JOHANNESBURG – The price of milk is set to increase in May as dairy farmers were currently facing production shortages that would likely run into supply issues in the coming months, an economist said on Tuesday.
Paul Makube, senior agricultural economist at FNB, in a statement said as consumers continued to grapple with high food prices triggered by the recent drought and the ailing economy, milk would soon be added to their list of costly staple foods.
The price of milk is determined by demand and supply from the market.
However, Makube said because dairy farmers were price takers, they did not set the market price.
Instead, he said when there were supply issues, milk processors often increased the price paid to dairy farmers to guarantee supply as they catered for the domestic and export markets.
“Consequently, some dairy processors are already paying commercial farmers 60 cents more per litre on average for milk to ensure consistent supply in winter. Poor pasture conditions due to the drought and the sharply higher grain prices have squeezed margins at farm level and the increase should help improve the situation,” Makube said.
He said that the price was expected to further increase in May and would hike operating costs for the entire milk value chain, leaving retailers with no choice but to increase the price that consumers paid for milk and dairy products.
“The challenge we are currently facing is that most dairy farmers are still recovering from the impact of the drought and will not be able to produce enough milk in the short-term,” Makube said.
Dairy products play an important role in the diet of consumers.
Makube said an increase in the price of milk would put more pressure on the already stretched disposable income, pressurising them to spend wisely and cut back on luxuries.