NATIONAL ASSEMBLY
WRITTEN REPLY
QUESTION 3364
DATE OF PUBLICATION: FRIDAY 28 OCTOBER 2011 [IQP No 35 -2011] THIRD
SESSION, FOURTH PARLIAMENT
Question 3364 for Written Reply: National Assembly, Ms. D. Carter (COPE)
asked the Minister for Agriculture, Forestry and Fisheries:
Whether any investigations had been undertaken by government to understand
the glaring disparity between the two rand per litre of milk paid to the
dairy farmer the eight rand per litre charged the consumer considering the
rapid demise of dairy farming in South Africa and the increasing need
therefore to import dairy products; if not, why not; if so, what (a) are
the relevant details and (b) the solution to this untenable situation?
REPLY:
The short supply of milk is not only felt in South Africa, but a global
supply problem occasioned by extended droughts experienced in major milk
producing and consuming countries such as Australia, New Zealand and the
United States of America. It must also be noted that the South African
dairy industry is still adjusting to the deregulated marketing environment
that resulted in major structural changes in the industry across the
country. The resultant changes are explained in the observed shifts in
dairy investment patterns across the country with investors (farmers)
relocating to areas that provide them with the comparative advantage in the
production of milk.
Parallel to deregulation, liberalization attracted international dairy
processing companies to our shores. Over the past years, a number of
international companies invested in the dairy industry across the country
and thereby introducing competition in the market that was originally
controlled and protected. The result was that a number of local firms were
bought out by the international firms due to their inability to sustain
competition in an open market. The acquisition of local firms by foreign
firms led to the emergence of regional monopolies/oligopolies that
subsequently dictated producer price of milk to farmers. The latest
observation is that domestic producer prices of milk are lower than the
cost of production leading to farmers leaving the business due to their
inability to cover production costs.
Honourable Member will note that the Department of Agriculture, Forestry &
Fisheries has established a permanent Food Price Monitoring System in
collaboration with the National Agricultural Marketing Council (NAMC). The
system monitors food prices on a quarterly basis and publishes the
information to the public to allow the public and policy makers to
understand the underlying factors driving agricultural commodities and food
prices in South Africa .
Furthermore, the Competition Commission also undertook an investigation
into allegations of anti-competitive behaviour in the dairy value chain.
The investigation focused on alleged vertical and horizontal restrictive
practices including collusion, price fixing, market division and alleged
abuse of dominant positions by some milk processors. It was found out that
milk processors are responsible for the disparity between producer prices
and consumer prices for milk. Some of these processors who were found to
have contravened certain sections of the Competitions Act (Act 89 of 1998)
paid administrative penalties but unfortunately continued with the anti-
competitive practices manifested in high consumers prices and low prices
offered to farmers. In consideration of the above, the Department of
Agriculture, Forestry and Fisheries will undertake the following actions:
⪠Engage the Competition Commission to ensure that imposed penalties
foster behavioural and structural changes on the downstream dairy
industry to ensure competitive prices across the value chain.
⪠The Department will further engage the milk industry pipeline on
alternative cost effective packaging options to reduce the farm to retail
price of milk.
⪠Investigate whether the retail price of milk is always zero-rated as
required by law,
⪠The Department will continue to work with the milk industry pipeline to
develop a dairy industry growth strategy as a measure to get more farmers
to invest in the industry.