and after increasing with 6.3 percent from January 2015 to March 2015, it
decreased with 9.1 percent to reach in May 2015 a level lower than in the previous
five years and seven months;
k) Assuming no significant new development in the market, it is reasonable to expect
that prices of dairy products in the international market will move sideways or that it
will recover at a very moderate pace in the rest of 2015;
l) In the short term, the supply and demand position of each of the different dairy
products often differs meaningfully and, as a result, the movements of the prices of
the products are often different in the short term;
m) Different factors exist which create uncertainty regarding future developments and it
can result in price volatility; and
n) Realistic expectations regarding the dairy industry can, within a short period of time,
become unrealistic due to new developments.
The international dairy market is an unstable market as only approximately 6 percent of the
production of dairy products in the world is traded in the international market, as the
participation of many countries in the international dairy trade is highly influenced by domestic
over- and under-production and as the production of raw milk is strongly influenced by climatic
conditions which are subject to unexpected changes.
Strong demand for dairy products in the international market, due to strong economic growth
in the world and restricted supply of dairy products due to unfavourable climatic conditions,
resulted in dramatic increases in the prices of dairy products in 2007 to reach record high
levels at the end of 2007.
Following the record high levels, the prices of dairy products in the international market
decreased to such an extent that in February 2009 the dairy products price index of the FAO
was on a level similar to the level in May 2004. This reduction was triggered by the normal
impact of high prices namely higher supply and lower demand but it turned into a rapid
decrease due to the sharp slowdown in economic activity in the world which resulted in the
recessions in major economies of the world.
4
From March 2009 to December 2009, the prices of dairy products increased and in 2010, it
moved sideways in a band of which the highest price is 11.9 percent higher than the lowest.
The movement of the price index of the FAO in the first 6 months of 2011 was a sideways
movement within a band of which the highest index (achieved in March), is 8.3 percent higher
than the lowest (achieved in January).
From June 2011 up to July 2012, of the FAO price index for dairy products showed a
downward trend. In June and July 2012 the FAO price index for dairy products was lower than
in the previous 31 months. This downward trend was fuelled by high raw milk production and
weak economic conditions in the world.
From July 2012 to December 2012, the prices of dairy products increased but the FAO index
remained below that of the first two months of 2012. From December 2012 to April 2013 the
FAO index increased with 24.7 percent but from April to July 2013 it decreased with 5.0
percent. The reason for this dramatic and unexpected increase followed by a decrease is as
follows:
-
At the end of 2012, record high production of raw milk in New Zealand was expected
and it encouraged the buyers who normally depend on supply from New Zealand, to sit
back with the expectation that the expected record high production will, in the near
future, be reflected in lower prices for dairy products from New Zealand.
-
Dry and hot weather suddenly destroyed the expectation that production in New
Zealand will be on a record high level. As a result, the buyers were suddenly forced to
buy and the dramatic price increase was the result.
-
The initial reaction to the drought in New Zealand was an over-reaction and although
prices declined, the longer than normal winter in the Northern hemisphere and its
negative impact on raw milk production, ensured that prices remained on much higher
levels than in 2012.
From August 2013 to December 2013 the FAO price index increased with 8.1 percent followed
with a further increase of 4.1 percent from December 2013 to February 2014.
The FAO price index figure in February 2014 of 275 is slightly higher than the previous record
high index of 272 recorded just more than six years ago, in November 2007.
The FAO price index decreased sharply with 36.7 percent from February to December 2014
due to the higher production of dairy products in major dairy countries as a result of the above
mentioned high prices and favourable weather conditions and feed prices in the second half of
2013 and in 2014.
In January 2015 the FAO price index stayed on the same level as in December and after an
increase of 6.3 percent but from March 2015 to May 2015 (the latest available index figure) it
dropped with 9.1 percent to a level lower than in the previous 5 years and 7 months (the
lowest level since October 2009).
5
The downward trend in the prices of dairy products in the international market in 2014 and thus
far in 2015, is the result of supply in the world which outstrips demand.
In light of the future prices of Fonterra and expectations regarding future price movements in
the USA, and assuming no significant new development in the market, it is realistic to expect a
sideways or a very moderate upward trend in the prices of dairy products in the international
market in the rest of 2015.
In the short term, the supply and demand of the different dairy products often differ and, as a
result, the price movements of the products differ.
Different factors of a political, economic and climatic nature exist at present which creates
uncertainty regarding future developments in the market. Due to the high level of uncertainty,
new “good” or “bad” news can result in over reaction and price volatility.
Key variables of the international dairy industry, such as production conditions in the major
production regions of the world or demand conditions in the major dairy markets of the world,
can change quickly and unexpectedly. As a result, realistic expectations at a particular point
of time can, due to new developments, quickly become unrealistic.
THE RAW MILK MARKETS OF MAJOR DAIRY COUNTRIES
a)
The volume of the raw (unprocessed) milk production in the world in different seasons
differ and as a result, the prices of raw milk in most major dairy countries also follow a
seasonal pattern;
b)
In most countries different prices for raw milk exist due to factors like geographical
location of production units, quality of the raw milk (composition and food safety), the
type of dairy product manufactured from it, and seasonality of production;
c)
Prices for raw milk increased in 2010 and in the first half of 2011 from the record low
levels achieved in 2009;
d)
From the middle of 2011 prices showed a downward trend but in the second half of
2012, prices started to increase;
e)
The major reason for the price increase referred to under d) was the sharp rise in
feed prices which is the result of the drought in the USA, which limited the size of the
maize and soya crops and which resulted in increased prices in the world for maize
and soya, which are important ingredients of feed;
f)
Notwithstanding the increase in the prices of raw milk in the second half of 2012, the
prices in 2012 were lower than in 2011;
g)
The unpredicted dry and hot weather at the end of the production season of New
Zealand in the first quarter of 2013 and the longer than normal winter in the Northern
hemisphere, limited raw milk production and resulted in increased raw milk prices in
major dairy countries. The extent of the increases in major dairy countries differs, but
6
in general prices increased to record high levels;
h)
Due to the high raw milk prices up to the first months of 2014 and favourable weather
conditions and feed prices in the second half of 2013 and in 2014, production of raw
milk in major dairy countries increased and it resulted in sharp downward movement
of raw milk prices;
i)
The downward movement of the prices of raw milk in major dairy products during
2014 continued in the first four months of 2015 and it is reasonable to expect that it
will impact negatively on the quantity produced;
j)
The prices of raw milk in the regulated markets of the USA and the EU are more
volatile than in South Africa. In the absence of government intervention in the South
African dairy industry, it adapted to the requirement that supply should follow
demand; and
k)
Weather conditions, which cannot be accurately predicted, can impact meaningfully
on the volume of production and prices.
Raw milk production in the world is seasonal and the season of peak production in the
Northern hemisphere coincides with the season of low production in the Southern hemisphere.
The extent, to which raw milk production in different countries is seasonal, differs dramatically.
Seasonality of raw milk is linked to the use of pasture-based feeding regimes as total mixed
ration regimes do not result in meaningful different volumes of production in different seasons.
Prices of raw milk tend to follow a seasonal pattern with higher prices in the season of low
production and lower prices in the season of high production.
In major dairy countries the prices of raw milk differ according to factors such as the use of the
raw milk (for example, raw milk for milk powder, raw milk for cheese and raw milk for
pasteurised or UHT-milk), location of raw milk production units and manufacturing facilities,
quality (composition and food safety status) of the raw milk, and the degree of seasonality of
the raw milk production.
From the record high prices achieved in 2007, the prices reduced dramatically to reach record
low or very low levels in 2009, after which it increased to much higher levels in 2010 and in
2011. In 2011 the prices were significantly higher than in 2010.
The prices of raw milk in major production regions of the world declined from the middle of
2011 to the middle of 2012. This movement was the result of high raw milk production and
weak economic conditions in the world.
The downward movement of the prices of raw milk in the world halted in the middle of 2012
and the prices increased in the second half of 2012. However, it remained below the prices of
2011. The major reason for the increase in raw milk price was increased feed prices resulting
from the drought in the USA during 2012.
The unpredicted dry and hot weather at the end of the production season of New Zealand in
the first quarter of 2013 and the longer than normal winter in the Northern hemisphere, limited
raw milk production and resulted in prices in 2013 and in the first months of 2014, much
higher than in 2012. In general, raw milk prices in the major raw milk producing countries
increased to record high levels.
7
As a result of the high prices up to the first months of 2014 and favourable weather conditions
and feed prices in the second half of 2013 and in 2014, production of raw milk in major dairy
countries in major dairy countries of the world increased and the increased production
resulted in sharp downward movement of raw milk prices.
The downward movement of the prices of raw milk in major dairy products during 2014
continued in the first four months of 2015 and it is reasonable to expect that it will impact
negatively on the quantity produced.
Raw milk production in the world is heavily dependent on weather conditions which cannot
accurately be predicted. As a result, reasonable expectations at a particular date can quickly
become unrealistic due to unforeseen exceptionally favourable or exceptionally unfavourable
weather conditions.
Notwithstanding government measures in the EU and the USA to deal with so-called surplus
raw milk, the prices in the EU and the USA are more subject to severe changes than in South
Africa. In the absence of such measures, the South African dairy industry adapted to the
requirement that supply should follow demand.
THE RAW MILK MARKET IN SOUTH AFRICA
a)
The production of raw (unprocessed) milk in South Africa is seasonal;
b)
The total mass of raw milk production in 2012 exceeded the total production in
2011 with 4.5 percent;
c)
The total mass of raw milk production in 2013 was 2.2 percent higher than in 2012;
d)
The total estimated mass of raw milk production in 2014 is 2.65 percent higher
than in 2013 and is the result of a very sharp increase in the production in the last
five months of 2014;
e)
From October 2014 to April 2015 (the latest information), the production of raw milk
exceeded the production in the same months of the previous years to an
unprecedented high extent;
f)
The future price of yellow maize and soya and other factors can put upward
pressure on feed prices;
g)
The increase of the producer price index of raw milk of Statistics SA (which
measure the change in the prices of raw milk received by raw milk producers) in
the 12 months up to April 2015, is the fourth highest of the five primary agricultural
products covered by this report;
h)
In the 39 months from January 2012 to April 2015 the increase in the producer
price index of raw milk is by far the highest of the five primary dairy products
covered by this report;
i)
In the year which ended in April 2015 the producer price index of raw milk
increased less than that of dairy products but in the 39 months from January 2012
to April 2015, it increased more;
8
j)
The producer price index of raw milk (base year 2012) in April 2015 is 127.5 which
is close to the producer price index of dairy products of 125.9 in April 2015. This
shows the close interaction between the two producer price indices (See
paragraph 73 of Chapter 3);
k)
Although the raw milk producer price index in South Africa is more subject to
change than the producer price index of dairy products in South Africa, it is subject
to less change than the raw milk prices in major dairy countries of which the
governments intervene to deal with, amongst other, surplus production. This is an
indication that the South African dairy industry adapted successfully to the
requirement that supply should follow demand;
l)
The future demand for raw milk will be determined by the demand for South African
dairy products, which is attended to in Chapter 4 of this report; and
m)
Production conditions in respect of raw milk, which are highly dependent on
weather conditions, can change quickly and unexpectedly. As a result, reasonable
expectations at a particular point in time can quickly become unrealistic.
In South Africa raw milk production is seasonal. The highest production per day is achieved in
October or November and is typically close to 30 percent higher than the lowest that occurs in
April, May or June.
The total production in 2012 was 4.5 percent higher than in 2011 and the production in 2013
was 2.2 percent higher than in 2012.
The production of raw milk in 2014 is 2.65 percent higher than in 2013 and it is the result of the
very sharp increase in the production in the last five months of 2014 relative to the same
months of the previous year. From October 2014 to April 2015 (the latest information), the
production of raw milk exceeded the production in the same months of the previous years to
an unprecedented high extent.
The future maize and soya prices show a slight upward trend. As a result, and due to other
factors, upward pressure on feed prices should be expected.
Normally, the producer price index of raw milk of Statistics South Africa (which measures the
change of the prices received for raw milk by raw milk producers) increases in the first half of
the year, and decreases in the second half of the year. The highest prices are normally
achieved in the season of low production and the lowest in the season of high production.
The increase in the producer price index of raw milk in the 12 months which ended in April
2015, is the fourth highest of the five primary agricultural products covered by this report.
In the year which ended in April 2015, the producer price index of raw milk increased with 6.1
percent which is lower than the 7.2 percent increase of the producer price index of dairy
products;
In the 39 month period January 2012 to April 2015, the producer price index of raw milk
increased with 40.7 percent which is higher than the increase of 36.6 percent of dairy
products, but in 23 of the 39 months (58.9 percent of the 39 months), the producer price index
of raw milk was lower than that of dairy products;
9
Regarding the two previous paragraphs, it should be noted that the producer price index of
raw milk (base year 2012) in April 2015 of 127.5 is close to the producer index of dairy
products in April 2015 which is 125.9. This shows the close interaction between the two
producer price indices;
Considerable government intervention in respect of the dairy industries exists in the EU and
the USA with the purpose of dealing with, amongst other, so-called surplus production.
Notwithstanding, the raw milk prices in the EU and the USA are more subject to change
(volatile) than in South Africa. This shows that the South African dairy industry, which is not
subjected to similar measures, adapted to the requirement that supply should follow demand.
The production of raw milk in South Africa is highly dependent on climatic conditions in respect
of which it is not possible to make accurate predictions. As a result, reasonable expectations
of future raw milk production in South Africa, based on assumptions regarding future weather
conditions, can become unrealistic quickly and unexpectedly.
The demand for raw milk in South Africa will be determined by the demand for dairy products
manufactured in South Africa which is attended to in Chapter 4 of this report.
THE MARKETS FOR DAIRY PRODUCTS IN SOUTH AFRICA
a)
The performance of each of the six different types of dairy products in terms of
import and export, and the pattern of import and export of each within each year,
differ meaningfully from year to year;
b)
In 2014:
-
c)
The mass of the total export of dairy products was higher than in the
previous twelve years (2002 to 2013);
The mass of total import was higher than in ten of the previous twelve years
(2002 to 2013);
South Africa was in terms of mass, a net exporter of two of the six types of
dairy products;
The mass of export of four of the six types of dairy products was higher than
in the previous ten years and the import of none of the six types of dairy
products was at a record high;
The average export prices of five of the six types of dairy products were
higher than in the previous ten years (2004 to 2013);
The average import price of each of the six types of dairy products was
higher than in the previous ten years (2004 to 2013);
The exposure to foreign competition was the second highest in the thirteen
years (2002 to 2014).
In 2015, if the mass and prices of import and export remain on the levels recorded in
the first three months of 2015:
-
South Africa will be in terms of mass, a net exporter of two of the six types of
dairy products and a net importer of four;
The mass of total export will be lower than in 2013 and 2014, but higher than
each of the previous eleven years (2002 to 2012);
The mass of total import will be much higher than in the previous thirteen
years (2002 to 2014);
10
-
The average export prices of two of the six types of dairy products will be
higher and the export prices of four will be lower than in 2014;
The average import prices of each of the six types of dairy products will be
lower than in 2014;
The exposure to foreign competition will be higher than in the previous
thirteen years (2002 to 2014).
d)
In the last seven months (October 2014 to April 2015), the production of dairy
products is to an unprecedented high extent, higher than in the same months of
previous years;
e)
In the year which ended in April 2015, the increase in the producer price index of
dairy products is the second highest of the nine manufactured food products while in
the 39 months from January 2012 to April 2015, it is the highest;
f)
In the year which ended in April 2015, the producer price index of dairy products
increased more than that of raw milk. In the 39 months to April 2015, the producer
price index of dairy products increased less than that of raw milk, but in 23 of the 39
months, the producer price index of raw milk was lower than that of dairy products;
g)
From January 2012 to April 2015, the movements of the producer price indices of
dairy products and raw milk are similar and the index of dairy products in April 2015
(with base year 2012) is 125.9 which is close to that for raw milk of being 127.5 in
April 2015;
h)
The performance (quantity sold and price) of the different dairy products in the retail
market differs and often changes within a short period;
i)
The key characteristics of the markets for the different dairy products differ;
j)
Changes in the prices of dairy products influence demand (quantities sold);
k)
The quantity of retail sales of each of the nine dairy products in the year up to March
2015 was higher than in the previous year and the retail sales prices of each of the
dairy products increased;
l)
The movements of the retail prices of seven of the nine dairy products from
February to March 2015 may indicate downward pressure on the retail prices of
dairy products, and if that is the case, the phenomenon is of high importance as a
market signal, as it occurred during the seasonal low production period;
m)
The performance of the South African dairy industry in the rest 2015 will be shaped
by the economic growth rate of South Africa which is disappointingly low, weather
conditions which cannot be accurately predicted and the international dairy market
which at present shows record low prices;
n)
Three important questions are:
- Will the very good performance of South African dairy products in the
retail market continues in light of the expected low economic growth; and
- Will the demand absorb the supply if the exceptional high production in
South Africa of dairy products continues in the rest of 2015 ?
- Will the record high import in the first quarter of 2015 continues in the
rest of 2015 and if so, what will be the impact of it on the South African
11
dairy industry ?
o)
The rest of 2015 should be approached with great caution and the key variables
should continuously be assessed during the rest of 2015 to ensure that supply
follows demand;
In 2014:
-
The total mass of export of dairy products exceeded the mass of import as was
also the case in 2013 and 2011, as well as in four of the previous nine years (2002
to 2010);
-
South Africa was, in terms of mass, a net exporter of milk and cream (04.01), and
buttermilk and yoghurt (04.03) and a net importer of concentrated milk (04.02),
whey (04.04), butter (04.05) and cheese (04.06), as was the case in 2010, 2011
and 2012;
-
The import, in terms of mass, of milk and cream (04.01),concentrated milk (04.02),
buttermilk and yoghurt (04.03), and cheese (04.06) was higher in 2014 than in
2013, but the opposite is true in respect of whey (04.04) and butter (04.05);
-
The export, in terms of mass, of milk and cream (04.01), buttermilk and yoghurt
(04.03), butter (04.05) and cheese (04.06) was higher than in 2013 but the
opposite is true in respect of concentrated milk (04.02) and whey (04.04);
-
The mass of export of four of the six types of dairy products was higher than in the
previous ten years (2004 to 2013) and the mass of import of none of the six types
of dairy products was at a record high;
-
The average import prices of each of the six types of dairy products were higher
than in the previous ten years (2004 to 2013);
-
The average export prices of five of the six types of dairy products were higher
than in the previous ten years (2004 to 2013);
-
The exposure of the South African dairy industry to the international dairy market,
due to imports and exports, was higher than in 2013 and slightly lower than in
2012, when it was on a record high level.
In 2015, if the mass and prices of import and export remains on the levels recorded in the
first three months of 2015:
-
South Africa will be in terms of mass, a net exporter of two of the six types of
dairy products and a net importer of four;
The mass of total export will be lower than in 2013 and 2014, but higher than
each of the previous eleven years (2002 to 2012);
The mass of total import will be by far higher than in the previous thirteen
years (2002 to 2014);
The average export prices of two of the six types of dairy products will be
higher and the export prices of four will be lower than in 2014;
The average export prices of each of the six types of dairy products will be
12
-
lower than in 2014;
The exposure to foreign competition will be higher than in the previous
thirteen years (2002 to 2014).
The performance of each of the six different types of dairy products in terms of import and
export differs meaningfully from year to year, but in terms of mass, South Africa was:
-
In each of the last ten years (2005 to 2014), a net exporter of “buttermilk and
yoghurt” (04.03);
-
In nine of the last ten years (2005 to 2014), a net exporter of “milk and cream”
(04.01);
-
In three of the last ten years (2005 to 2014), a net exporter of “concentrated milk:
(04.02);
-
In each of the last ten years (2005 to 2014), a net importer of “whey” (04.04),
“butter” (04.05) and “cheese” (04.06).
The high import and lower export by South Africa in the first quarter of 2015 are linked to the
record low prices of dairy products in the international market in the recent past.
The production of raw milk in South Africa accelerated in the period August 2014 to October
2014 much quicker than in previous years. In the seven month period October 2014 to April
2015 (the latest month in respect of which information is available), the production of dairy
products was to an unprecedented high extent, higher than in the previous years.
The producer price index of dairy products of Statistics South Africa (which measures the
changes of the prices of a group of dairy products achieved by milk processors and
manufacturers’ of dairy products) was in April 2015 slightly higher than the average producer
price index of manufactured food products.
In the year which ended in April 2015 the increase in the producer price index of dairy
products is the second highest of the nine manufactured food products while in the 39 months
from January 2012 to April 2015, it is the highest.
In the 12 months up to April 2015, the producer price index of dairy products increased with
7.2 percent. In the same period the producer price index of the major input namely raw milk,
increased with 6.1 percent.
In the 39 months from January 2012 to April 2015, the producer price of dairy products
increased with 36.6 percent and that of raw milk with 40.7 percent, but in 23 of the 39 months,
the producer price index of raw milk was lower than that of dairy products.
There is a close interaction between the producer price indices of raw milk and dairy products
and in April 2015 the producer price index of dairy products was 125.9 which is close to that of
raw milk, namely 127.5.
The performance (quantities sold and prices) of different dairy products in the consumer
market differ and often change within a short period of time. Change in the prices of dairy
products influences demand (quantity sold).
13
The key characteristics of the markets for the different dairy products differ. For example, the
differences between the markets for fresh milk, maas, flavoured milk, cheese and milk powder
are obvious and as a result, the markets behave differently.
The consumer demand (quantity) of each of the nine different dairy products, covered by the
survey of Nielsen, in the year which ended in March 2015, was higher than in the previous
year and the retail price of each of the nine dairy products increased. The general conclusion
is that amidst the difficult conditions in the consumer market, most of the dairy products
performed very well in the consumer market.
From February to March 2015 the average retail price of five of the nine dairy products
declined, and the average prices of two of the nine dairy products stayed the same. This
position may indicate downward pressure on the retail prices of dairy products and if that is the
case, the phenomenon is an important market signal as the phenomenon occurred during the
seasonal low production period.
In the rest of 2015, the performance of the South African dairy industry will be shaped by
especially:
-
The economic growth rate of South Africa. The expected economic growth in 2015 is
low;
-
The weather conditions which can impact significantly on the production and prices of
raw milk and dairy products. Future weather conditions cannot be accurately
predicted;
-
Conditions in the international markets for dairy products. Prices of dairy products in
the international market declined to record low levels. The uncertainty regarding
future price movements is high but sideways movement, or very moderate increases,
are expected in the next few months.
The available information creates three important questions, namely:
-
Will the very good performance of South African dairy products in the retail market
continue in the rest of 2015;
Will the demand be sufficient to absorb the supply of South African dairy products in
the second half of 2015 if the exceptional high production of dairy products, recorded
in the past seven months, continues; and
Will the record high import in the first quarter of 2015 continue in the rest of 2015 and
if so, what will be the impact of it on the South African dairy industry ?
As the relevant variables can change quickly and unexpectedly, the rest of 2015 should be
approached with great caution and the variables concerned should be continually assessed
to ensure that supply follows demand.
14
Chapter 1
THE INTERNATIONAL MARKETS FOR DAIRY
PRODUCTS
1.
The price history of dairy products in the international market is very important as it gives
the context in respect of which the present situation in the dairy industry should be
interpreted. The price history of dairy products in the international market since 2000, on a
very aggregated level, is reflected by the price index of the Food and Agricultural
Organization (FAO) of the United Nations as indicated in Graph 1 and Table 1.
Graph 11)
PRICE INDEX OF DAIRY PRODUCTS IN THE INTERNATIONAL MARKET
1)
Graph as published by the Food and Agricultural Organisation (FAO) of the United Nations.
15
Table 12)
MONTHLY PRICE INDICES OF DAIRY PRODUCTS IN THE INTERNATIONAL MARKET
Monthly Index Data (2002-2004=100)
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
1990
93
91
73
84
69
69
69
65
67
69
70
79
1991
82
82
80
75
74
76
70
73
79
85
89
89
1992
92
92
91
91
95
100
101
99
102
96
94
93
1993
93
94
93
91
90
90
86
83
79
72
72
73
1994
79
79
80
73
73
78
79
80
87
90
92
95
1995
103
106
107
106
107
107
113
113
113
114
114
113
1996
113
113
111
111
109
109
109
108
108
109
106
107
1997
107
106
105
104
104
104
103
102
104
107
108
108
1998
108
106
103
102
100
99
99
99
96
93
93
93
1999
93
92
91
86
85
85
83
83
84
84
85
86
2000
89
89
89
89
90
94
97
98
100
103
104
104
2001
104
104
105
105
109
110
111
110
109
111
107
101
2002
95
95
91
88
81
76
73
72
74
76
80
86
2003
89
93
94
92
92
92
93
94
96
101
102
105
2004
107
113
115
116
119
124
127
128
129
130
132
133
2005
134
134
135
134
134
134
135
137
138
138
137
135
2006
131
130
129
127
127
127
127
126
127
130
135
145
2007
149
155
164
183
191
220
247
259
269
270
272
264
2008
256
254
252
247
244
247
245
230
205
186
162
148
2009
130
121
123
124
131
132
136
139
153
169
218
223
2010
207
200
192
207
213
206
205
203
205
213
215
215
2011
227
241
246
239
240
241
238
232
225
216
210
208
2012
211
207
200
187
178
176
177
183
197
202
204
206
2013
211
211
228
257
252
246
244
248
251
252
251
264
2014
268
275
268
252
239
236
226
201
188
184
178
174
2015
174
182
185
172
168
2.
The important observations regarding the price movements reflected in Graph 1 and Table 1
and comments on the reasons for it, are as follows:
a) In the 14 years from 1990 to 2003, the prices of dairy products moved up and
down, with monthly index figures from 65 to 113. In 97 months of this 168 monthperiod (57.7 percent of the months), including 8 of the 12 months of the last year,
namely 2003, the index was 95 or lower;
2)
Table prepared by the Office of SAMPRO based on information as published by the Food and Agricultural
Organization of the United Nations.
b)
In 2004, 2005 and 2006, the prices of dairy products moved up and down but
at levels higher than the levels in the previous 14 years. In this period the
lowest monthly index was 107 and the highest 145. In 19 months of this 36
16
month-period (52.7 percent of the months) the index was 130 or lower;
c)
In 2007, the prices of dairy products increased dramatically to reach a record
high level in November 2007. The dramatic sharp increase of the prices of
dairy products in 2007 was fuelled by :
i.
ii.
The rapid increase in demand due to strong economic growth in the
world; and
Restricted production due to unfavourable climatic conditions in
certain countries.
d) In December 2007, the prices of dairy products started to decline. The decline
was triggered by the well-known truth, namely that increased prices stimulate
supply and limit demand. The decrease in prices was initially fairly slow but it
gained dramatic momentum in the last four months of 2008 and it continued up
to February 2009 to reach a level similar to the levels in May and June 2004.
This dramatic decrease was the result of the rapid decrease in economic activity
in the world which resulted in recessions in major economies of the world at the
end of 2008 and in the first three quarters of 2009;
e) From March 2009, the prices started slowly to increase and in the last four
months of 2009, it increased more rapidly to reach a level in December 2009
which is equal to 81.9 percent of the record high level which occurred in
November 2007. This increase can be attributed to:
i.
ii.
Meaningful actions by the EU and the USA intended to limit the
supply of dairy products to the market by especially measures to
support the stockpiling of butter and milk powder. In the USA
actions were also taken to reduce the number of cows; and
Slightly improved demand conditions in some countries and slightly
lower production in some major exporting countries such as the EU
and the USA.
f) In 2010, the price index moved sideways in a band of which the highest is 11.9
percent higher than the lowest. It is also true that from August 2010, at which
time the index was at the third lowest level in 2010, namely 203, it showed an
upward trend to 215 in December 2010. As a result, the index in December
2010 was 5.9 percent higher than in August 2010;
g) The movement of the index in the first 6 months of 2011 can be described as
sideways within a band of which the highest index figure (achieved in March) is
8.3 percent higher than the lowest (achieved in January);
h) From June 2011 to December 2011, the index showed a downward trend and it
decreased with 13.6 percent. The downward trend continued in the first six
months of 2012 and in June and July 2012 the index was lower than in the
previous 31 months (from November 2009);
i) The downward movement described under h) was the result of the high
production of raw milk and weak economic conditions in the world;
j) From June 2012 to December 2012 the index increased with 17.0 percent but it
remained below the figures of January and February 2012;
17
k) It is generally accepted that the increase described under j) was the result of:
 The negative impact on raw milk production of increased feed prices
and adverse weather conditions in certain production regions; and
 The firm demand in the world for dairy products;
l) From December 2012 to February 2013, the index increased with 2.4 percent
but from February 2013 to April 2013, it increased sharply with 21.8 percent.
The index in April 2013 of 257 is only 5.5 percent lower than the highest index of
272 which was recorded in November 2007;
m) The reason for the dramatic and unexpected increase of the index from
February 2013 to April 2013 is as follows:
Up to February 2013 record high production of raw milk in New
Zealand was expected and it encouraged buyers to sit back with the
expectation that the expected record high production will, in the
near future, be reflected in lower prices of dairy products.
Dry and hot weather suddenly destroyed the expectation that
production in New Zealand will be on a record high level. As a
result, buyers were suddenly forced to buy and the sharp increase
of 21.8 percent from February to April 2013 is the result.
The longer than normal winter in the Northern hemisphere and its
negative impact on raw milk production, also contributed to the
increase in the prices of dairy products;
n) From April 2013 to July 2013 the index decreased with 5.0 percent which
indicates that the initial response of the demand to the adverse climatic
conditions in New Zealand was an over-reaction.
o) From July to October 2013, the index increased with 3.2 percent and after a
slight drop (0.39 percent) from October to November 2013, it increased with 9.9
percent to February 2014. This increase is linked to strong demand for dairy
products in the international market and the adverse climatic conditions in the
beginning of the 2013 peak season of production in the Northern hemisphere,
which followed the drought in New Zealand at the end of the peak production
season of New Zealand in the first quarter of 2013;
p) In February 2014 the index reached a new record high level of 275 which is 1.1
percent higher than the previous record of 272 achieved just more than six
years ago in November 2007;
q) From February 2014 to December 2014 the index decreased with 36.7 percent
from 275 to 174 which is lower than in the previous 61 months. This decrease
was the result of the higher supply due to the previous higher prices, lower feed
prices and the good weather conditions in the major dairy regions of the world in
the second half of 2013 and in 2014, following the unfavourable weather
conditions in the first half of 2013.
18
r) In January 2015, the index remained at the same level as in December 2014
and from January 2015 to March 2015 it increased with 6.3 percent to 185. This
increase was most likely the result of fear regarding the impact of adverse
weather conditions in the production of New Zealand.
s) From March 2015 to May 2015 (the latest FAO index figure available) the index
dropped with 9.1 percent from 185 to 168 which is lower than in the previous 5
years and 7 months. This decrease, against the background of the decreases
since February 2014, indicates a continuation of the situation in terms of which
supply of dairy products in the world outstrips the demand.
3.
As Graph 1 covers the period 1990 to May 2015, the detail of the movements of the price
index in the last few years are less clear. In Graph 2, the movements of the price index in
the last six years and in 2015 (January to May) are indicated.
Graph 23)
PRICE INDEX OF DAIRY PRODUCTS IN THE INTERNATIONAL MARKET IN THE YEARS 2009
TO 2015
3)
Graph prepared by the Office of SAMPRO based on the figures indicated in Table 1.
19
4.
The volatility of the price index for dairy products of the FAO is indicated in Table 2.
TABLE 24)
VOLATILITY PER YEAR OF THE PRICE INDEX OF THE FAO OF DAIRY PRODUCTS IN THE INTERNATIONAL
MARKET IN THE YEARS 2000 TO 2014
A
Highest
Monthly
Index
B
Lowest
Monthly
Index
A
Higher than
B
Percent
2000
104
89
16.8
2001
111
101
9.9
2002
95
72
31.9
2003
105
89
17.9
2004
133
107
24.2
2005
138
134
2.9
2006
145
126
15.0
2007
272
149
82.5
2008
256
148
72.9
2009
223
121
84.2
2010
215
192
11.9
2011
246
208
18.2
2012
211
176
19.8
2013
264
211
25.1
2014
275
174
58.0
YEAR
5.
From Table 2 it is clear that the FAO price index of dairy products was much more volatile in
2014 than in the previous four years from 2010 to 2013 as well as in the years from 2000 to
2006, but much less volatile than in the years 2007, 2008 and 2009.
6.
In ten of the fifteen years referred to in Table 2, the differences between the highest and
lowest indices were less than 26 percent and in four of the fifteen years, it was between 58.0
percent and 84.2 percent.
4)
Table prepared by the Office of SAMPRO based on information published by the FAO
20
7.
The volatility of the prices of dairy products in the international market and the volatility of
the prices of raw milk in major dairy countries of the world, is driven by:
a) The impact of weather conditions on the supply of raw milk and thus the supply
of dairy products in the world.
Abnormal favourable and abnormally
unfavourable weather conditions, which cannot be accurately predicted, can
result in production (supply) higher or lower than the production required to
meet the demand; and
b) Government measures in most major dairy countries of the world, such as
export subsidies and assistance in respect of stockpiling, weaken the discipline
that supply should follow demand. As a result of the measures mentioned, the
reaction of supply to lower demand is delayed and impact of the cost of the
over-supply on the producers of the over-supply is delayed and/or shifted to, for
example, the taxpayer and/or the consumer. Simply said, the existence of the
measures mentioned encourages imbalance between supply and demand and
thus price volatility. Although the extent to which governments of major dairy
countries are intervening in the supply and demand for raw milk and dairy
products, is on a downward trend, the interventions and perceptions about the
interventions and the potential for additional intervention, still contributes to the
encouragement of production not required to meet the demand.
8.
In Graph 3 the price movement of dairy products are compared to the price movements of
other food products. From this graph it is clear that the price movements of different food
products differ meaningfully and that any general statement regarding movement of the
price of food, should be cautiously interpreted.
Graph 35)
FOOD COMMODITY PRICE INDICES IN THE PERIOD MAY 2014 TO MAY 2015
1)
Graph as published by the FAO, in the “Global Food Price Monitor”, dated 4 June 2015
21
9.
Graph 3 shows:
a) The downward movements of the price indices up to May 2015;
b) The price index of dairy remained above that of vegetable oils;
c) With the exception of the period November 2014 to January 2015, the price
index of dairy products was higher than that of cereals;
d) The observations referred to under c) and d) are important as the prices of
cereals and vegetables are influencing the price of feed for milking cows.
10.
The price index of dairy products of the FAO, as indicated in Graph 1, Table 1, Graph 2
and Graph 3, is highly aggregated in respect of dairy products as a group. This index
does not reflect the fact that the market conditions in respect of the different types of dairy
products differ meaningfully for meaningful periods. As a result, it is also necessary to
consider the price movements in the international market of the different types of dairy
products. These price movements are illustrated in Graph 4 and Graph 5.
Graph 46)
1)
Graph prepared by the Office of SAMPRO based on information published by USDA Agricultural Marketing
Service
22
11.
From Graph 4 it is clear that:
a) After very sharp increases from February to April 2013, the prices of the 4
products decreased. As a result, the prices in September 2013 were lower than
in April 2013. This decrease was the result of the following:
Up to the end of 2012, the expected record high production of raw milk
in New Zealand encouraged buyers to sit back. Unexpected hot and
dry weather destroyed suddenly the expectation of record high
production, forced buyers to buy and as a result the prices increased
dramatically from January 2013 to April 2013. This increase was to
some extent an over-reaction and as a result prices decreased but the
prices remained much higher than in 2012 due to the impact of the
unfavourable weather conditions in the first half of 2013 on raw milk
production in the Northern hemisphere and firm demand for dairy
products.
b) From October 2013 to February 2014, the prices increased. The prices of butter
and skimmed milk powder in February 2014 were higher than the previous highest
prices which were achieved in April 2013. The prices of cheddar cheese and full
cream milk powder also increased but the prices in February 2014 were not higher
than the prices in April 2013;
c) From February 2014 the prices of the four different dairy products decreased and
in December 2014 and January 2015, the downward trend came to an end. These
decreases are the result of the higher supply due to:
 The previous very high prices;
 Lower feed prices which encourage higher raw milk production; and
 The good weather conditions in the major dairy regions of the world in the
second half of 2013 and in 2014, following the unfavourable conditions in
the first half of 2013.
d) From December 2014 and January 2015 to February 2015 the prices increased
due to the fear of the negative impact of adverse weather conditions on production
but in March, April and May 2015 the prices decreased again. This decrease is the
result of supply which outstrips demand.
12.
Graph 4 shows clearly that in the short term, the supply and demand for the different dairy
products differs. For example, during the period of just more than eight years covered by
Graph 4, each of the products enjoyed the status of the highest priced dairy product
because:
a) For a period in 2007, skimmed milk powder was the highest priced;
b) Cheddar cheese was the highest priced from the end of 2007 to the first
quarter of 2010, from the last quarter of 2011 to the first quarter in 2013 and
in February 2014 it regained the top position. With the exception of February
2015 cheddar cheese remained the highest priced dairy product;
c) Butter was from the third quarter of 2010 to the second quarter in 2011 and in
February 2015, the highest priced; and
d) Full cream milk powder was from the first quarter of 2013 to January 2014,
the highest priced.
23
Graph 57)
13.
The following are important observations and conclusions in respect of Graph 4 and Graph
5:
a) The meaningful differences in
two graphs and tables 2 and
which carry the message that
single figure (not a range
misleading;
the prices of different products, as indicated in the
3, should be noted. This shows that statements
the world price of any particular dairy product is a
of prices) are grossly over-simplifications and
b) The fairly rapid changes of the prices indicate that the level of uncertainty was
high in specific periods;
c) The price movements shown in Graph 5 are more volatile than that of Graph 4.
This situation is most likely linked to the following:
i. Graph 5 included more “spot market” transactions while Graph 4 is
more reflective of contract type of sales; and
ii.Availability of Government supported stockpiles of butter and skimmed
milk powder, speculation and expectations regarding the release of
these stocks to the markets and the actual release of the products to
the market, may add to volatility in the European market.
2)
Graph prepared by the Office of SAMPRO based on information published by USDA Agricultural
Marketing Service.
24
14.
In the February 2014 edition of “Key Market Signals for the dairy industry”, when the price
index for dairy products of the FAO reached a new record high level, it was stated that:
“In light of the high prices of dairy products in the international market, lower
feed prices (which favours higher raw milk production), higher production should
be expected if the weather conditions remain favourable;
Higher production in the world can put downward pressure on the prices of dairy
products in the international market but, if weather conditions are unfavourable
in respect of raw milk production, or if demand is stronger than expected,
downward pressure on prices in the international market will be prevented”.
The evidence recorded in the previous paragraphs of this chapter indicates that the
scenario described in the February 2014 edition of “Key Market Signals for the dairy
industry”, became the reality.
15.
The latest available information on prices in the international market is indicated in Table 3,
and in Table 4.
Table 38)
WORLD MARKET PRICES (F.O.B.) OF CERTAIN DAIRY PRODUCTS IN MID MAY 2015
Price
Price
Product
R / kg
$ / kg
(R12.50=$)
Butter
3.10 - 3.50
38.75 - 43.75
Whole milk powder
2.70 - 2.93
33.75 - 36.63
Skimmed milk powder
1.95 - 2.18
24.38 - 27.25
Table 49)
PRICES (F.O.B.) OF CERTAIN DAIRY PRODUCTS FROM OCEANIA LATE MAY 2015
Price
Price
Product
R / kg
$ / kg
(R12.50=$)
Butter
2.88 - 3.50
36.00 - 43.75
Whole milk powder
2.28 - 2.50
28.50 - 31.25
Skimmed milk powder
1.95 - 2.20
24.38 – 27.50
Cheddar cheese
3.30 - 3.60
41.25 – 45.00
8) Table prepared by the Office of SAMPRO based on information published by the USDA on 9 June 2015.
prices are free on board prices from Western Europe.
The
9) Table prepared by the Office of SAMPRO based on information published by the USDA on 9 June 2015.
prices are free on board prices from Oceania.
The
25
16.
Regarding expectations in respect of the future movements in the international dairy market, it
should be taken into account that:
a) The international dairy market is an unstable market due to :
i.
Approximately 6 percent of the production of dairy products in the world
is traded in the international market. The participation of many
countries in the international dairy trade is shaped domestic over- and
under-production. Slight change in the total production or demand in
major dairy producing countries impact heavily on the international
market. For example, an increase of 2 percent in the world production,
which is not taken up by domestic consumption will increase the
quantity available to the international market by 33,3 percent (2 as
percentage of 6 = 33,3 percent);
ii. Supply is subject to climatic conditions which cannot be accurately
predicted. Some adverse climatic conditions such as short heat waves
will primarily result in a reduction in the production during the period of
the heat wave. Other adverse conditions like droughts for a period of
months, can impact on production during and after the drought (See
also paragraphs 49 and 50). In most years adverse conditions occur in
some parts of the major raw milk producing countries of the world and
often it is difficult to judge how severe the adverse conditions are and to
predict what the impact of it on production will be.
b) In the major exporting and major importing regions10), there are at any given point
of time, often developments or events which can influence future demand and/or
supply and in respect of which there is uncertainty regarding the impact. Examples
of such developments or events which exist at present are :
i. On the supply side, the uncertainties are mainly in respect of the following:
- The climatic conditions in the Northern hemisphere during the peak
production season of the Northern hemisphere which commenced in the
first quarter of 2015;
10) According to information published by the FAO in “Food Outlook, May 2015”, the major exporters and importers of
dairy products are located in the following regions:
Region
Europe
Oceania
North America
Asia
South America
Africa
Central America
Total export
35.8
31.7
15.2
8.9
5.7
1.7
1.0
100.0
Region
Asia
Africa
Europe
Central America
South America
North America
Oceania
Total import
Export Percentage
Import Percent
60.7
14.4
8.6
7.0
4.7
3.3
1.3
100.0
26
- The impact of the abolishment of production quotas per country in
the EU on 31 March 2015. For the reasons set out in paragraph
39, the effect can be that production exceeds the demand. Higher
production in the EU can result in downward pressure on prices of
dairy products in the international market as the EU is the biggest
supplier of dairy products to the international market.
(As
explained in paragraph 38, the potential for the above position to
impact in the immediate future on prices in the international market,
declined sharply due to the sharp decrease in the prices of dairy
products in the international market in 2014, and the sharp
decrease of raw milk prices in the EU, in especially the second half
of 2014 and thus far in 2015);
- The impact of the sharp reduction of the prices of dairy products in
the international market in 2014 and thus far in 2015 on supply of
dairy products in 2015.
ii. On the demand side, the uncertainties are mainly in respect of :
- Future exchange rate movements;
- The speed of recovery of the economies in the EU;
- The economic growth rate in China and other big importing
countries;
- Political conflict and tensions in different regions of the world and
especially in oil-producing regions;
- The duration of the Russian boycott of dairy products originating
from major dairy countries.
c) Key variables of the dairy industry, such as production conditions in major
production regions or demand conditions in key markets, can change quickly
and unexpectedly. As a result, realistic expectations at a given point of time
can, due to new developments, quickly become unrealistic.
17.
Regarding the boycott of Russia of dairy products originating from specific countries, the
following:
a) The Russian/Ukraine situation, which is the reason for the boycott, was
identified in the February and May editions of “Key Market Signals for the
Dairy Industry” as a factor which can impact on the international trade in
dairy products;
b) Russia is a major importer of dairy products;
c) As a result of the Russia/Ukraine conflict, Russia announced on 7 August
2014, a boycott of dairy products imported from, amongst other, the EU,
USA, Canada and Australia;
d) The boycott was announced to be in place for one year;
e) The EU and the USA are major exporters and are forced by the boycott to:
27
i. Lower production;
ii. Increase stockholding;
iii. Increase export to other countries than Russia; and/or
iv. Circumvent the boycott especially by exporting more to countries
which can export to Russia, to enable the countries concerned to
export more of their own production to Russia without creating
domestic shortages.
The available information suggests that the response of the countries
subjected to the boycott is mainly a combination of ii. and iii, although there
are indications of circumvention as referred to under iv.
f) In reaction to the boycott, the EU opened their “Private Storage Aid” in terms of
which the cost of stock-keeping by manufacturers of dairy products is
subsidized. This subsidy is (at the time when this report was compiled), limited
to butter, skimmed milk powder, and specific types of cheese. The specific
types of cheese which qualify for the subsidy are those protected types
registered under the “protected designation of origin” and “protected
geographical indication” of the EU and it does not include cheddar cheese;
g) The immediate effect of the “Private Storage Aid” is to lower the supply to the
market of skimmed milk powder, butter and the specific types of cheese, but
due to the shelf-life of these products, the effect is in reality only to delay a
higher supply to the market;
h) The general impact of the Russian boycott on the international dairy market
includes:
-
Downward pressure on the prices of dairy products in the international
market;
More uncertainty in the international market;
The establishment of new trading patterns as Russia is increasing
importing dairy products from countries outside the EU;
As time passes, the impact of the Russian boycott on prices of dairy products in
the international market will decrease as adjustment of the dairy industry in the
world to the new trading patterns, will contribute to stability;
28
i) The boycott of Russia is politically motivated and it was announced that it will
be in place for one year from August 2014. Although the boycott is politically
motivated, the side-effect of it will be to encourage production in Russia. As a
result, it is highly likely that the Russian dairy industry will support the boycott
arguing that the boycott supports the growth of the dairy industry in Russia,
which is in the interest of Russia. This support can encourage continuation of
the boycott. Recently, Russia announced financial support for major dairy
companies in Russia. The imports of dairy products by Russia declined
creating shortages and price increases in Russia. It is possible that the
Russians will not abolish the boycott in August 2015 as was announced earlier,
but will amend it based on a mixture of political and economic considerations.
18.
The information of the United States Department of Agriculture (USDA) regarding price
movements in the last two years and the views of the USDA regarding expected price
movements in 2015 in the first quarter of 2016, are indicated in Graph 6.
Graph 611)
11) Graph prepared by the Office of SAMPRO based on information contained in the United States Department of
Agriculture, Livestock, Dairy, and Poultry Outlook, 18 May 2015
29
19.
The prices on which Graph 6 are based, are indicated in Table 5.
Table 512)
DAIRY PRODUCT PRICES IN THE USA IN RAND PER KG AT AN EXCHANGE RATE OF R12.50
PER $
2014
PRODUCT
2015
2016
Quarter
I
Quarter
II
Quarter
III
Quarter
IV
Quarter
I
Quarter
II
Quarter
III
Quarter
IV
Quarter
I
Cheddar cheese
60.86
60.14
59.62
56.46
43.09
44.96
45.38
46.75
44.83
Butter
48.92
56.46
70.79
58.85
45.29
51.56
54.45
52.25
46.75
Skimmed powder
56.84
52.80
46.94
37.92
28.16
26.54
28.19
32.18
33.00
20.
The changes in the prices in the USA of the products mentioned in Table 5, are as follows:
a) The prices of cheddar cheese, butter and skimmed milk powder in 2015 and in the
first quarter of 2016, remain below the lowest quarterly prices of 2014;
b) The price of cheddar cheese increases from the first quarter of 2015 to the last
quarter of 2015 with 8.4 percent only to decrease with 4.0 percent to the first
quarter of 2016 to a level lower than in the last 3 quarters of 2015;
c) The price of butter increases from the first quarter of 2015 to the third quarter of
2015 with 20.2 percent only to decrease with 13.1 percent to the first quarter of
2016 to a level lower than in the last 3 quarters of 2015; and
d) The price of skimmed milk powder decreases from the first quarter of 2015 to the
second quarter of 2015 with 5.7 percent and from the second quarter of 2015 it
increases with 24.3 percent to the first quarter of 2016 but it remains very much
lower than in 2014.
21.
The prices which Fonterra, the biggest individual supplier of dairy products to the
international market, achieved at their auctions, give a strong indication of future price
movements in respect of exports from New Zealand.
12) Table prepared by the Office of SAMPRO based on information contained in the United States Department of
Agriculture, Livestock, Dairy, and Poultry Outlook, 18 May 2015
30
22.
The prices achieved at the auction of Fonterra on 2 June 2015, for delivery in August
2015 to December of 2015, are indicated in Table 6.
Table 613)
PRICES IN US$ AND RAND ($=R12.50) PER TON ACHIEVED AT FONTERRA AUCTION
ON 2 JUNE 2015 FOR DELIVERY IN DIFFERENT MONTHS OF 2015
2015
Aug
Sep
Oct
Nov
Dec
Whole Milk Powder
PRICE: $
PRICE: R
Index
2272
28400
100.0
2319
28988
102.1
2328
29100
102.5
2371
29638
104.4
2432
30400
107.0
Skimmed Milk Powder
PRICE: $
PRICE: R
Index
1924
24050
100.0
1961
24513
101.9
2021
25263
105.0
2053
25663
106.7
2124
26550
110.4
PRICE: $
PRICE: R
n.a.
n.a.
n.a.
3241
40513
100.0
2994
37425
92.4
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
PRICE: $
PRICE: R
2660
33250
100.0
2585
32313
97.2
2564
32050
96.4
2625
32813
98.7
2745
34313
103.2
Cheddar
Index
Butter
Index
23.
From Table 6 it is clear that:
a) The price of whole milk powder increases from August 2015 to December 2015
with 7.0 percent;
b) The price of skimmed milk powder increases from August 2015 to December
2015 with 10.4 percent;
c) The price of cheddar cheese decreases from September 2015 to October 2015
with 7.6 percent;
d) The price of butter decreases from August 2015 to October 2015 with 3.6
percent followed by an increase to December 2015 to a level of 3.2 percent
higher than in August 2015.
13) Table prepared by the Office of SAMPRO based on the prices as published by “Global Dairy Trade” on 2 June
2015
31
24.
Future prices for dairy products from New Zealand, as indicated in Table 6, should be
assessed taking into account the following:
The production of raw milk and thus the production of dairy products in New
Zealand, is highly seasonal as indicated by Graph 7 of Chapter 2 of this report.
The production in New Zealand decreases sharply in the first six months of each
year and it comes virtually to a standstill in June and July followed by a very
sharp increase from July to October.
In light of the above mentioned, the prices achieved by New Zealand in April to
August are strongly linked with the production in the previous production season.
However, prices in August and in the following months also reflect the
expectations regarding the production in the next season of peak production of
New Zealand which commences in August and during which production
increases sharply to reach a peak in October.
25.
In summary, the evidence which is available, shows that
a) In 2014 and thus far in 2015, the prices of dairy products in the
international market reduced substantially to levels lower than
in the previous 5 years and 7 months;
b) The downward trend is the result of supply in the world which
outstrips demand;
c) In light of the future prices of Fonterra and expectations
regarding future price movements in the USA, and assuming
no significant new development in the market, sideways
movement or very moderate upward trend in the prices of dairy
products in the international market in the rest of 2015 should
be expected. In the February 2015 edition of Key Market
Signals for the Dairy Industry, the same expectation was stated
but in reality, from February 2015 the decrease of prices
continued. It was also stated in the February 2015 edition of
Key Market Signals for the Dairy Industry that factors do exist
which “can limit or prevent an upward trend” and the
information available at present shows that this possibility
became the reality.
32
d) In the short term, the supply and demand position of each of the
different dairy products often differs meaningfully and, as a
result, the movements of the prices of the products are often
different in the short term;
e) Different factors exist which create uncertainty regarding future
developments and it can result in price volatility; and
f) Realistic expectations regarding the performance of the dairy
industry in the world can, within a short period of time, become
unrealistic due to new developments.
33
Chapter 2
RAW MILK MARKETS OF MAJOR DAIRY
COUNTRIES
26.
Prominent characteristics of raw milk production in the world are:
a) Raw milk production in the world is highly dependent on climatic conditions which
are unpredictable;
b) Raw milk production is seasonal with high production in summer and low
production in winter. This is the result of the extent to which pasture-based
feeding regimes are used in the world. Raw milk production on the basis of total
mixed ration feeding regimes, does not result in different volumes of raw milk
production in different seasons. Demand for dairy products is much less
seasonal than raw milk production which is based on pasture feeding. As a
result high levels of seasonality are only viable if:
i. The pasture-based production is highly price competitive;
and
ii. The excess of raw milk produced in summer is used in a
highly competitive way, to manufacture dairy products with a
long shelf life. Skimmed milk powder and butter have the
longest shelf-life followed by full cream milk powder, long-life
milk and cheese.
c) The extent to which raw milk production in different countries is seasonal, differs
dramatically;
d) As a result of the seasonal nature of raw milk production, the prices of raw milk in
most dairy countries also follow a seasonal pattern;
e) The season of peak production in the Northern hemisphere coincides with the
season of low production in the Southern hemisphere and vice versa. This
means that during each year two periods of uncertainty in respect of supply in the
international market occur, namely the period when it is uncertain what the
production in the Northern hemisphere will be and the period when it is uncertain
what the production in the Southern hemisphere will be. These two periods of
uncertainty and the speculation created by the uncertainty, contribute to price
volatility of dairy products in the international market.
34
27.
The seasonal nature of raw milk production, as described in the previous paragraph, is
illustrated in Graph 7.
Graph 7 14)
SEASONALITY OF RAW MILK PRODUCTION IN EUROPE AND NEW ZEALAND
28.
Graph 7 shows that:
a) The production in New Zealand is extremely seasonal as the production in
June and July is less than 200 000 ton per month, while the peak production in
October is in the order of 3 000 000 ton which is 1 500 percent higher; and
b) The production in Europe is much less seasonal than in New Zealand. The
highest production per month in Europe in 2012 and 2013, was in May and it
was in the order of 17 to 19 percent higher than the lowest production that
occurred in November 2012 and February 2013;
14) Graph as published by CLAL.it
35
29.
The changes in the prices of raw milk in the USA since January 2000, are illustrated in
Graph 8.
Graph 815)
RAW MILK PRICES IN THE USA
15) Graph as published by CLAL.it
36
30.
Important observations in respect of Graph 8 are as follows :
a) The raw milk price in the USA is, in the short term, subject to major changes. The
volatile nature of the prices is demonstrated by, for example:
- from January 2012 to the middle of 2012, the price decreased with
approximately 15 percent;
- from the second quarter of 2012 to November 2012, the price
increased with approximately 37 percent, but from November 2012 to
March 2013 it decreased with approximately 13 percent;
- from the middle of 2013 to April 2014 the price increased with
approximately 31 percent; and
- from the third quarter of 2014 to first quarter of 2015, the price
decreased with approximately 38 percent.
b) The volatility of raw milk prices in the USA, as referred to under (a), occurs
notwithstanding the meaningful government intervention measures in respect of
the dairy industry in the USA. In this regard, it should be mentioned that
government measures to deal with so-called over-supply (production higher than
demand), reduce the “cost” of over-production of individual producers16) who are
responsible for over-production.
As a result such measures do not strongly
encourage raw milk producers, milk processors and manufacturers of dairy
products to make sure that their output follows demand and more frequent, or
more severe over-production, will often be the result of such measures. See also
paragraph 7;
c) A comparison of the history of raw milk prices in the USA ( as reflected in Graph
8) and in Europe (as reflected in Graph 9) with the price history of raw milk in
South Africa (as reflected in Graph 12) shows that the last mentioned is less
volatile. This shows that the South African dairy industry adapted to requirement
that supply should follow demand. In other words, the “unregulated” South
African market for raw milk is more successful to guide supply to follow demand
than the “regulated” USA and EU markets.
16) The ”cost” of over-production, or the negative effect of over-production on the income of the raw milk producers, milk
processors and manufacturers of dairy products who are responsible for the over-production, is reduced as :
i.
The over-supply can be the result of too high production by a group of raw milk
producers, milk processors and manufacturers of dairy products, but the “cost” to
deal with the over-supply, will be paid by all the producers, processors and
manufacturers including those who did not contribute to the over-supply and/or the
taxpayers; and
ii.
During a period of over-production the producer will not be confronted by raw milk
which nobody wants to buy as the intervention systems will ensure that excess milk
will be sold. Only at a later stage the “cost” of over-production will filter through to
the dairy industry and /or taxpayers.
37
31.
The changes in the average prices of raw milk in Europe are indicated in Graph 9.
Graph 917)
AVERAGE PRICE OF RAW MILK IN EUROPE DURING 2012, 2013, 2014 AND 2015
32.
Important observations in respect of Graph 9 are as follows:
a) As the production of raw milk is higher in summer than in winter, the prices
in the low production season are normally higher than in the season of
high production;
b) Although not indicated in Graph 9, it should be noted that from March
2012 to December 2012, the average raw milk prices in Europe were
lower than in the same months of 2011;
17) Graph as published by LTO Nederland.
38
c) In January and February 2013, the average prices were virtually the same
as in the same months of 2012, in March 2013 the price was higher than
in March 2012, from February to April 2013 the price did not show the
normal sharp seasonal decline, and from April to November 2013 it
increased much more than the normal seasonal increase. In this regard it
should be taken into account that in 2013 the winter in the Northern
hemisphere lasted longer than normally and it impacted negatively on
pasture growth and raw milk production in the first half of 2013;
d) In 2014 the average price decreased with approximately 18 percent and
the rate of decrease accelerated sharply from August 2014 to December
2014. As a result, from August 2014 the price moved to levels lower than
in the same months of 2013 and the price in December 2014 is
approximately 17 percent lower than in December 2013; and
e) The decrease referred to under d) continued to April 2015 (the latest
information indicated in Graph 9) and the price in April 2015 is 19.5
percent lower than in April 2014.
33.
Graph 8 and Graph 9 may incorrectly create the impression that only one raw milk price exists
in any particular country. In fact, as described in previous reports by SAMPRO, different
prices exist in each of the dairy countries and even in one region of a country. The factors
which create these differences are the normal factors that influence price determination such
as:
a)
Location of raw milk production unit relative to other raw milk
production units and to dairy product manufacturing units;
b)
Location of the producers of processed milk and the manufacturers
of other dairy products;
c)
Difference in the quality (food safety status) and composition (fat and
not fat solid content) of raw milk produced by different producers;
d)
The extent to which the volume of raw milk production differs from
season to season (seasonality of production);
e)
Different levels of productivity of the different raw milk production
units due to external and internal reasons;
f)
Different end products are manufactured from raw milk and the
different market conditions in respect of the different end products
create differences in the price that can be paid for raw milk;
g)
Different positions of individual milk processors and manufacturers of
dairy products in respect of, for example size, product range,
productivity, reputation of brand name in the consumer and industrial
markets, relative exposure to consumer and industrial markets, and
exposure to export and competition from import.
39
34.
The calculated prices for “standardized” raw milk prices in major dairy producing countries
in April 2015 and the rolling average prices in the last 12 months, are indicated in Table 7.
It must be emphasized that the “calculated” prices indicated in Table 7 are not the actual
prices and that it is included in this report to show the historic trend in changes of these
prices and not because the prices are regarded as actual prices18). From Table 7 it is
clear that:
a) The “prices” in April 2015 in ten of the eleven countries were lower than
the rolling average prices in the previous year. The country of which the
“price” in April 2015 is not lower, is New Zealand and this price is a
forecasted price for the production season 2015/2016;
b) The “prices” in the different countries, including countries which are
members of the EU, with its common market, differ;
c) The “price” in New Zealand, which exports in the order of 95 percent of its
production of dairy products, is dramatically lower than the prices of other
major raw milk producers of the world who rely less on export.
40
Table 718)
CALCULATED PRICES OF “STANDARDIZED” RAW MILK PAID BY MAJOR PROCESSORS
AND MANUFACTURERS OF DAIRY PRODUCTS IN CERTAIN RAW MILK PRODUCING
COUNTRIES
PRICE IN
APRIL 2015
ROLLING AVERAGE PRICE
IN LAST 12 MONTHS
R/KILOGRAM
(R14.00 = 1 EURO)
R/KILOGRAM
(R14.00 = 1 EURO)
BELGIUM
3.989
4.508
GERMANY
4.081 – 4.273
4.600 – 4.642
DENMARK
4.304
4.778
FINLAND
5.018
5.873
FRANCE
4.362 – 4.497
4.887 – 5.149
BRITAIN
3.935 – 4.414
4.661 – 5.300
IRELAND
3.984 – 4.252
4.624 – 4.738
NETHERLANDS
4.131 -4.526
4.411 – 4.887
ITALY
5.768
6.083
NEW ZEALAND
(FONTERRA)
3.480
3.270
USA
5.103
5.515
18) Table prepared by the Office of SAMPRO based on information published by LTO Nederland.
The prices of the EU countries are adjusted to be per kg of “standard milk with 4,2% fat, 3,4% (crude) protein, 500 000 kg per
year, total bacterial count 24 999 and somatic cell count 249 999 per ml.” The prices of the USA are the prices announced by the
USDA which were adjusted to be applicable to raw milk with “4,2% fat, 3,4% protein and somatic cell count 249 999 per ml”. The
prices of New Zealand are the prices of Fonterra based on pay out forecast and adjusted to be applicable on milk of “4,2% fat
and 3,4% protein”. The actual prices in these countries will differ to the extent that the specifications of the raw milk which is
actually traded differ from the above stated specifications.
Adjustment of the prices of raw milk with different composition (fat and protein), and differences in respect of other variables
such as bacterial count, somatic cell counts and volumes per year, in order to construct prices for “standardized” milk, demands
that a value (price) is assumed for each of the variables.
While it is easy to deduce the value of the fat component of raw milk from the market price of cream, the determination of the
value of the protein component of raw milk must be more indirect. Unlike fat, the protein component cannot be removed from
raw milk reversibly. By converting raw milk to skimmed milk powder and butter, the non-fat solids of the raw milk, which
include the protein, can be isolated in the skimmed milk powder.
However, the relationship between the market prices of raw milk and the market prices of skimmed milk powder and butter
change often. As a result, raw milk prices deduced from the market prices of skimmed milk powder and butter will often differ
meaningfully from the actual market prices of raw milk.
Furthermore, for the purpose of the fluid milk market (pasteurised, ultra-pasteurised and UHT milk), the only requirement in
respect of protein is that it should meet the minimum legal requirement. Under such circumstances, protein levels, which exceed
the minimum legally required levels for the fluid milk market, do not create any additional commercial value. In other words, no
additional value can be attached to raw milk destined for the fluid milk market which contains more protein than the minimum
legal requirement.
41
In respect of the manufacturing of cheese and milk powder the fat and protein levels of raw milk are important because it uses
the fat and non-fat solids components of milk. In respect of milk powder and cheese, raw milk with higher fat and non-fat solids
is more valuable and it is reasonable to expect such raw milk to enjoy a premium. Thus, for the purpose of manufacturing of
milk powder and cheese it makes sense to compare the prices of different batches of raw milk not on the basis of price per litre
but, on the basis of price per unit of fat and protein.
It is fairly obvious that a lot of discretion will be involved if the prices of different countries are adjusted in respect of issues such
as volume of production, bacterial counts and somatic cell counts.
In response to questions of the Office of SAMPRO regarding the “Calculated price of standardized raw milk”, LTO Nederland
responded as follows :
“We calculate and publish comparable milk prices for standard milk. For this we know the payment systems of
the dairies and their monthly prices. For this we receive copies of monthly statements.
As we know the payments system and know the monthly fat price (or differentials) we can calculate a milk price
for different % fat. So if we get a milk statement of a farmer delivering milk with 3.7% (or 4% or 4.5% etc) this
fat% does not matter. We have to know the price per kg fat or %fat. So for example FrieslandCampina paid in
June 2011 € 4.42 per kg fat so the fat value of milk with 4.2% fat is 4.2 x 4.42. The same for protein 3.2 x 6.26
(protein price) etc.
Every particular dairy has its own payment system and monthly fat and protein prices.
Every dairy has also a quality payment system. If a bonus is paid for milk with 24,999 tbc and 249,999 scc this
bonus is added to the calculated milk price. The same regarding a volume bonus (500,000 kg/year).
The milk price is based on the value of contents (fat and protein) plus bonuses (for quality, volume, season),
minus deductions (some have seasonal deductions) and minus costs.
As we have a model with the payments systems and monthly prices of fat etc we can calculate prices for
different standards. Added our calculation for standard milk with 4 (instead of 4.2)% fat.”
From the above explanation it is clear that :
- “Calculated standardized prices” as explained above, is relevant when milk processors use price
formulas which are based on the milk solid content of the milk and the other variables referred to;
- The different countries and the different firms in each country mentioned in Table 6 do not use the
same variables in their price formulas;
- For the purpose of the fluid milk market, price formulas based on milk solid content above the legal
requirements of the milk, do not make commercial sense.
An example of the adjustment of the price of raw milk with 3.3 percent fat and 3.3 percent protein to arrive at a price for
“standardized” milk with 4.2 percent fat and 3.4 percent protein is as follows :
If the milk contains 3.3 percent fat and 3.3 percent protein, the milk solid content is 3.3 plus 3.3 which is 6.6
percent. Milk with 4.2 percent fat and 3.4 percent protein contains 7.6 percent solids (calculated by adding 4.2
and 3.4). If the price of milk with 6.6 percent milk solids is R3,00, the price of milk with 7.6 percent solids will be :
7.6
X R3,00 = R3,45 per kg
6.6
The prices of raw milk indicated in Table 6 are abnormally high relative to the prices of, for example, whole milk powder in the
international market as stated in Table 2 and Table 3. It could be argued that the prices of the whole milk powder in the
international market are abnormally low relative to the “calculated price for standardized milk” due to the fact that the
countries dump whole milk powder in the international market. Such explanation is not valid in respect of New Zealand because
this country exports approximately 95 percent of its production and dumping on a continuous basis is therefore impossible.
42
35.
The evidence recorded in Graph 8, Graph 9 and Table 7 and the information contained in
previous editions of “Key Market Signals for the dairy industry”, show that:
a)
The prices of raw milk in 2011 were significantly higher than in
2010;
b)
A trend of decreasing raw milk prices commenced in the EU in
September 2011 while in the USA the prices started to decline in
the middle of 2011. The downward trend came to an end in the
middle of 2012 when an upward trend commenced;
c)
Notwithstanding the upward trend mentioned under (b), the prices
in 2012 were lower than in 2011;
d)
In 2013 the prices increased to very high or record high levels due
to the lower supply as a result of the negative impact of adverse
weather conditions (the drought at the end of the New Zealand
2012/2013 production season and the longer than normal 2013
winter in the Northern hemisphere) on raw milk production in the
world and the firm demand for dairy products;
e)
The price of raw milk in different dairy countries did not increase to
the same extent. For example, from September 2012 to September
2013, the prices in the USA increased with 9.3 percent, Ireland
increased with 22.1 percent, Germany increased with 32.1 percent
and New Zealand increased with 42.5 percent;
f)
The weather conditions and feed prices in the second half of 2013
and in 2014, were favourable and the production increased as a
result of which prices of raw milk in the major raw milk production
countries decreased sharply in 2014 and thus far in 2015.
43
36.
In respect of future raw milk prices, the expectation of the United States Department of
Agriculture (USDA) regarding prices in the USA, as stated in May 2015, is a useful
indicator and it is indicated in Graph 10.
Graph 1020)
RAW MILK PRICES AND FUTURE RAW MILK PRICES IN THE USA IN 2012, 2013, 2014
AND 2015 ($ PER 100 LB)
20) Graph prepared by the Office of SAMPRO based on information published in the United States Department of Agriculture
publication titled “Livestock, Dairy and Poultry Outlook”, 18 May 2015. Class III milk is used for the production of cheese and Class
IV is used for the manufacture of butter and milk powder.
44
37. The prices, on which Graph 10 is based, are indicated in Table 8.
Table 820)
RAW MILK PRICES AND FUTURE RAW MILK PRICES IN THE USA IN US$ ($/100LB)
AND RAND (R per litre) $=R12.50 (Index 2012 = 100)
2012
PRODUCT
2014
2015
2016
Quarter
IV
Quarter
I
Quarter
II
Quarter
III
Quarter
IV
Quarter
I
Quarter
II
Quarter
III
Quarter
IV
Quarter
I
21.50
24.53
24.23
24.37
22.77
17.00
16.55
17.50
18.35
17.75
5.06
100.0
6.75
114.1
6.66
112.7
6.70
113.3
6.26
105.9
4.68
79.1
4.55
77.0
4.81
81.4
5.05
85.3
4.88
82.6
Price:$
20.17
22.61
22.75
22.82
21.19
15.73
16.60
16.40
16.95
16.30
Price:R/lt
4.75
6.22
6.26
6.28
5.83
4.33
4.57
4.51
4.66
4.48
100.0
112.1
112.8
113.1
105.1
78.0
82.3
81.3
84.0
80.8
Price:$
18.34
23.14
23.04
23.42
18.75
13.62
14.05
15.05
15.95
15.35
Price:R/lt
4.32
6.36
6.34
6.44
5.16
3.75
3.86
4.14
4.39
4.22
100.0
126.2
125.6
127.7
102.2
74.3
76.6
82.1
87.0
83.7
All milk
Price:$
Price:R/lt
Index
Class III
Index
Class IV
Index
38.
From Graph 10 and Table 8 it is clear that:
a) The expected prices in each quarter of 2015 are lower than the prices
in the same quarter of 2014;
b) The price of “All milk” decreased from the last quarter of 2014 to the
second quarter of 2015 with 29.2 percent and from the second to the
fourth quarter of 2015 it is expected to increase with 10.7 percent.
From the fourth quarter of 2015 to the first quarter of 2016, it is
expected that the price will reduce with 3.1 percent;
c) The price of “Class III” decreased from the last quarter of 2014 to the
first quarter of 2015 with 25.7 percent and from the first quarter of 2015
to the second quarter of 2015 it increased with 5.3 percent. From the
second to the third quarter the price is expected to decrease with 1.2
percent and from the third quarter to the fourth quarter it is expected to
increase with 3.3 percent only to decrease to the first quarter of 2016
with 3.8 percent;
20) Table prepared by the Office of SAMPRO based on the information published in the United States Department of Agriculture
publication titled “Livestock, Dairy and Poultry Outlook”, 18 May 2015. Class III milk is used for the manufacture of cheese and
Class IV milk is used for the manufacture of butter and milk powder.
45
d) The price of “Class IV” decreased from the last quarter of 2014 to the
first quarter of 2015 with 27.4 percent and from the first to the fourth
quarter of 2015, it is expected to increase with 16.8 percent. From the
last quarter of 2015 to the first quarter of 2016 the price is expected to
decrease with 3.7 percent; and
e) The index figures in Table 8 clearly shows that the expected prices in
the last two quarters of 2015 and the first quarter of 2016 remain
between 19.2 and 16.3 index points below the index for 2012.
39.
Regarding the prices and supply of raw milk and dairy products in the rest of 2015,
the following should be taken into account:
a) The EU is the biggest supplier of dairy products to the international
market (See foot note 10);
b) The EU abolished on 31 March 2015 its raw milk production quotas per
country system in terms of which EU member states, which exceed
their quotas, have to pay fines;
c) Important dairy countries and dairy enterprises in the EU were
ambitious regarding the expansion of their production after the
abolishment of the quotas but the dramatic decrease in the prices of
dairy products, will most likely prevent expansion and further downward
pressure in prices;
d) Over the medium term and long term the impact of the abolishment of
production quotas in the EU will be changes in the structure of the
production of raw milk and dairy products in the different member
states of the EU. The production will shift from the less competitive
countries and less competitive dairy enterprises to the more
competitive countries and dairy enterprises in the EU.
46
40.
In summary:
a) The downward movement in the prices of raw milk in the world,
which commenced in the middle of 2011, halted and prices
increased in the second half of 2012;
b) The major reason for the increase in prices in the second half of
2012, as referred to under (a), was the sharp increase in feed
prices which was the result of the drought in the USA which
limited the size of maize and soya crops and which resulted in
increased prices for maize and soya, which are important
ingredients of feed;
c) Notwithstanding the increase in the prices of raw milk in the
second half of 2012, the prices in 2012 were lower than in 2011;
d) In 2013, raw milk prices in major dairy countries increased
sharply to reach very high or record high levels in major raw milk
producing countries due to the negative impact on raw milk
production by adverse weather conditions in the first half of
2013 in New Zealand and in the Northern hemisphere;
e) The production of raw milk in major raw milk production
countries of the world in the second half of 2013 and in 2014,
was higher due to especially favourable weather conditions,
relatively low feed prices and the previous high prices;
f) In reaction to the high supply of raw milk relative to the demand
for raw milk, the prices of raw milk in major dairy countries
declined significantly in especially the second half of 2014;
g) The sharp decrease in the prices of raw milk in 2014 continued
in the first four months of 2015;
h) The impact of the lower prices on the production of raw milk in
major dairy countries as referred to under f) and g), will become
visible in the next few months;
i) The price of raw milk in the regulated markets of the EU and
USA are more volatile than in South Africa. In the absence of
government intervention in the South African dairy industry, it
adapted to the requirement that supply should follow demand
and, as a result, prices of raw milk in South Africa are less
volatile than in the EU and the USA;
47
j) Raw milk production in the world is heavily dependent on
weather conditions which cannot accurately be predicted. As a
result, reasonable expectations at a particular date can quickly
become unrealistic due to unforeseen exceptionally favourable
or exceptionally unfavourable weather conditions.
48
Chapter 3
THE RAW MILK MARKET IN SOUTH AFRICA
41.
The total quantity of raw milk purchased per year, as declared to Milk SA, as a result of
regulations promulgated in terms of the Marketing of Agricultural Products Act, is
indicated in Table 9 and it is a good indication of the production of raw milk in South
Africa.
Table 921)
Total quantity of raw milk purchased in South Africa during the years 2008
to 2014
RAW MILK
YEAR
2008
2009
2010
2011
2012
2013
2014
42.
KILOGRAM
2 624 511 678
2 586 868 067
2 711 236 032
2 720 402 147
2 842 810 159
2 905 811 947
2 982 734 569
PERCENTAGE
CHANGE
FROM
PREVIOUS
YEAR
2.50
-1.43
4.81
0.34
4.50
2.22
2.65
INDEX
2008 = 100
100.00
98.57
103.30
103.65
108.32
110.72
113.65
The quantity of raw milk purchased in South Africa, as indicated in Table 9, shows
amongst other, that:
a) A year with a relative high increase in the production of raw milk was
often followed by a year with less increase or, in the case of one year,
even a decrease in production;
b) The production of raw milk in one of the last seven years, namely 2009
was lower than in the previous year; and
c) The production of raw milk in 2014 was 2.65 percent higher than in
2013. As indicated in Graph 11, it is the result of a sharp increase in
production in the last five months of 2014, as the production in the first
seven months of 2014 was more or less the same as in the same
months of 2013.
43.
In light of Table 9 and a) to c) of the previous paragraph, it is clear that general
unqualified statements that the quantity of raw milk production in South Africa is
“stagnant” or that it moved “sideways”, are not objective presentations of the factual
position.
21) Table prepared by the Office of SAMPRO based on information obtained from MILK SA.
49
44.
The trends in respect of the seasonality of the mass of raw milk purchases, declared
to Milk SA during the years 2008 to April 2015, are indicated in Graph 11, and are
also good indications of the seasonality of the production of raw milk in South Africa.
Graph 1122)
22) Graph prepared by the Office of SAMPRO on the basis of information obtained from MILK SA.
The
information in respect of 2008 to February 2015 is in respect of the total raw milk purchased by all registered
milk buyers declared in terms of Regulation 1220 of the Marketing of Agricultural Products Act and previous
similar regulations. The information for March and April 2015 are estimated figures determined on the
assumption that the market share of the sample in the total raw milk purchases is 83.82 percent as was the
case in the three month period, December 2014 to February 2015.
50
45.
The following are major observations in respect of Graph 11.
a) Raw milk production in South Africa is seasonal with the highest production
(average production per day per month) in October or November and the lowest
in April, May or June. The extent to which in each year, the highest production
per day per month exceeded the lowest production per day per month, is as
follows23) :
2008
2009
2010
2011
2012
2013
2014
31.8 percent
35.2 percent
32.2 percent
31.9 percent
29.0 percent
29.0 percent
37.7 percent
b) The difference between the highest and lowest production in 2012 and 2013 is
smaller than in previous years and also than in 2014;
c) The difference between the highest and lowest production per day in 2014 of 37.7
percent is higher than in the previous six years, namely 2008 to 2013. The huge
difference between the highest and lowest production in 2014 cannot be
attributed to only the seasonal nature of raw milk production. The sharp increase
in production from August 2014 to January 2015, relative to the same months of
the previous years, is to a meaningful extent the result of higher incentive to
produce raw milk due to lower feed prices, higher raw milk prices and favourable
weather conditions;
d) The speed at which the production accelerated from July 2014 to October 2014 is
the highest relative to the previous six years;
e) The estimated production in the period January 2015 to April 2015 is a record
10.7 percent higher than in the same months of 2014;
_______________________________________________________________________________
23) Percentages calculated by the Office of SAMPRO on the basis of the total quantities of raw milk declared per
month to Milk SA.
51
46.
Although Graph 11 shows the seasonal nature of raw milk production in South Africa,
the extent of the seasonality and the degree of similarity of the production in any
particular month of each of the last seven years are more clearly illustrated in Table 10.
Table 1024)
TRENDS IN THE RAW MILK PURCHASES (AVERAGE PER DAY PER MONTH) IN THE
YEARS 2008 TO FEBRUARY 2015
Index :
2008
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2009
2010
January 2008 = 100
2011
2012
2013
2014
2015
100.00
102.01
103.25
106.99
106.41
107.73
109.56
121.06
93.36
93.21
96.74
99.59
101.25
104.65
103.64
115.95
91.97
88.28
93.10
92.88
98.18
100.41
99.20
111.17
87.12
84.84
90.14
90.46
95.30
97.29
97.41
106.18
86.25
84.99
90.19
89.73
96.42
97.58
98.31
90.06
83.74
89.29
90.06
96.91
97.75
98.79
90.07
87.57
95.04
92.39
97.86
100.04
100.90
99.79
98.44
104.23
102.20
107.96
111.45
114.06
110.07
109.04
113.83
116.68
119.17
123.07
128.31
112.23
113.26
118.05
118.44
122.92
126.40
134.09
113.76
112.49
116.80
115.97
121.79
124.69
132.39
106.07
108.87
112.12
111.82
114.78
119.69
128.49
____________________________________________________________________________________________________
24) Graph prepared by the Office of SAMPRO on the basis of information obtained from MILK SA. The
information in respect of 2008 to February 2015 is in respect of the total raw milk purchased by all
registered milk buyers declared in terms of Regulation 1220 of the Marketing of Agricultural Products Act
and previous similar regulations.
The information for March and April 2015 are estimated figures
determined on the assumption that the market share of the sample in the total raw milk purchases is
83.82 percent as was the case in the three month period, December 2014 to February 2015.
52
47.
Table 10 illustrates:
a) The similarity between the different years in respect of the extent of the
changes from month to month;
b) The typical sharp increase from July to September;
c) The typical sharp decrease from November to April;
d) The significant difference between the highest and the lowest index figures in
each year;
e) The lowest index figure occurred in June 2009 and the highest in October
2014;
f) That the average mass of raw milk purchased per day was from February to
December 2012, higher than in the same months in the previous four years;
g) The mass of raw milk purchases per day was in ten months of 2013 higher
than in the same months of 2012;
h) The mass of the raw milk purchases per day was in nine of the months of
2014 higher than in the same months of the previous year but in respect of
two of the nine months, namely April and July, the increases were marginal
(less than 0.5 percent) and in respect of three of the nine months (October to
December) it was to a record high extent higher than in the same months of
2013; and
i) The mass of raw milk purchases per day in each of the first four months of
2015 is to a record high extent, higher than in the same months of 2014.
53
48.
The extent to which the raw milk purchases increased from July to August, July to
September and July to October of each of the last seven years, is indicated in Table 11.
TABLE 1125)
INCREASE IN MONTHLY RAW MILK PURCHASES IN SOUTH AFRICA FROM JULY TO
AUGUST, JULY TO SEPTEMBER AND JULY TO OCTOBER OF EACH OF THE YEARS 2008 TO
2014
July to August
July to September
July to October
Percent
Percent
Percent
2008
10.7
22.2
24.6
2009
12.4
24.5
29.3
2010
9.7
19.8
24.2
2011
10.6
26.3
28.2
2012
10.3
21.8
25.6
2013
11.4
23.0
26.3
AVERAGE
2008 TO 2013
10.8
22.9
26.3
2014
14.9
29.4
32.9
Year
49.
Table 11 shows that the increase in the raw milk production from July to October 2014 is
significantly higher than in the previous six years, namely 2008 to 2013. As explained in
paragraph 45 c), the sharp increase from July 2014 to October 2014 is not only the result of
the normal seasonal pattern of production.
50.
Not only did the production of raw milk increase sharply from August 2014 to October 2014,
but the production in the seven months from October 2014 to April 2015 (the latest
available information), was to an unprecedented high extent, higher than in the same
months of the previous years, as shown in Table 12.
25) Table prepared by the Office of SAMPRO based on information obtained from MILK SA
54
TABLE 1226)
RAW MILK PURCHASES IN PARTICULAR MONTHS RELATIVE TO THE PURCHASES IN THE
SAME MONTHS OF THE PREVIOUS YEARS
Percentage increase
July 2014 relative to July 2013
August 2014 relative to August 2013
September 2014 relative to September 2013
October 2014 relative to October 2013
November 2014 relative to November 2013
December 2014 relative to December 2013
January 2015 relative to January 2014
February 2015 relative to February 2014
March 2015 relative to March 2014
April 2015 relative to April 2014
51.
0.8
2.3
4.2
6.0
6.1
7.3
10.5
11.8
12.1
8.3
Weather conditions have a significant impact on the volume of raw milk production.
However, the impact of weather conditions on raw milk production should not be
oversimplified by, for example, assuming that a drought necessarily will result in lower raw
milk production. The high production of raw milk in South Africa during 2010 relative to
2009 occurred notwithstanding the extreme drought conditions which existed in the
Southern Cape and Eastern Cape, which are important production areas in South Africa,
showed that a drought does not necessarily result in lower production. In this regard, the
following :
a) Drought in raw milk production regions, which depend on pastures, will not
necessarily result in lower raw milk production as pasture based production
regimes can completely or partially be replaced by total mixed ration (TMR)
production regimes;
b) The viability of changing from a pasture-based production regime to TMR will
depend on:
-
The price of raw milk. The higher the price, the more viable it is to
replace pastures with TMR; and
-
The availability and prices of feed. The lower the price of feed and the
higher the availability, the more viable will be the replacement of
pastures with TMR;
26) Table prepared by the Office of SAMPRO based on information obtained from Milk SA.
55
c) Normally production per cow will increase if pasture-based feeding is replaced
by TMR. In a TMR feed regime, there will often be more emphasis on
production per cow and less productive cows will be removed from the herds.
In this regard it should be noted that the scheme regarding culling of cows in
the USA, which is intended to limit raw milk production, resulted in higher
production per cow as less productive cows are culled and it stimulates the
replacement of older cows with heifers. The effect of this scheme was mainly
more productive herds and not a reduction in total milk production by the
national herd;
d) Some of the effects of a drought can continue after the end of the drought. For
example, time is required to increase herd sizes, to fill irrigation dams, to reestablish pastures and the condition of replacement heifers and dry cows may
be weak if it was not viable to apply TMR in respect of these animals.
52.
Raw milk production is also influenced by weather conditions other than droughts. Some of
the adverse weather conditions which result in lower production include high temperature
or the sudden big changes in temperature, and very wet (muddy) conditions. Unlike
drought conditions, the impact of high temperatures is mainly limited to the periods in which
hot conditions occur. When the hot conditions disappear, production returns typically to
more normal levels. Very wet conditions can influence the volume of raw milk production
in different ways, namely :
a) Very wet (muddy) conditions reduce the production of raw milk if the cows are
not protected against it. The reduction will be mainly in the period which the
cows experienced lack of comfort. Intensive production regimes protect cows
against very muddy conditions;
b) Very wet conditions can reduce the nutrition value of pastures and hay
produced from such pastures. The negative effect of hay with low nutritional
value on raw milk production will last in the period during which such hay is
used and for some time after the period unless such hay is supplemented by
feed concentrates;
c) Very wet conditions at the end of a rainfall season can result in the quicker
recovery of pasture growth in spring and thus in higher raw milk production in
spring.
56
53.
The producer price index of raw milk (it is an index of the prices received for raw milk by
raw milk producers) is indicated in Graph 12.
Graph 1227)
PRODUCER PRICE INDEX OF RAW MILK IN THE YEARS 2008 TO 2015
(Index of prices achieved by raw milk producers)
Index: 2000 = 100
27) Graph prepared by the Office of SAMPRO based on information published by Statistics SA, and the
Department of Agriculture Forestry and Fisheries.
57
54. Major observations in respect of Graph 12 are:
a) Within each year the prices of raw milk changed meaningfully. The extent to which, in
each of the years, the highest price is higher than the lowest, is as follows:
2008
2009
2010
2011
2012
2013
2014
2015(January to April)
14.3 percent
13.6 percent
14.2 percent
6.9 percent
16.3 percent
8.4 percent
14.1 percent
4.0 percent
The difference between the lowest and highest prices in 2014 is the fourth highest in
the seven years, namely 2008 to 2014.
b) In each of the years 2008 to 2014 the prices increased in the first half of the year;
c) The normal pattern of raw milk prices is to increase in the first half of the year and to
decrease in the second half in response to the seasonal nature of raw milk production
as illustrated in Graph 11. In contrast:




In 2009, the prices did not decrease in the second half;
In 2011, the prices did not decrease in the second half;
In 2013, the prices did not decrease in the second half and the price in
December 2013 was higher than in January 2013; and
In 2014, the prices decreased from July to September but from September to
December, it increased and the price in December is the highest in 2014.
d) The highest prices in each of the years occurred in the following months:
2008
2009
2010
2011
2012
2013
2014
2015
June
December
June
December
May
July and October
December
(January to April) April
e) The lowest prices in each of the years occurred in the following months:
2008
2009
2010
2011
2012
2013
2014
2015
January
February
October
February
January
February
January
(January to April) January
58
55. Most of the monthly changes in the producer price index of raw milk are marginal. The details
of the monthly changes in the producer price index of raw milk in the years 2009 to 2015 are
set out in Table 13.
Table 1328)
CHANGES IN THE PRODUCER PRICE INDEX OF RAW MILK IN SOUTH AFRICA IN THE
YEARS 2009 TO 2015
Month
2009:
JANUARY
FEBRUARY
MARCH
APRIL
MAY
JUNE
JULY
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
DECEMBER
2010:
JANUARY
FEBRUARY
MARCH
APRIL
MAY
JUNE
JULY
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
DECEMBER
2011:
JANUARY
FEBRUARY
MARCH
APRIL
MAY
JUNE
JULY
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
DECEMBER
2012:
JANUARY
FEBRUARY
MARCH
APRIL
MAY
JUNE
JULY
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
DECEMBER
Change in index from
previous month
(percent)
-0.79
-0.29
3.80
2.11
3.51
1.86
0.72
0.32
0.06
0.06
0.52
-0.13
-0.64
0.06
3.75
1.19
1.29
0.55
-2.36
-1.43
-5.03
-4.24
0.55
0.48
0.21
-0.14
1.44
2.36
1.05
-0.20
0.00
0.13
0.00
0.33
0.98
0.71
Month
2013:
JANUARY
FEBRUARY
MARCH
APRIL
MAY
JUNE
JULY
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
DECEMBER
2014:
JANUARY
FEBRUARY
MARCH
APRIL
MAY
JUNE
JULY
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
DECEMBER
2015
JANUARY
FEBRUARY
MARCH
APRIL
Change in index from
previous month
(percent)
0.20
-0.20
2.50
2.53
1.99
0.28
0.84
-0.55
-0.19
0.74
-0.09
-0.55
-0.56
1.58
3.30
6.75
-0.43
0.93
0.92
-0.50
-1.16
-0.18
0.60
1.74
0.00
1.14
1.94
0.95
2.43
6.24
3.41
5.50
0.40
-1.30
-1.10
-1.98
0.90
- 0.70
0.20
0.30
28) Table prepared by the Office of SAMPRO from information obtained from Statistics SA.
59
56. The changes in the producer price index of raw milk should be evaluated in the context of:
a) The movement of the price index of agricultural inputs;
b) The movement of the producer price indices of other primary agricultural
products; and
c) The producer price index of dairy products as raw milk is the major input
for the production of dairy products and as the demand for dairy
products determines the demand for raw milk.
57. Regarding the movement of the prices of agricultural inputs, the following is relevant:
a) Raw milk is produced through different production regimes. At the one
extreme is a regime consisting of the feeding of total mixed rations (TMR
production), with no use of pasture and, the other extreme, production
based only on, or overwhelmingly on, pastures (pasture production);
b) TMR production can rely totally on feed purchased. In such situations the
prices of feed will be relevant and not the price of the inputs required to
produce the feed (such as seed, fertilizer, cultivating and harvesting
equipment). In other words, the position of such producers should be
assessed by taking into account the feed cost and not on the basis of the
inputs required to produce the products which are the components of the
feed;
c) Pasture based production of raw milk requires inputs such as fertilizer and
cultivating equipment which are not directly relevant in respect of TMR
production;
d) In the light of a) to c), it is difficult to generalise about the impact of the
increase of the prices of inputs on raw milk production;
e) The Department of Agriculture, Forestry and Fisheries (DAFF) classify
agricultural inputs as follows:
Machinery and implements
- Tractors
- Lorries
- Implements
- Irrigation equipment
Materials for fixed improvements
- Building materials
- Fencing materials
Intermediate goods and services
- Fertilizer
- Fuel
- Stock feed
- Dips and sprays
- Packing materials
- Maintenance and repairs
60
f) It is important to note that some of the types of inputs mentioned under e)
are also, or even more, relevant to the secondary dairy industry consisting
of producers of processed milk and manufacturers of other dairy products.
For example, the secondary dairy industry is more dependent than the
primary dairy industry on machinery and equipment, fixed improvements,
packing material, fuel and maintenance and repairs.
g) The latest published information of DAFF regarding the price index of
agricultural inputs is in respect of October 2014.
The changes of the price indices of the products and services included in
the “all farm requisites” index, in the year which ended in October 201429),
are as follows:
Machinery and equipment
Tractors 10.3 percent
Trucks 18.6 percent
Implements 5.4 percent
Irrigation equipment 12.2 percent
11.6 percent
Materials for fixed improvements
Building materials 2.4 percent
Fencing materials 5.5 percent
3.6 percent
Intermediary goods and services
Fertilizer 4.3 percent
Fuel 4.2 percent
Stock feed 3.9 percent
Animal health and crop production 7.0 percent
Packing material 6.0 percent
Maintenance and repair 5.8 percent
6.4 percent
All farm requisites
6.8 percent
29) Crops and Markets, Fourth quarter 2014, Volume 95, No 962, of the Department of Agriculture, Forestry and
Fisheries (DAFF).
61
58. An important input for raw milk production is feed and maize and soya are important inputs for
the manufacture of feed for dairy animals.
59. Regarding the impact of feed prices on the volume of raw milk production, the following should
be taken into account:
a) Pasture-based raw milk production can, to some extent, increases or decreases
the use of concentrated feeding depending on the relative prices of the
concentrates and the price of raw milk. Increased prices of concentrates can
result in a reduction in the use of concentrates and, in a short period (a few
weeks), it can result in lower raw milk production. Obviously an increase in the
price of raw milk, relative to the prices of concentrates can, in a short period,
increase the production of raw milk in pasture-based raw milk production
regimes;
b) The cost of feed purchased by total mix rations (TMR) production units,
represents a significantly higher percentage of the total cost of raw milk
production as is the case with pasture-based production regimes;
c) TMR production units can in general not reduce the use of concentrated feeds.
Such production units can react to higher prices of concentrates by removing
less productive cows from the herd and although it can impact positively on
profitability, it will reduce the volume of production;
d) The ingredients of feed can differ meaningfully. For example, the protein
component of the feed can be obtained from different products originating from,
for example, soya, cottonseed, barley, sunflower and peanuts, and products,
such as fishmeal and ureum, can also be used as sources of protein. Different
products can, subject to technical requirements of the nutritional needs of the
animals, be used in combination to achieve the desired nutrition. The relative
price of the different products influence to what extent the different products are
included as ingredients of the feed.
62
60. In Graph 13 the movement of the price of maize from January 2009 to April 2015, is shown
and in Table 14, the future prices of maize are indicated.
Graph 1330)
Table 1431)
FUTURE PRICES OF YELLOW MAIZE IN SOUTH AFRICA (R/TON) ON 25 May 2015
ACCORDING TO SAFEX
CLOSING BID
September 2015
2 424
December 2015
2 463
March 2016
2 446
30) Graph prepared by the Office of SAMPRO based on the spot price on the last trading day of each month of Safex.
31) Table prepared by the Office of SAMPRO based on information as obtained from Safex website on 25 May 2015
63
61. From Graph 13 and Table 14 it is clear that:
a) The price of yellow maize increased substantially from the middle of 2014 to
February 2015, but from February 2015 to April 2015 it decreased.
b) The future prices as indicated in Table 14, increased with 1.6 percent from
September 2015 to December 2015 and decreases with 0.5 percent from
December 2015 to March 2016.
62. The recent price history of soya is indicated in Graph 14 and in Table 15 the future prices of
soya are indicated.
Graph 1432)
32) Graph prepared by the Office of SAMPRO based on the information obtained from the Safex website on 25
May 2015
64
Table 15332)
FUTURE PRICES OF SOYABEANS IN SOUTH AFRICA (R/TON) ON 25 May 2015 ACCORDING
TO SAFEX
CLOSING BID
July 2015
4 635
September 2015
4 700
December 2015
4 795
63. From Graph 14 and Table 15, it is clear that:
a) The prices of soya in the second half of 2014 and the first four months of
2015, are significantly lower than at the end of 2013 and the beginning of
2014;
b) The future prices of soya, as indicated in Table 15, increased with 3.4
percent from July 2015 to December 2015 and it remains below the prices in
2014.
64. From Table 14 and Table 15 it is clear that the future prices in the rest of 2015 of maize and
soya show increases of respectively 1.6 percent and 3.4 percent, which will most likely result
in slight upward pressure in feed prices. Obviously, other factors like the price of electricity
exist, which can result in an increase in the feed prices.
65. The movement of the producer price index of raw milk and the producer price indices of other
primary agricultural products in different periods (last month, last 12 months and last 39
months) are indicated in Table 16, Table 17 and Table 18.
33) Table prepared by the Office of SAMPRO based on information as obtained from Safex website 25 May 2015
65
Table 1634)
INCREASE IN THE PRODUCER PRICE INDICES OF PRIMARY AGRICULTURAL PRODUCTS
IN SOUTH AFRICA FROM MARCH 2015 TO APRIL 2015 (INDEX 2012=100)
Product
Other animal products
Live animals
Milk (raw )
Cereal and other crops
Fruit and Vegetables
Index in
March 2015
Index in
April 2015
Percentage
increase
109.4
99.3
126.3
113.3
114.9
116.2
103.9
127.5
114.4
115.0
6.2
4.6
1.0
1.0
0.1
Table 1734)
INCREASE IN THE PRODUCER PRICE INDICES OF PRIMARY AGRICULTURAL PRODUCTS
IN SOUTH AFRICA IN THE 12 MONTHS UP TO APRIL 2015 (INDEX 2012=100)
Product
Index in
April 2014
Index in
April 2015
Percentage
increase
Live animals
Other animal products
Cereal and other crops
Milk (raw )
Fruit and Vegetables
94.0
107.5
106.7
120.2
116.3
103.9
116.2
114.4
127.5
115.0
10.5
8.1
7.2
6.1
-1.1
Table 1834)
INCREASE IN THE PRODUCER PRICE INDICES OF PRIMARY AGRICULTURAL PRODUCTS
IN SOUTH AFRICA IN THE 39 MONTHS FROM JANUARY 2012 TO APRIL 2015
(INDEX 2012=100)
Product
Index in
January 2012
Index in
April 2015
Percentage
increase
Milk (raw )
Fruit and Vegetables
Cereal and other crops
Other animal products
Live animals
90.6
96.6
99.7
103.9
109.1
127.5
115.0
114.4
116.2
103.9
40.7
19.0
14.7
11.8
-4.8
34) Tables prepared by the Office of SAMPRO based on information published by Statistics SA
66
66.
From Table 16, Table 17 and Table 18, it is clear that :
a) From March 2015 to April 2015, the price of raw milk increased with 1.0
percent and the increase is the third highest of the five primary agricultural
products;
b) In the 12 months which ended in April 2015, the price of raw milk increased
with 6.1 percent and the increase is the fourth highest of the five groups of
primary agricultural products; and
c) In the 39 months which ended in April 2015, the price increase of raw milk of
40.7 percent is by far the highest of the five groups of primary agricultural
products. (The last 39 months is the period in respect of which information of
Statistics SA, with base year 2012, is available.)
67.
In Graph 15 the movements of the average producer price index of all primary agricultural
products and the movements of the producer price indices of specific primary agricultural
products, including the producer price index of raw milk, are indicated.
Graph 1535)
35) Graph prepared by the Office of SAMPRO based on information published by Statistics SA.
67
68.
From Graph 15 it is clear that:
a) The movements of the producer price indices of “fruit and vegetables” and
“live animals” often deviate from the movements of the other indices;
b) The index of raw milk moved at levels lower and higher than the average
index of all primary agricultural products. In respect of most of the months
covered by the period, the index of raw milk was at higher levels than the
average index of all primary agricultural products; and
c) In April 2014 the producer price index of raw milk moved to a level higher
than that of each of the other four primary agricultural products and up to
April 2015 (the date of the latest information) it remained the highest with
the exception in December 2014 when the index for fruit and vegetables
was higher.
69.
Regarding the change in the producer price index of raw milk versus the producer price
index of dairy products, the following:
a) Up to March 2007, the producer price index of raw milk moved close
together with that of dairy products;
b) Since the first quarter of 2007, the producer price index of raw milk is on
higher levels than that of dairy products, but the producer price index of
raw milk is more subject to change than that of dairy products; and
c) The movements of the producer price index of raw milk and that of dairy
products since January 2003 are indicated in Graph 16.
68
Graph 1636)
70.
As indicated in Graph 16, the indices of raw milk and dairy products moved close together
until January 2007 and the gap between the two indices established in 2007, continued
up to now.
71.
The base year of the indices indicated in Graph 16 is 2000. Obviously a base year later
than 2007 will ignore the gap created in 2007.
36) Graph prepared by the Office of SAMPRO based on information published by the Department of Agriculture
and Statistics SA.
69
72.
Statistics SA changed the base year of the producer price indices to 2012. The indices
for raw milk and dairy products, with the base year 2012, which ignores the gap between
the prices concerned created before 2012, is illustrated in Graph 17.
Graph 1737)
73.
The most important observations in respect of Graph 17 are as follows:
a) The producer price index of raw milk is more subject to change than that of
dairy products;
b) In the 39 month-period concerned (January 2012 to April 2015), the producer
price index of raw milk and the producer price index of dairy products, moved
close together.
c) In 23 of the 39 months from January 2012 to April 2015:
- The producer index of raw milk was lower (mostly slightly lower)
than that of dairy products;
- In 16 months it was higher (mostly slightly higher) than the index
for dairy products; and
- In two months the indices of raw milk and dairy products were
the same; and
d) In general, the graph shows a close interaction between the producer price
index of raw milk and that of dairy products. This is indicative of the
effectiveness of the market as envisaged by the Competition Act, and
represents a major achievement by the South African dairy industry to adapt
to the requirement of a market-orientated approach that supply should follow
demand. The availability to role players in the dairy industry of unbiased and
balanced market signals since especially 2008 (which covers key variables
like retail sales, import, export, producer prices and variables regarding
conditions in the international dairy industry) contributed significantly to this
situation and to effective competition as envisaged by the Competition Act.
37) Graph prepared by the Office of SAMPRO based on information published by Statistics SA.
70
74.
The value adding to raw milk in order to create processed milk ready for retail sale and to
manufacture other dairy products ready for retail sale (for example yoghurt, maas, milk
powder, condensed milk or processed cheese) differs significantly.
75.
The value adding to raw milk to create any particular dairy product ready for retail sale,
differs depending on factors like the type of container and the nature of the production
process. For example, in the case of processed milk the cost of a sachet differs from that
of a plastic bottle, the technical specifications and prices of different types (but similar
looking), bottles differ and the cost of pasteurization and UHT treatment and the
associated packaging costs differ.
76.
The value adding to raw milk to create a particular dairy product can and does change
over time. In summary the reasons why the price of raw milk as percentage of the retail
prices of dairy products can change, are as follows:
a) The extent of the value adding in respect of raw milk to create dairy products
ready for sale in the retail can change. For example, new or additional valueadding can include:





Change in packaging to create more product differentiation,
convenience, and/or protect quality;
New products aimed at particular segments or the market;
Improved production technologies, quality control, management and
logistics systems to improve quality and food safety and to meet
increased and amended legal requirements;
More communication with consumers (more sales promotion); and
Higher quality retailing.
In general, the needs of the consumer determine the extent of value adding
captured in dairy products. In the South African dairy market the response of
the dairy industry to the need for higher value adding is clearly visible if the
dairy products on the retail shelves are compared with the dairy products that
were available in the retail a few years ago;
b) The secondary dairy industry is more exposed to increased energy cost
(diesel and electricity) and crude oil-related prices such as the prices of
plastic and multi-layer packaging material, than the primary dairy industry.
The long term upward trend in respect of the prices of electricity and crude
oil-related products are well-known. As a result and due to the importance of
transport costs in the value-adding process, the prices of dairy products can
increase more than that of raw milk; and/or
c) The supply and demand conditions in the raw milk market differ from time to
time. For example:


Lower supply of raw milk may increase the bargaining power of raw
milk producers in the period of low supply and, as a result, the prices
of raw milk can increase faster than that of dairy products; and
Higher supply of raw milk may increase the bargaining power of
producers of processed milk and manufacturers of other dairy
products in the period of high supply and, as a result, the price of raw
milk can perform weak relative to that of dairy products.
71
Similarly the supply and demand conditions in the markets for dairy products
can increase or decrease the bargaining power of milk processors and
manufacturers of dairy products versus the retailers, wholesalers and
industrial buyers and thus the ability of milk processors and manufacturers of
dairy products to influence prices.
The availability of objective and balanced market signals to all parties (buyers
and sellers) is extremely important in respect of the effective working of the
markets and in order to prevent any party to create a picture of market
conditions which is not an objective and balanced picture of the realities, and
which is intended to increase its bargaining power contrary to the realities.
Obviously, excessive bargaining power will be moderated by the fact that too
high prices attracts more competition which will force prices to realistic levels
and too low prices will result in limited supply and that will in turn result in
increased prices. It is also obvious that the market for raw milk and the
markets for dairy products are closely inter-related. For example, short
supply of raw milk will result in short supply of dairy products by South
African milk processors and manufacturers of other dairy products. The
supply of dairy products with a short shelf life (such as pasteurised milk), will
react immediately to a change in the supply of raw milk but in the case of
dairy products with a long shelf life (such as milk powder), the reaction can
be delayed.
72
77. In Table 19 the extent to which raw milk, as percentage of the retail prices of different types
of processed milk, changed in the past, is indicated.
Table 1938)
RAW MILK PRICE AS PERCENTAGE OF THE RETAIL PRICES OF DIFFERENT TYPES OF
PROCESSED FULL CREAM MILK – THE HIGHEST AND LOWEST PERCENTAGES
RECORDED PER YEAR
Year
2007
2008
2009
2010
2011
2012
2013
2014
78.
Pasteurised full
cream milk in 2
litre container
percent
36 to 39
37 to 41
35 to 38
37 to 40
38 to 39
39 to 40
38 to 41
35 to 45
Pasteurised full
cream milk in 1 litre
sachet
percent
40 to 43
42 to 46
39 to 42
41 to 46
43 to 45
46 to 47
46 to 49
35 to 56
UHT full cream
milk in 1 litre
container
percent
29 to 32
32 to 38
29 to 32
29 to 34
30 to 31
31 to 34
33 to 35
33 to 39
The major observations in respect of Table 19 and additional information in respect of
this table, are as follows:
a) The value adding to raw milk in order to create pasteurised milk in
sachets, pasteurised milk in 2 litre containers and UHT in 1 litre
containers, ready for sale in the retail, differs meaningfully. As a result,
the raw milk price as percentage of the retail prices of three different
types of processed milk products, also differs meaningfully;
b) In each of the years concerned and in respect of each of the three
different types of processed milk, the percentages (raw milk price as
percentage of the retail prices of the different types of processed milk)
changed;
c) The percentages (raw milk price as percentage of the retail prices of the
different types of processed milk) recorded in the years 2007 to 2014,
differ. It does not show a clear upward or downward trend but in 2012,
2013 and 2014 the highest percentages are higher than that of most of
the previous five years (2007 to 2011);
38) Table prepared by the Office of SAMPRO. The raw milk price in January 2007 of R1.98 per litre, as published
at that time, was used as basis and the prices after January 2007 were calculated by the Office of SAMPRO
according to the change of the producer price index of raw milk as published by Statistics SA. Retail prices are
as reported by the National Agricultural Marketing Council in respect of the months January, April, July and
October of each of the years concerned.
73
d) Obviously, the above figures and observations are of a very macro
nature and the position of different role players can be very different.
79.
The prices of raw milk in South Africa did not increase in 2013 as sharply as in the major
raw milk producing countries of the world and the prices of raw milk in South Africa in
2014 increased, while the prices of raw milk in major dairy countries decreased sharply in
2014. Also, the prices of dairy products in South Africa did not increase in 2013 sharply
as the prices in the international market and it did not decrease in 2014 as was the case
in the international market.
80.
The basic reason for the phenomenon described in paragraph 79, is that in 2013 and
2014 the prices in South Africa were determined by mainly the South African domestic
supply and domestic demand and the domestic supply followed the domestic closely
enough not to evoke the sharp changes in the price of raw milk as in major dairy
countries of the world. This position is dealt with in more detail in paragraphs 103,104
and 105 of Chapter 4. However, as also explained in Chapter 4 of this report, the South
African dairy industry will be influenced in 2015 by the very low prices of dairy products in
the international market as it encouraged import and discouraged export by South Africa.
81.
In summary, the following are major observations in respect of the South African primary
dairy industry.
a) The mass of raw milk production in 2013 exceeded the total production in
2012 by 2.22 percent;
b) The mass of raw milk production in 2014 was 2.65 percent higher than in
2013;
c) The increase in the production of raw milk from 2013 to 2014 is the result of
the sharp increase in the production from August to December 2014 relative
to the same months of 2013, as production in the first seven months of 2014,
was more or less the same as in the same months of 2013;
d) The speed at which the production of raw milk accelerated in the period from
July 2014 to October 2014 is higher than in the same months of the previous
six years. The high production (relative to the same months of the previous
years), continued and up to April 2015 (which is the latest available
information). From October 2014 to April 2015, it is to an unprecedented high
extent, higher than in the same months of the previous years;
e) The slight upward trend of the future prices of maize and soya and other
factors, can result in upward pressure on feed prices;
74
f) In the year which ended in April 2015 the increase in the producer price index
of raw milk (the index of prices received for raw milk by raw milk producers) is
the fourth highest of the 5 groups of primary agricultural products attended to
in this report;
g) From January 2012 to April 2015 (39 months) the producer price index of raw
milk increased much more than that of the other 4 groups of primary
agricultural products covered by this report;
h) In the year which ended in April 2015, the producer price index of raw milk
increased with 6.1 percent which is lower than the 7.2 percent increase of
dairy products;
i) In the 39 month period January 2012 to April 2015, the producer price index
of raw milk increased with 40.7 percent which is higher than the increase of
36.6 percent of dairy products, but in 23 of the 39 months, the producer price
index of raw milk was lower than that of dairy products;
j) Notwithstanding h) and i) the producer price index of raw milk in April 2015 of
127.5 is virtually the same as the producer index of dairy products in January
2015 which is 125.9. This shows the close interaction between the two
producer price indices;
k) Although the raw milk producer price index in South Africa shows meaningful
changes since the beginning of 2007, it is more stable than the raw milk
prices in economies which intervene in their dairy industries in order to deal
with so-called surplus production (Compare Graph 12 and Graph 16 with
Graph 8 and Graph 9). This is an indication that the South African dairy
industry adjusted to the requirement that supply should follow demand;
l) Within each year the price of raw milk, as percentage of the prices of different
types of processed milk, changes but in the years 2007 to 2014, it does not
show a clear downward or upward trend. However, in 2012, 2013 and 2014
the raw milk price as percentages of the retail prices of three different types of
processed milk, are higher than in most of the previous five years;
m) The price of raw milk in South Africa in 2013 did not increase as much as in
major raw milk producing countries, and in 2014, the prices of raw milk in
South Africa increased while the prices of raw milk in major dairy countries
decreased sharply in especially the second half of 2014. The reason for
these phenomena is that in the years concerned, the prices in South Africa
were mainly determined by the South African domestic supply and demand,
which was more in balance than in major raw milk producing countries of the
world. As indicated in Chapter 4 the 2015 position is different as the very low
prices for dairy products in the international market encourage imports and
discourage export by South Africa;
75
o) Raw milk production is highly dependent on favourable weather conditions.
The weather conditions, which cannot be accurately predicted, can impact
meaningfully on the volume of raw milk production;
p) The future demand for raw milk in South Africa will be determined by the
demand for South African dairy products which is attended to in Chapter 4 of
this report.
76
Chapter 4
THE SOUTH AFRICAN MARKETS FOR DAIRY
PRODUCTS
82.
South Africa is an importer and exporter of each of the six different types of dairy products
and
a) The import and export differs significantly from year to year;
b) The pattern of import and the pattern of export of each type of dairy product
within each year (the distribution per month of the total import and export
during the year), differs from year to year;
c) The performance (quantities and prices of import and export) of the different
dairy products, differs significantly;
d) The performance of a dairy product in respect of import and export
quantities and prices often changes significantly in a short period of time;
e) The changes in the import or export in a particular year can be the result of
events during the current or the previous year in South Africa and/or outside
South Africa; and
f) A particular change in import or export can be the result of one or more very
different factors.
83.
In this report, a general and limited analysis of the South African import and export of dairy
products is presented. In this regard, it should be noted that the detailed analysis conducted
monthly by the Office of SAMPRO, contains more than 100 graphs and tables. This is partly
the result of the fact that in the South African customs tariff provision is made for six different
categories or types of dairy products and in respect of each of the categories, a number of
sub-categories are provided for. For example, in respect of cheese, eight sub-categories
exist.
84.
The export and import of each type of dairy product by South Africa are indicated in the
graphs which are attached as Annexure A. Key observations in respect of the graphs are:
a) In 2008 and 2009, South Africa was, in terms of mass:
*A net exporter of:
- Milk and cream (04.01)
- Concentrated milk (04.02)
- Buttermilk and yoghurt (04.03)
*A net importer of:
- Whey (04.04)
- Butter (04.05)
- Cheese (04.06)
b) In 2010, 2011 and 2012 South Africa was in
terms of mass:
*A net exporter of:
- Milk and cream (04.01)
- Buttermilk and yoghurt (04.03)
77
*A net importer of:
- Concentrated milk (04.02)
- Whey (04.04)
- Butter (04.05)
- Cheese (04.06)
c) In 2013, South Africa was, in terms of mass, just like 2008 and 2009:
*A net exporter of:
- Milk and cream (04.01)
- Concentrated milk (04.02)
- Buttermilk and yoghurt (04.03)
*A net importer of:
- Whey (04.04)
- Butter (04.05)
- Cheese (04.06)
d) In 2014, South Africa was, in terms of mass, just like 2010, 2011 and 2012:
*A net exporter of:
- Milk and cream (04.01)
- Buttermilk and yoghurt (04.03)
*A net importer of:
- Concentrated milk (04.02)
- Whey (04.04)
- Butter (04.05)
- Cheese (04.06)
e) The mass of the total export of dairy products in 2014, is higher than in each of the
previous twelve years (2002 to 2013);
f) The mass of the total import of dairy products in 2014 is higher than in ten of the
previous twelve years (2002 to 2013);
g) The mass of export of four of the six types of dairy products was in 2014 higher than in
each of the previous ten years, namely 2004 to 2013. The mass of import in 2014 of
none of the six types of dairy products was a record high but the mass of import of four
of the six types of dairy products were higher than in 2013;
h) The average export prices in 2014 of five of the six types of dairy products were higher
than in the previous ten years (2002 to 2013);
i) The average import price in 2014 of each of the six types of dairy products was higher
than in the previous ten years (2004 to 2013);
j) The pattern of import and export within each year (the distribution per month of the total
import and export of the year) differs significantly from year to year as described in
Annexure B.
78
85.
The reasons for the change in the import and export, of South Africa should be considered
with caution as the same change in different periods can be the result of very different
factors. In this regard, the following:
a) The change in the import or export in a particular year, can be the result of events in
the previous year in South Africa. For example, high production relative to demand
in South Africa in a particular year, can result in increased export in the next year.
Similarly, low production in a particular year can limit export and increase import in
the next year;
b) The change in the import and export of dairy products by South Africa can also be
the result of events outside South Africa. For example, if the supply in the
international dairy markets outstrips demand, prices in the international market will
reduce and that can result in higher import and lower export by South Africa;
c) Increased export by South Africa can be the result of:
i. Increased competitiveness of South African dairy products which can be the
result of, amongst other, temporary situations outside South Africa such as a
shortage in the international dairy market; or
ii. Production of dairy products in South Africa higher than the South African
demand; or
iii. A combination of i. and ii.
d) Increased import by South Africa can be the result of:
i. Increased competitiveness of imported products which can be the result of,
amongst other, temporary situations outside South Africa, such as oversupply in the international dairy market; or
ii. Production of dairy products in South Africa lower than the demand; or
iii. Increased demand for the dairy products not manufactured in South Africa
such as demineralised whey powder, particular types of cheese and milk
powders of particular specifications; or
iv. A combination of i. to iii.
86.
If the mass of import and export of dairy products by South Africa in the rest of 2015 remains
at the levels recorded in the first 3 months of 2015:
a) South Africa will be, just like in 2010, 2011, 2012 and 2014, in terms of mass:
*A net exporter of:
- Milk and cream (04.01)
- Buttermilk and yoghurt (04.03)
*A net importer of:
- Concentrated milk (04.02)
- Whey (04.04)
- Butter (04.05)
- Cheese (04.05)
79
b) The mass of the total export of dairy products in 2015 will be lower than in 2013
and 2014, but higher than in each of the previous eleven years (2002 to 2012);
c) The mass of the total import of dairy products in 2015 will be by far higher than
in the previous thirteen years (2002 to 2014);
d) The average export prices in 2015 (January to March) of two of the six types of
dairy products are higher than in the previous year;
e) The average import prices in 2015 (January to March) of each of the six types
of dairy products are lower than in the previous year;
87.
The pattern of import and export within each year (the distribution per month of the total
import and export of the year) differs significantly from year to year as described in Annexure
B. As a result, estimates of future import and export, based on historic figures as referred to
in the previous paragraph, should be viewed with caution.
80
88.
The sum of the mass of the import and export of dairy products by South Africa is a highly
aggregated indication of the exposure of the South African dairy industry to foreign
competition and it is indicated in Table 20.
Table 2039)
EXPOSURE OF THE SOUTH AFRICAN DAIRY INDUSTRY TO FOREIGN COMPETITION
YEAR
EXPORT
IMPORT PLUS EXPORT
TON
INDEX
TON
INDEX
TON
INDEX
2011
2012
2013
2014
24 617.40
24 458.80
18 289.50
30 771.40
30 878.60
44 313.00
34 009.40
32 373.40
35 061.20
37 714.40
59 012.55
35 673.76
40 199.03
100.0
99.4
74.3
125.0
125.4
180.0
138.2
131.5
142.4
153.2
239.7
144.9
163.3
34 328.20
22 905.20
23 508.10
17 216.00
26 543.30
18 516.50
42 781.00
41 770.70
33 950.60
41 817.10
52 500.96
70 481.90
71 098.95
100.0
66.7
68.5
50.2
77.3
53.9
124.6
121.7
98.9
121.8
152.9
205.3
207.1
58 945.60
47 364.00
41 797.60
47 987.40
57 421.90
62 829.50
76 790.40
74 144.10
69 011.80
79 531.50
111 513.49
106 155.66
111 297.98
100.0
80.4
70.9
81.4
97.4
106.6
130.3
125.8
117.1
134.9
189.2
180.1
188.8
2015
(Estimate)
72 868.96
296.0
55 818 77
162.6
128 689.74
218.3
2002
2003
2004
2005
2006
2007
2008
2009
2010
89.
IMPORT
From Table 20 it is clear that the exposure to foreign competition of the South African dairy
industry:
a) Was in the years 2008 to 2011 significantly higher than in the previous six years
namely 2002 to 2007;
b) Was in the years 2012, 2013 and 2014 dramatically higher than in the previous
ten years namely 2002 to 2011;
c) Was in 2014, slightly lower than record high of 2012 and the second highest in
the period of 13 years from 2002 to 2014; and
d) Will be, in terms of the estimated import and export in 2015, much higher than in
the previous thirteen years (2002 to 2014).
39) Table prepared by the Office of SAMPRO on the basis of information obtained from SARS
81
90.
It is also clear from Table 20 that:
a) In seven of the thirteen years from 2002 to 2014, South Africa was, in terms of
mass, a net exporter of dairy products;
b) In four of the last six years (2009 to 2014), South Africa was, in terms of mass, a
net exporter of dairy products;
c) In the years 2002 to 2012 the index of the import remained higher than the index
of export but in 2013 and 2014 the index of export was higher than that of import.
91.
The analysis described in Table 20 and paragraphs 89 to 90 is functional, but the following
should be taken into account:
The analysis is of a very aggregated nature because it deals with the six different
types of dairy products as a whole and does not give insight into the situation in
respect of each of the six types of dairy products. The performance of each of the
six types of dairy products in terms of import and export differs meaningfully and
the very aggregated nature of the above analysis, does not expose the very
different performance of the six different types of dairy products in terms of import
and export.
82
92.
In light of the previous paragraph it is also necessary to attend to the performance of South
Africa in respect of import and export of each of the six types of dairy products. The relation
between the mass of import and the mass of export of each of the six different types of dairy
products changes meaningfully from year to year. This is evident from Table 21 in which
the mass of import of each type of dairy product is expressed as a percentage of the mass
of the export of the type of dairy product concerned.
Table 2140)
MASS OF IMPORT AS PERCENTAGE OF THE MASS OF EXPORT OF DAIRY PRODUCTS BY
SOUTH AFRICA
Tariff
Heading
Product
04.01
Milk and
cream
04.02
Concentrated
milk
04.03
Buttermilk
and yoghurt
04.04
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
24.2
39.4
190.4
66.3
51.2
63.7
40.0
54.3
14.7
21.4
91.1
350.7
206.8
339.7
51.1
68.5
146.8
109.0
199.3
46.5
117.3
266.7
56.9
31.4
41.3
11.7
24.2
30.5
23.1
16.6
8.2
9.2
17.8
Whey
5 892.2
321.2
460.8
228.6
162.5
191.0
752.1
669.5
452.7
507.4
320.9
04.05
Butter
321.5
407.6
378.5
179.7
244.4
149.1
317.8
591.1
266.7
111.4
367.4
04.06
Cheese
354.5
306.9
552.7
302.4
301.2
303.9
293.2
536.5
286.6
281.2
442.1
116.3
239.3
79.5
77.5
103.3
90.2
112.4
50.6
56.5
130.5
TOTAAL
178.7
40) Table prepared by the Office of SAMPRO based on information obtained from SARS.
83
93.
Major observations in respect of the import and export performance of South Africa in the
years, 2005 to 2014, as shown in Table 21, are as follows:
a) In 9 of the 10 years (2005 to 2014), South Africa was a net exporter of Milk and cream
(04.01);
b) In 3 of the 10 years (2005 to 2014), South Africa was a net exporter of Concentrated
milk (04.02);
c) In each of the 10 years (2005 to 2014), South Africa was a net exporter of Buttermilk and
Yoghurt (04.03);
d) In each of the 10 years (2005 to 2014) South Africa was a net importer of Whey (04.04),
Butter (04.05) and Cheese (04.06);
e) The import as percent of export in 2014, relative to the previous nine years, is in respect
of
-
Milk and cream (04.01), the second lowest;
Concentrated milk (04.02), the fifth lowest;
Buttermilk and yoghurt (04.03), the second lowest;
Whey (04.04), the seventh lowest;
Butter (04.05), the lowest; and
Cheese (04.06), the lowest.
94.
In light of Table 21 and paragraph 93, the obvious conclusion is that South Africa’s
international competitiveness in respect of Milk and cream (04.01) and Buttermilk and
Yoghurt (04.03) is typically higher than in respect of the other four types of dairy products.
95.
Regarding the international competitiveness of South Africa in respect of Milk and cream
(04.01), it should be noted that the export consists overwhelmingly of the export of UHT milk.
96.
Regarding the international competitiveness of South Africa in respect of Buttermilk and
Yoghurt (04.03), it should be mentioned that the export of South Africa consists mainly of
yoghurt. In other words, the competitiveness of South Africa in respect of Buttermilk and
Yoghurt is the result of South Africa’s competitiveness in respect of yoghurt.
97.
The average free on board (f.o.b.) prices of the imports and exports of the different types of
dairy products by South Africa in 2014 and 2015 (January to March) are indicated in Table
21. It should be emphasized that:
a) The prices indicated in Table 21 are the average prices and that meaningful
quantities of each of the different types of dairy products are imported and exported
at prices which are significantly lower and higher than the average prices; and
b) Within each type of dairy products, such as concentrated milk or cheese, products of
different specifications, of which the typical production cost and price differ
meaningfully, are imported and exported.
84
Table 2241)
AVERAGE IMPORT AND EXPORT PRICES (F.O.B.) OF THE DIFFERENT TYPES DAIRY
PRODUCTS BY SOUTH AFRICA IN 2014 AND 2015 (JANUARY TO MARCH)
PRODUCT
Import Price (f.o.b)
R/kg
Export Price
(f.o.b.)
R/kg
2014
2015
Jan-Mar
2014
2015
Jan-Mar
(04.01) Milk and Cream
8.50
8.25
9.45
10.51
(04.02) Concentrated Milk
42.63
30.52
30.05
35.83
(04.03) Buttermilk and Yoghurt
42.09
31.50
19.97
19.50
(04.04) Whey
34.82
31.94
14.85
11.96
(04.05) Butter and Oils
48.14
35.05
40.37
31.44
(04.06) Cheese
61.70
51.23
46.11
43.60
98. From Table 22 it is clear that the average import price (f.o.b.) of each of the six types of dairy
products decreased from 2014 to 2015 (January to March) whilst in the case of export, the
prices of four of the six types of dairy products, decreased.
99. As stated in paragraph 97, the average import and export prices should be assessed taking
into account that within each group or type of dairy product, products of different specifications,
production costs and prices are classified and that the prices of the different countries, who are
exporting to South Africa, also differ. For example:
a) The bulk of the whey powder that is imported, is demineralised which is not
manufactured in South Africa and which is inherently much more expensive
than ordinary whey powder which is manufactured in South Africa. As a
result the export price of whey indicated in Table 22 is much lower than the
import price;
b) The average f.o.b import price of processed cheese in 2014 was R53.94 per
kg but the import price from New Zealand, from which 45.1 percent of the
total import originates, was R49.97 per kg which is 7.3 percent lower;
c) The average f.o.b. import price of gouda cheese in 2014 is R65.32 per kg but
the import price from Germany, from which 53.0 percent of the total import
originates, is R48.54 per kg which is 25.6 percent lower;
41) Table prepared by the Office of SAMPRO based on information obtained from SARS. F.o.b. means free
on board.
85
d) The average f.o.b. import price of cheddar cheese in 2014 is R51.46 per kg but
the import price from Britain, from which 62.5 percent of the total import
originates, is R50.10 per kg which is 2.6 percent lower;
e) The average f.o.b. import price of full cream milk powder in 2014 is R45.75 per
kg but the import price from New Zealand, from which 30.16 percent of the
total import originates, is R43.37 per kg which is 5.2 percent lower;
f) The average f.o.b. import price of butter in 2014 is R48.03 per kg but the
import price from New Zealand, from which 58.9 percent of the total import
originates, is R35.87 per kg which is 25.3 percent lower.
100.
The prices of imported dairy products are relevant in respect of the calculation of the socalled import parity price of raw milk (that is the price of raw milk in South Africa deduced
from the landed cost of imported dairy products). In this regard it should be emphasized
that statements which carry the message that the so-called “import parity price of raw milk”
is an unqualified single figure, are totally misleading as a market signal as:
a) The prices of different dairy products differ significantly as indicated in paragraph
97 and Table 22. As a result, the import parity prices deduced from the prices of
different dairy products will differ significantly. An import parity price for raw milk
calculated on, for example, an appropriate combination of skimmed milk powder
and butter (which is often put up as the import parity price), will be meaningless for
manufacturers of, for example, cheese or UHT milk as such manufacturers
experience competition from imported cheese or imported UHT milk and not from a
product consisting of an appropriate combination of skimmed milk powder and
butter;
b) Import duties should be taken into account in the calculation of the import parity
prices of raw milk. For example, although cheese is subject to import duties,
meaningful quantities can be imported from the EU without payment of duties.
Therefore, a statement regarding import parity based on the price of a particular
dairy product, should indicate whether it is with or without payment of the import
duty;
c) Transport cost in South Africa forms part of the import parity calculation. As a
result, the import parity price of raw milk, deduced from the import price of a
particular dairy product, will be in the interior of South Africa higher than in coastal
regions of South Africa;
d) Calculations of the import parity price of raw milk, on the basis of the average
import price of a particular product, can be misleading as the average import price
is often not an indication of the actual competition experienced by the South African
manufacturers of the particular dairy product. Normally, the import price of the
major supplying country for a particular dairy product, which is typical of the main
competition for the South African dairy industry, is, as shown in paragraph 99,
lower than the average;
86
e) Calculations of the import parity price of raw milk, without stating the foreign price
on which the calculation is based, is meaningless. The use of only so-called world
prices, as published in different publications as basis, is not useful as the actual
South African import prices (the average prices of total import and the average
prices of the main supplying country) differ normally substantially from the so-called
world prices.
101. Statistics regarding the production in South Africa of the six different types of dairy products
are not available. However, the purchases of raw milk, as dealt with in Chapter 3, is an
indication of the total production of dairy products in South Africa.
102. On the basis of the raw milk purchases in South Africa, it must be concluded that the
production of dairy products in South Africa:
a) Accelerated in the period July 2014 to October 2014 much quicker than the normal
seasonal increase in previous years;
b) Was in the seven month period October 2014 to April 2015 (the latest month in respect
of which information is available), to an unprecedented high extent, higher than in the
previous years.
103. The prices of dairy products in South Africa in 2013 did not increase sharply as in the
international market and the prices of raw milk in South Africa also did not increase sharply
as in most major raw milk producing countries of the world. Regarding the reason for this
phenomenon, the following:
In a country like South Africa, of which the import and export of dairy products
represent a relatively small percentage of the total production of dairy products, the
domestic prices are for meaningful periods determined by domestic supply and
domestic demand and not by the prices in the international market. The domestic
supply in South Africa in 2013 followed domestic demand closely. This is contrary to
the position in the international market for dairy products and the position in respect of
raw milk in many of the major dairy countries of the world, in respect of which the
supply fell short of the demand, due to unfavourable weather conditions in the first half
of 2013, which restricted supply. As a result, the prices of dairy products and raw milk
in South Africa did not increase in 2013 to the same extent as the prices for dairy
products in the international market and raw milk in many of the major raw milk
producing countries of the world.
It should also be noted that during the temporary periods in which the prices in the
international market are very high due to temporary shortages in the international
market, South African milk processors and manufacturers of dairy products:
a) Will not sacrifice their normal sales in the South African market by exporting
products required by the South African consumers and industrial buyers simply
because the normal position is that they depend on the South African market for
the bulk of their sales and in order to maintain their reputation in South Africa as
reliable suppliers to the South African consumers and industrial buyers; and
87
b) Will not be able to justify expansion of their production facilities and the
temporary procurement of higher volumes of raw milk in order to export much
more during the temporary periods of very high prices on the international
market. Simply said, temporary periods of very high prices on the international
market, amidst fairly balanced domestic supply and domestic demand in South
Africa, will not increase export from South Africa to such an extent that it will
push prices in South Africa to drastically higher levels.
104. The prices of dairy products and raw milk in South Africa in 2014, increased in
contrast with the sharp reduction in the prices of dairy products in the international
market which resulted in sharp reductions in the prices of raw milk in the major dairy
countries of the world. Normally, very low prices for dairy products in the international
market will result in increased import by South Africa which forces the prices of South
African dairy products and raw milk to lower levels. In 2014 the total mass of imports
increased relative to 2013 but not relative to 2012. Also, the import of none of the six
types of dairy products in 2014 reached a record high. The conclusion is that the
sharp reduction in the prices of dairy products in the international market in 2014, did
not result in increased import and reduction in the prices of South African dairy
products and raw milk.
105. The factors contributing to the situation described in the previous paragraph include:
a) The deteriorating economic growth prospect of South Africa during 2014 which
created concerns about growth in consumer spending and thus about the
demand for dairy products in South Africa;
b) The danger of weakening of the value of the Rand and uncertainty regarding it;
c) At the beginning of 2014, the prices of dairy products in the international market
reached record high levels and, notwithstanding the sharp decrease since
February 2014, it took a number of months before the prices reached low
enough levels to make import profitable. In this regard the time lapse between a
decision to import and the actual import and distribution in South Africa is
relevant; and
d) The normal risks of imports in respect of issues such as quality and timely
delivery which created uncertainty about the profitability of imports.
The factors mentioned under a), b), c) and d) collectively, discouraged imports in
2014.
106. The import and export figures of 2015 (January to March) as dealt with in the first
paragraphs of this chapter, show a sharp increase in imports and a reduction in
export. These changes are the result of the very low prices of dairy products in the
international market. The conclusion must be that contrary to 2014, the very low
prices in the international market will influence the South African dairy industry in
2015.
88
107. The producer price index of dairy products (that is the index of the prices for a group of dairy
products received by producers of processed milk and manufacturers of dairy products), in
each of the years 2008 to 2014 and in 2015 (January to April), is indicated in Graph 18.
Graph 1842)
PRODUCER PRICE INDEX OF DAIRY PRODUCTS IN THE YEARS 2008 TO 2015
108. Major observations in respect of Graph 18 are:
a) The changes of the index in most of the years are small. The differences
between the highest and lowest index in each year, are as follows:
2008
2009
2010
2011
2012
2013
2014
6.5 percent
4.1 percent
2.2 percent
4.4 percent
9.4 percent
6.7 percent
11.5 percent
42) Graph prepared by the Office of SAMPRO based on information as published by Statistics SA with 2000 as base year.
89
b) A seasonal pattern in the price movements is visible in respect of 2008,
2010 and 2012 with an increase in the first half of the year and a slight
decrease in the second half. This seasonal pattern should be expected
due to the seasonal nature of the production of raw milk and, as a result,
the seasonal pattern of the production of dairy products;
c) In the years, 2009, 2011, 2013 and 2014 in which raw milk prices did not
show the normal seasonal decline in the second half of the year (see
Graph 12), the prices of dairy products also did not show the normal and
slight seasonal decline in the second half of the year; and
d) The increase in the index in the first eight months of 2014 was higher in
the first eight months of the other years, namely 2008, 2009, 2010, 2011,
2012 and 2013.
90
109. In the next three tables the increase of the producer price index of dairy products in different
periods is compared with that of other manufactured food products.
Table 2342)
INCREASE IN THE PRODUCER PRICE INDICES OF MANUFACTURED FOOD FROM MARCH
2015 TO APRIL 2015
Product
Index in
March 2015
Index in
April 2015
Percentage
increase
Dairy products
Grain mill products
Other food products
Oils and fats
Starches, starch products and animal feed
Bakery products
Fruits and vegetable products
Sugar
Meat and meat products
123.9
113.2
111.1
107.7
118.7
124.9
112.9
106.8
125.7
125.9
114.9
111.8
108.3
119.1
125.2
113.0
106.9
125.6
1.6
1.5
0.6
0.6
0.3
0.2
0.1
0.1
-0.1
Table 2442)
INCREASE IN THE PRODUCER PRICE INDICES OF MANUFACTURED FOOD IN THE 12
MONTHS TO APRIL 2015
Product
Index in
April 2014
Index in
April 2015
Percentage
increase
Meat and meat products
Dairy products
Other food products
Bakery products
Sugar
Fruits and vegetable products
Starches, starch products and animal feed
Grain mill products
Oils and fats
115.1
117.4
104.5
118.2
104.1
111.0
117.5
114.8
111.6
125.6
125.9
111.8
125.2
106.9
113.0
119.1
114.9
108.3
9.1
7.2
7.0
5.9
2.7
1.8
1.4
0.1
-3.0
Table 2542)
INCREASE IN THE PRODUCER PRICE INDICES OF MANUFACTURED FOOD IN THE 39
MONTHS FROM JANUARY 2012 TO APRIL 2015
4),
Product
Index in
January 2012
Index in
April 2015
Percentage
increase
Dairy products
Bakery products
Starches, starch products and animal feed
Meat and meat products
Fruits and vegetable products
Grain mill products
Oils and fats
Other food products
Sugar
92.2
98.2
93.7
101.3
96.2
98.0
92.8
99.6
97.4
125.9
125.2
119.1
125.6
113.0
114.9
108.3
111.8
106.9
36.6
27.5
27.1
24.0
17.5
17.2
16.7
12.2
9.8
42) Tables prepared by the Office of SAMPRO based on information of Statistics South Africa with 2012 as the base year
91
110. The producer price index of dairy products is compared in Graph 19 with the average
producer price indices of other food products and the products of the manufacturing sector as
a whole.
Graph 1943)
PRODUCER PRICE INDICES OF DAIRY PRODUCTS, FOOD PRODUCTS AND ALL SOUTH
AFRICAN PRODUCTS UP TO APRIL 2015
111. The following are important observations and comments in respect of Graph 19:
a) The producer price index of dairy products moved similarly to the average producer
price index of manufactured food products;
b) Food products experienced significantly higher price increases than the
manufacturing sector as a whole. However, from the third quarter of 2008 food
prices showed a gradual downward trend which lasted until the third quarter of 2010
when it started to move upward. The net result is that the production price index of
food remained significantly above that of manufactured goods.
112. As illustrated in Graph 16, the producer price index of raw milk and the producer price index
of dairy products with base year 2000, moved close together from 2000 to 2006 but, in 2007,
the producer price index of raw milk moved to significantly higher levels than the producer
price index of dairy products. With base year 2012 which ignores events before 2012, the
movements of the producer price index of dairy products and that of raw milk is similar and
closely linked as indicated in Graph 17 and the following Table 26.
43) Graph prepared by the Office of SAMPRO based on information published by Statistics SA.
92
113. The changes in the producer price index of raw milk and that of dairy products are indicated in
Table 26.
TABLE 2644)
INCREASE IN THE PRODUCER PRICE INDICES OF RAW MILK AND DAIRY PRODUCTS
March to April 2015
12 Months (April 2014 – April 2015)
39 Months (January 2012 – April 2015)
Raw milk
Percentage
increase
Dairy Products
Percentage
increase
1.0
6.1
40.7
1.6
7.2
36.6
114. Raw milk is not the only input of the secondary dairy industry (processors of milk and
manufacturers of dairy products) as the inputs include cleaning products, packaging materials
(such as plastic bottles, other containers such as carton containers, containers of multi-layer
materials and crates), energy (electricity, diesel and petrol), transport equipment (for
collection of raw milk and distribution of milk and other dairy products), and equipment for the
manufacturing and packing of dairy products. It should be emphasized, as indicated in
paragraph 56 f), that some of the important inputs for the manufacturers of dairy products
such as energy (diesel, petrol and electricity), cleaning products and capital equipment are
also important inputs of raw milk producers. Increases in the prices of such inputs, are more
harmful to manufacturers of dairy products as their use of such products is higher than that of
raw
milk
producers.
115. The conditions in the South African consumer market are very important market signals for
the dairy industry. Dairy products are also sold to industries, including the catering industry,
that use dairy products such as milk powder, butter, whey powder and cheese, as inputs
mainly for the manufacture of other food products and, to some extent, animal feed, but
limited statistical information on such sales is available.
44) Table prepared by the Office of SAMPRO based on information published by Statistics SA.
93
116.
The trends in respect of retail prices and retail demand (quantity) are good indicators of
consumer demand. The research results of the Nielsen Company are valuable to judge the
performance of dairy products in the retail market and the following should be taken into
consideration:
a) The surveys do not cover all retail outlets in South Africa;
b) The research results show the performance of the retail outlets covered by the surveys
and cannot in an unqualified way be described as the performance of the total South
African consumer market;
c) In respect of UHT milk, flavoured milk, yoghurt, maas and prepacked cheese, the
surveys cover a significantly higher number of different types of retail shops than is the
case in respect of fresh milk, cream, butter, cottage cheese and cream cheese;
d) The surveys include retail outlets which can be regarded as modern and which
increase their market share. This increased in the market share can also be at the
expense of the market shares of outlets outside the surveys. This means that the
growth rate of the sales recorded by the surveys could be higher than the growth rates
of the total market for each of the products concerned;
e) The surveys do not cover non-retail sales of dairy products and non-retail sales
represents a meaningful part of the total sales of dairy products;
f) The surveys cover the sales in the defined retail markets of South African and
imported dairy products;
g) As market signals, it is important not to report on only the change in the quantity (mass
or volume) of sales but also on the change in the average price due to the very
obvious fact that there is significant interaction between the price and the mass of
sales.
117.
Based on survey results of an independent research institution45) the performance of dairy
products in the South African consumer market covered by the surveys, up to March 2015,
can be summarised as follows :
a) On a very general level of analysis, the available information in respect of the last
number of years shows that :
- The performance (quantity of sales and retail price) of the
different dairy products, differs meaningfully;
- The performance of any particular dairy product can change
meaningfully during a period of even as short as a few months;
- Increased prices often impact negatively on the quantities of
sales, and vice versa;
45) The Nielsen Company.
94
b) The consumer demand (quantity of retail sales) of each of the nine dairy products
covered by the survey, was in the year which ended in March 2015 higher than in
the year which ended in March 2014;
c) The retail prices of each of the nine products were in March 2015 higher than in
March 2014.
118.
The changes in the retail sales quantities and retail prices of the nine dairy products covered
by the surveys, are indicated in Table 27.
TABLE 2747)
CHANGES IN THE DEMAND FROM THE YEAR APRIL 2013 TO MARCH 2014 TO THE YEAR
APRIL 2014 TO MARCH 2015 AND CHANGES IN THE RETAIL PRICES FROM MARCH 2014 TO
MARCH 2015
PRODUCT
CHANGE IN
DEMAND
(QUANTITY)
CHANGE IN
RETAIL
PRICES
PERCENT
PERCENT
Fresh Milk
2.9
9.2
Long Life Milk (UHT Milk)
3.8
18.5
Flavoured Milk
0.2
4.2
Yoghurt
2.8
5.1
Maas
4.6
10.0
20.0
7.0
Cream Cheese
1.8
10.8
Butter
2.2
13.3
Cream
8.1
8.5
Pre-packaged Cheese
47) Table prepared by the Office of SAMPRO based on the results of surveys by “The Nielsen Company”. Nonretail sales such as sales to industrial buyers are not part of the surveys.
95
119.
The information regarding changes in retail sales prices and quantities, as indicated
in Table 27, should be interpreted with caution, as:
a) The changes in retail sales quantities, as indicated in Table 27, do not mean that
the quantities continuously changed during the year concerned at the rate
indicated in Table 27; and
b) The changes in the retail sales prices, as indicated in Table 27, do not mean that
the prices continuously changed during the year concerned at the rate indicated
in Table 27.
120.
In light of the previous paragraph, it is important to also attend to the changes in the
retail sales quantities and retail prices of the different dairy products in different periods,
which are indicated in Table 28 and Table 29.
Table 2847)
CHANGES IN THE QUANTITIES OF RETAIL SALES OF CERTAIN DAIRY PRODUCTS
Sales in the
Sales in the
Sales in the
6 months from
April 2014 to
September 2014
6 months from
October 2014 to
March 2015
12 months from
April 2014 to
March 2015
versus the
sales in the
versus the
sales in the
versus the
sales in the
6 months from
April 2013 to
September 2013
Percent
6 months from
October 2013 to
March 2014
Percent
12 months from
April 2013 to
March 2014
Percent
Fresh Milk
1.5
4.4
2.9
UHT milk
0.6
7.1
3.8
-4.3
4.6
0.2
Yoghurt
1.7
3.8
2.8
Maas
6.2
3.3
4.6
31.2
10.8
20.0
Cream cheese
2.8
0.9
1.8
Butter
0.8
3.7
2.2
Cream
5.7
10.3
8.1
Product
Flavoured milk
Pre-packaged cheese
47) Table prepared by the Office of SAMPRO based on the results of surveys by “The Nielsen Company”. Nonretail sales such as sales to industrial buyers, are not part of the surveys.
96
TABLE 2948)
THE AVERAGE RETAIL PRICES OF CERTAIN DAIRY PRODUCTS IN MARCH 2015
COMPARED TO THE AVERAGE RETAIL RICES OF THE PRODUCTS CONCERNED IN
CERTAIN PREVIOUS MONTHS OF 2014 and 2013.
PRODUCT
March 2015
versus
February
2015
(1 month
ago)
March 2015
versus
December
2014
(3 months
ago)
March 2015
versus
September
2014
(6 months
ago)
March 2015
versus
June 2014
(9 months
ago)
March 2015
versus
March
2014
(12 months
ago)
March 2015
versus
September
2013
(18months
ago)
March 2015
versus
April
2013
(24 months
ago)
Percent
Percent
Percent
Percent
Percent
Percent
Percent
FRESH MILK
0.0
1.1
2.1
6.4
9.2
14.7
17.4
UHT MILK
0.7
3.1
5.9
11.3
18.5
22.2
28.0
FLAVOURED
MILK
YOGHURT
-2.3
2.3
2.0
4.7
4.2
8.6
10.8
-1.7
2.5
0.1
2.7
5.1
6.9
10.1
MAAS
-1.3
1.1
2.1
7.3
10.0
13.8
14.1
0.0
3.2
4.3
6.0
7.0
8.8
9.5
-0.1
2.8
6.6
7.3
10.8
16.1
23.8
BUTTER
0.6
4.3
4.0
15.2
13.3
22.3
20.7
CREAM
-2.2
-5.8
-1.4
3.3
8.5
14.1
14.9
PRE-PACKAGED
CHEESE
CREAM CHEESE
121.
Regarding the retail price movements of the nine dairy products concerned:
a) One product, namely cream, recorded reduction in price from
- September 2014 to March 2015;
- December 2014 to March 2015; and
- February 2015 to March 2015
b) Five products recorded price reductions from February 2015 to March
2015;
c) Two products recorded no change in prices from February 2015 to March
2015;
d) Two products recorded increase in price from February 2015 to March
2015
The information mentioned under a) to d) may indicate that the retail prices of dairy
products are subject to downward pressure and if that is true, the phenomenon is of
high importance as it occurred during the seasonal low production period.
48) Table prepared by the Office of SAMPRO based on the results of surveys by “The Nielsen Company”. Nonretail sales such as sales to industrial buyers, are not part of the surveys.
97
122.
In respect of the mass of retail sales of pre-packaged cheese, Nielsen reports an
increase of 20 percent from the year which ended in March 2014, to the year which
ended in March 2015. This increase is, to a large extent, the result of the replacement
of sales of cheese, cut by retailers in smaller blocks, by sales of cheese packed in
factories. This explanation was confirmed by experts in respect of the cheese market.
The following should be noted:
The most important types of cheese manufactured and consumed in
South Africa are cheddar and gouda. Traditionally, these types of cheese
were delivered to retailers in the form of big blocks or wheels. The retailer
cuts the cheese in sizes suitable for sale to consumers. In this process,
the identity of the product (brand name) is lost and the end result is a less
attractive product which lacks standardized size. Increasingly, the cheese
factories cut the cheese in standardized sizes and pack it in ways that
make the product more attractive and useful to the consumer and which
allows for product differentiation and the optimal use of branding. The
sales of factory-packaged cheese replace the sales of cheese cut in
appropriate sizes by retailers.
123.
From time to time statements are made which carry the message that the demand for
dairy products is inelastic which can mean that the quantity of sales does not react to
change in price and/or that change in the income of consumers will not meaningfully
influence the quantity of sales. Such statements should be rejected as the behaviour of
the retail sales of dairy products clearly showed that retail sales quantities of dairy
products react to changes in prices and it is well known that in developing economies
changes in personal income influence the quantity of retail sales of dairy products.
124.
The position, as explained in the previous paragraph, is easy to understand due to the
following:
a) The position of different dairy products (such as fresh milk, yoghurt, maas
and cheese) in the expenditure and consumption patterns of consumers
differs. Also the consumer market consists of different segments in terms of
criteria such as income. For some market segments any particular product
(such as milk) can be a necessity which is used daily but for other (typical
lower income segments), the dairy product concerned can be a “treat” or
“luxury” which is used in lesser quantities or with lower frequency. If the
price of the dairy product concerned increases, some of the consumers in
the last mentioned segment will simply reduce or halt their consumption of
the product and the same will happen if the income of the consumers
concerned decreases;
b) The retail market situation is much more complex than, for example, 20
years ago. Dairy products are not only competing with substitute products,
but also with a host of other products and services which are offered by
different industries to the consumer. For example, in some market
segments, the consumer weigh up the benefits of purchasing dairy products
versus the benefit of buying totally unrelated products and services such as
electricity, transport, cell phone time, lottery tickets or cigarettes.
98
125.
The above analysis, regarding the retail prices and retail sales quantities, should not
create the impression that sales quantities of dairy products are only shaped by prices.
Important factors influencing the quantities of retail sales include :
a) Actions by producers of processed milk and manufacturers of other dairy
products to increasingly meet the needs of different segments of the
consumer market. These actions include product innovation, improved
packaging, more communication with consumers, product differentiation
and more quality control;
b) The increased awareness in the world and in South Africa regarding the
nutritional and health benefits of dairy products. In South Africa, the
Consumer Education Programme of Milk SA, which is managed by
SAMPRO, is contributing significantly, and in credible ways, to this
awareness by award-winning advertisements aimed at consumers and
through communication with health practitioners;
c) The integrity of dairy products in South Africa, in terms of product
composition and food safety, due to the emphasis on the issues by the
producers of processed milk and the manufacturers of other dairy
products. In this regard, the Dairy Standard Agency, which is working
closely with the different relevant institutions in the public sector and
bodies in the private sector, is playing a powerful role to promote the
application of standards which are prerequisites for growth in the demand
for dairy products.
126.
The changes in the retail sales performance of dairy products (changes in the sales
quantities and prices) should be evaluated in the context of the changes in the retail
sales performance of other generally consumed food products. In Table 30 the
changes in the retail sales quantities of nine dairy products are compared to the
changes in the retail sales quantities of:
a) Four starch products, namely maize meal, bread, rice and instant cereals;
b) Three beverages, namely coffee, tea and short life juice; and
c) One fat product, namely margarine.
In Table 31 the changes in the retail sales prices of the nine dairy products are
compared to that of the eight other generally used food products.
99
TABLE 3049)
INCREASES IN THE QUANTITIES OF RETAIL SALES OF CERTAIN DAIRY PRODUCTS
AND OTHER FOOD PRODUCTS
Retail sales quantities in the
12 months from April 2014 to
March 2015
Product
Versus the
Retail sales quantities in the
12 months from April 2013 to
March 2014
Percentage
Ranking
20.0
1
Rice
8.3
2
Cream
8.1
3
Maas
4.6
4
Long Life Milk
3.8
5
Coffee
3.3
6
Fresh Milk
2.9
7
Instant Cereal
2.9
8
Yoghurt
2.8
9
Bread
2.2
10
Butter
2.2
11
Cream Cheese
1.8
12
Margarine
0.6
13
Flavoured Milk
0.2
14
Short Life Juice
-0.4
15
Tea
-1.2
16
Maize Meal
-3.6
17
Pre-Packaged cheese
49) Table prepared by the Office of SAMPRO based on the results of surveys by “The Nielsen Company”.
100
127.
Important observations and conclusions in respect of Table 30 are as follows:
a) Four of the five food products of which the sales quantities increased the
most, are dairy products;
b) Six of the ten food products of which the sales quantities increased the most,
are dairy products;
c) Fourteen of the seventeen food products showed increased retail sales
quantities and nine of the fourteen products are dairy products;
d) Three of the seventeen food products showed reduced retail sales quantities
and none of the products is a dairy product.
TABLE 3150)
CHANGES IN THE RETAIL PRICES OF CERTAIN DAIRY PRODUCTS AND OTHER
FOOD PRODUCTS
Changes in the retail prices
from March 2014
Product
to
March 2015
Percentage
Ranking
UHT MILK
18.5
1
BUTTER
13.3
2
TEA
11.1
3
CREAM CHEESE
10.8
4
MAAS
10.0
5
FRESH MILK
9.2
6
COFFEE
8.7
7
CREAM
8.5
8
SHORT LIFE JUICE
7.4
9
PRE-PACKAGED CHEESE
7.0
10
BREAD
6.5
11
YOGHURT
5.1
12
FLAVOURED MILK
4.2
13
MARGARINE
2.8
14
MAIZE MEAL
2.5
15
INSTANT CEREAL
-0.9
16
RICE
-2.1
17
50) Table prepared by the Office of SAMPRO based on the results of surveys by “The Nielsen Company”
101
128.
Important observations in respect of Table 31 are as follows:
a) Four of the five food products of which the prices increased the most, are
dairy products;
b) Seven of the ten food products of which the prices increased the most, are
dairy products;
c) Fifteen of the seventeen food products showed increased prices and nine of
the fifteen products are dairy products;
d) Two the seventeen food products showed decreased prices and nine of the
products are dairy products.
129.
In light of Table 30 and Table 31 and paragraphs 127 and 128, the conclusion is that,
amidst the difficult conditions in the consumer market, the dairy products concerned
performed well in the consumer market.
130.
In the rest of 2015, the performance of the South African dairy industry will be shaped
by especially the following:
a) The economic growth rate of South Africa as the growth of the demand for
dairy products is dependent on the economic growth rate of South Africa.
The economic growth in South Africa is disappointing and the prospect in
respect of economic growth in South Africa in the immediate future, remains
bleak and uncertain. This situation creates important questions, namely
whether:
- The very good performance of South African dairy products
in the retail market will continue; and whether
- The demand will be sufficient to absorb the supply
(production) of South African dairy products in the second
half of 2015 if the exceptional high production (that is the
production in a month compared to the production in the
same month of the previous year), recorded in the past
seven months, continues in the second half of 2015;
b) Weather conditions as it impacts on the availability and prices of raw milk.
Future weather conditions cannot accurately be predicted;
c) Conditions in the international dairy markets which, as described in Chapter 1,
can be subject to fairly rapid change due to factors which cannot be
accurately predicted. The record low prices in the international dairy market
resulted in higher import and lower export by South Africa in the first quarter
of 2015. It is likely that this trend will continue in the immediate future and the
impact of it on the South African dairy industry will be negative.
131.
In light of the previous paragraph, the rest of 2015 should be approached with great
caution and the variables mentioned in the previous paragraph should be continuously
assessed as it can change rapidly with significant impact on the performance of the
dairy industry in South Africa.
102
132.
A significant share of the dairy products manufactured in South Africa is sold in the
industrial market. The industrial market is especially important in respect of milk powder,
buttermilk powder, whey powder, butter and cheese and the behaviour of this industrial
market differs meaningfully from the behaviour of the consumer markets for the same
products. However, lack of statistical information prevents analysis of the performance
of the different dairy products in the industrial market.
133.
In summary, the following are major observations regarding the South African secondary
dairy industry:
a) The performance of each of the six different types of dairy products in terms of
import and export, and the pattern of import and export of each within each year,
differ meaningfully from year to year;
b) In 2014:
-
The mass of the total export of dairy products was higher than in the previous
twelve years (2002 to 2013);
The mass of total import was higher than in ten of the previous twelve years
(2002 to 2013);
South Africa was in terms of mass, a net exporter of two of the six types of
dairy products;
The mass of export of four of the six types of dairy products was higher than
in the previous ten years and the import of none of the six types of dairy
products was at a record high;
The average export prices of five of the six types of dairy products were
higher than in the previous ten years (2004 to 2013);
The average import price of each of the six types of dairy products was
higher than in the previous ten years (2004 to 2013);
The exposure to foreign competition was the second highest in the thirteen
years (2002 to 2014).
c) In 2015, if the mass and prices of import and export remain on the levels recorded in
the first three months of 2015:
-
South Africa will be in terms of mass, a net exporter of two of the six types of
dairy products and a net importer of four;
The mass of total export will be lower than in 2013 and 2014, but higher than
each of the previous eleven years (2002 to 2012);
The mass of total import will be much higher than in the previous thirteen
years (2002 to 2014);
The average export prices of two of the six types of dairy products will be
higher and the export prices of four will be lower than in 2014;
The average import prices of each of the six types of dairy products will be
lower than in 2014;
The exposure to foreign competition will be higher than in the previous
thirteen years (2002 to 2014).
d) In the last seven months (October 2014 to April 2015), the production of dairy
products was to an unprecedented high extent, higher than in the same months of
previous years;
103
e) In the year which ended in April 2015, the increase in the producer price index of
dairy products was the second highest of the nine manufactured food products while
in the 39 months from January 2012 to April 2015, it is the highest;
f)
In the year which ended in April 2015, the producer price index of dairy products
increased more than that of raw milk. In the 39 months to January 2015, the
producer price index of dairy products increased less than that of raw milk, but in 23
of the 39 months, the producer price index of raw milk was lower than that of dairy
products;
g) From January 2012 to April 2015, the movements of the producer price indices of
dairy products and raw milk are similar and the index of dairy products in April 2015
(with base year 2012) is 125.9 which is close to that for raw milk of being 127.5 in
April 2015;
h) The performance (quantity sold and price) of the different dairy products in the retail
market differs and often changes within a short period;
i)
The key characteristics of the markets for the different dairy products differ;
j)
Changes in the prices of dairy products influence demand (quantities sold);
k) The quantity of retail sales of each of the nine dairy products in the year up to March
2015 was higher than in the previous year and the retail sales prices of each of the
dairy products increased;
l)
The movements of the retail prices of seven of the nine dairy products from February
to March 2015 may indicate downward pressure on the retail prices of dairy
products, and if that is the case, the phenomenon is of high importance as a market
signal, as it occurred during the seasonal low production period;
m) The performance of the South African dairy industry in the rest 2015 will be shaped
by the economic growth rate of South Africa which is disappointingly low, weather
conditions which cannot be accurately predicted and the international dairy market
which at present shows record low prices;
n) Three important questions are:
- Will the very good performance of South African dairy products in the
retail market continues in light of the expected low economic growth;
- Will the demand absorb the supply if the exceptional high production in
South Africa of dairy products continues in the rest of 2015 ?; and
- Will the record high import in the first quarter of 2015 continues in the rest
of 2015 and if so, what will be the impact of it on the South African dairy
industry ?
o) The rest of 2015 should be approached with great caution and the key variables
should continuously be assessed during the rest of 2015 to ensure that supply
follows demand;
104
Alwyn P Kraamwinkel (MCom)
15 JUNE 2015
The following contributions to this report are acknowledged:
De Wet Jonker (B.Econ/BCom Hons) and
Marietjie le Roux (BCom)
Collecting information, compiling of tables and graphs and
assessment of information.
Gerhard Venter (M.Sc Agric Food Science)
Dairy Technical advice.
Yvonne Steyn and Sonja van Jaarsveld
Typing of draft versions of the report and typing of final report
f/word: 2015 SAMPRO KEY MARKET SIGNALS MARCH no2-13Mar
105
Annexure A
South African import and export of dairy products 1)
1)
Graphs prepared by the Office of SAMPRO on the basis of information obtained from SARS. Estimated figures for 2015 based
on the assumption that the levels of import and export quantities and prices recorded in the first quarter of 2015 will continue
in the rest of 2015.
106
107
108
ANNEXURE B
MASS OF IMPORT AND EXPORT PER MONTH OF SELECTED DAIRY
PRODUCTS BY SOUTH AFRICA1)
Graph 1
Table 1
Highest and lowest import month of milk and cream, non-concentrated (04.01) in 2010, 2011, 2012,
2013, 2014 and 2015 (January to March)
Highest
Lowest
2010
June
January
2011
August
February
2012
October
January
2013
June
May
2014
February
July
2015 (Jan – Mar)
March
February
1) Graphs and table prepared by the Office of SAMPRO on the basis of information obtained from SARS.
109
Graph 2
Table 2
Highest and lowest import month of milk and cream, concentrated or sweetened (04.02) in 2010, 2011,
2012, 2013, 2014 and 2015 (January to March)
Highest
Lowest
2010
February
September
2011
August
April
2012
May
February
2013
June
November
2014
October
January
2015 (Jan – Mar)
March
February
110
Graph 3
Table 3
Highest and lowest import month of butter (04.05) in 2010, 2011, 2012, 2013, 2014 and 2015 (January
to March)
Highest
Lowest
2010
December
September
2011
November
January
2012
May
February
2013
June
September
2014
February
March
2015 (Jan – Mar)
February
January
111
Graph 4
Table 4
Highest and lowest import month of cheese (04.06) in 2010, 2011, 2012, 2013, 2014 and 2015 (January
to March)
Highest
Lowest
2010
June
September
2011
September
January
2012
June
January
2013
June
February
2014
September
January
2015 (Jan – Mar)
March
January
112
Graph 5
Table 5
Highest and lowest export month in terms of mass of milk and cream, non-concentrated (04.01) in
2010, 2011, 2012, 2013, 2014 and 2015 (January to March)
Highest
Lowest
2010
September
May
2011
October
July
2012
December
September
2013
October
January
2014
August
January
2015 (Jan – Mar)
February
January
113
Graph 6
Table 6
Highest and lowest export month in terms of mass of milk and cream, concentrated or sweetened
(04.02) in 2010, 2011, 2012, 2013, 2014 and 2015 (January to March)
Highest
Lowest
2010
November
January
2011
December
February
2012
November
February
2013
September
June
2014
September
June
2015 (Jan – Mar)
March
January
114
Graph 7
Table 7
Highest and lowest export month in terms of mass of butter (04.05) in 2010, 2011, 2012, 2013, 2014
and 2015 (January to March)
Highest
Lowest
2010
September
July
2011
November
July
2012
December
January
2013
October
August
2014
May
December
2015 (Jan – Mar)
March
January
115
Graph 8
Table 8
Highest and lowest export month in terms of mass of cheese (04.06) in 2010, 2011, 2012, 2013, 2014
and 2015 (January to March)
Highest
Lowest
2010
October
April
2011
May
July
2012
November
January
2013
December
August
2014
December
February
2015 (Jan – Mar)
March
January
116