Dairy Farming in South Africa – What does the future hold between now and 2050

Dairy Farming in South Africa – What does the future hold between now and 2050

Predicting the future, particularly as far ahead as 2050, is a daunting task. However, past prediction articles have proved to be relatively accurate. The South African human population is currently estimated to be 57 million – ethnically, in round figures,  80% Black, 9% coloured and 8.5 White, 2% Indian & Asian and 0.5% other. The population is growing at 1.4% per annum compounded. At this rate the population will be ± 89 million by 2050 (this is an average increase of ± 1 million people per annum).

It is interesting to note that in the 1911 census, whites made up 22% of the population, by 1980 this had dropped to 16% and the percentage is now 8.5%. By 2050 the percentage is likely to be less than 5%. Most of the annual population growth is projected to occur in the lower LSM (Living Standard Measurement) groups 1 to 5. (The SA population has been divided into LSM’s 1 to 10).

The world population is currently at 7.6 billion (7 600 million) people and the population of the whole of Africa is 1.2 billion (much the same as India). Population growth models vary significantly in projecting the world population in 2050 (peaking at 8 billion to reaching 10 billion in 2050 and growing to 11 billion by 2100). This is an average world growth of approximately 80 million people per annum.

Malthus, in the 18th century, proclaimed that every population follows a sigmoid growth curve i.e. has a period of slow growth, followed by fast growth, followed again by slow growth, then negative growth and in many instances followed by the demise of the species. The human population is thought to be no exception.

Malthus protagonists, see the human population peaking at 8 billion and then declining as a result of limited resources, aging populations in many parts of the world and the impact of these on fertility. I think the higher population growth figure is more likely – human ingenuity and technological advancement will be a counter to resource decline and other factors affecting population growth. Some simple examples are – desalination of ocean water to combat declining drinking water resources, hydroponic production of food in cities to combat the urbanization of productive agricultural land, genetic manipulation of food species and even possible genetic manipulation of humans themselves. Also resource shortages have in many 3rdworld countries not affected human propagation to any significant extent.  Thus, the human population is likely to increase for many years to come – even interplanetary settlement might be possible in the long term. (When Christopher Columbus discovered the Americas in the 15th century the authorities the said it was too far away for practical settlement - the Americas now house 1 billion people).

Not all areas and Ethnic groups will follow the same trends to 2050. The World’s Caucasian (White) population is on the decline percentage wise and unfortunately in the 3rd world, mainly the poor and uneducated will grow the fastest. Africa’s growth is projected to be the fastest of all and the population of Africa is set to double to 2.5 billion by 2050.

The only occurrences that would have a drastic effect on populations would be a large meteorite strike (which eliminated the dinosaurs 60 million years ago) or large scale nuclear war. The explosions themselves and the nuclear fallout would eliminate large numbers of people and the impact of the nuclear winters following such explosions, would prevent any further production of food for many months, or years to come. As there is only approximately one month’s food stored on earth for humans at any one time, large numbers of people if not the entire world’s population will starve to death.

You may ask what these population figures have to do with milk – obviously demand and consumption are positively correlated to population growth and declining resources will impact on the dairy cow and milk production systems.

World milk production is currently 494 billion liters/annum. South Africa produces and consumes just over 3.1 billion litres (0.63 % of the world’s milk). The top five producing nations are:- USA 92 billion litres, India 61 billion litres (the average herd size in India is only 3 cows and they milk water buffalo as well), China 36 billion litres, Brazil 35 and Germany 31.

The per capita consumption of milk per annum in SA is 54 litres – this is very low because of difficulties in distribution and the inequality between the rich and the poor (Gini factor). Many consumers in first world countries drink more than 300 litres of milk per person per annum (p.p.p.a) and the highest consumers are in Finland and Sweden – more than 350 litres of milk p.p.p.a. Figures are not readily available re the production and consumption in Sub Saharan Africa – total production is estimated at 4.5 billion litres and consumption 6 billion, with the difference currently being imported. This market with its huge projected population increase has enormous potential.

There are now less than 1650 milk producers left in SA (in 2006 there were 4600). Dairy cow numbers (±650 000) have stayed much the same, but the production per cow and per farm has increased considerably. Despite this increase, the average production per farm, is still less than 2 million litres and the average production per cow is 4750 litres p.a. with 7% total solids. More than 80% of SA’s milk is produced by the Eastern Cape, KZN and Western Province. Over the next 5 years the number of producers is likely to decline further (possibly to less than 1000 dairy farmers) with the Eastern Cape and KZN (the so called Eastern Seaboard) producing most of the milk. There is currently a shortage of milk in SA due mainly to the very bad drought in the Western Province. The Eastern Cape also suffered a bad drought over 2016/2017 and have not yet fully recovered. Parts of KZN and OFS are currently hot and dry.

However, many Eastern Cape and KZN farmers are now producing more than 6 million litres p.a. and some are producing more than 12 million litres p.a. ( the fewer bigger producers are more efficient). It is likely that production growth will outstrip consumption. Consumption was growing at ±3% per annum, but now with the economic down turn, has turned negative. Therefore, it will be critically necessary, particularly over the next 10 years, to create a sustainable export market into Africa, despite the difficulties of distribution and payment.

Dairy farmers in SA have become residual price takers for their milk mainly because of their own stupidity. 30 years ago farmers owned the secondary industry (processing and distribution) entirely, through Co-Ops and PD’s (Producer Distributors). SA dairy farmers then fell for the proposal that big distribution companies would be more efficient and these companies were formed, initially with farmer majority shareholding. Most farmers were seduced into selling their shares back to the companies or to outside investors. I have repeatedly said that every cent made on the share sales will be ultimately lost by receiving poor and depressed milk prices (other than the dubious money made by some farmers on preferential share sales, based on allegedly, inside information obtained in one large SA company). SA dairy farmers, because of a balancing domestic market, (production equals consumption and the small amount of imports roughly balance with exports) should be getting import parity price for their milk. (Import parity is the milk price that processors and distributors would have to pay for imported milk if there was no domestic production). Import parity is currently R6/litre and the average price received by SA farmers is R4.80/litre. (Below is the import parity/domestic milk price comparative graph for the last 7 years, which shows the SA domestic price mostly less than the import parity price)

Producer and import parity prices

A growth in domestic consumption will obviously assist in absorbing extra production – many attempts have been made in the past to address this problem e.g. by nationally suppling schools with milk etc., but distribution, theft and payment difficulties have always prevailed. The increasing population will help to an extent in this respect, but most of the population growth is projected to be in the rural and poverty stricken areas, where per capita consumption is likely to be low.

If a sustainable export market is not established and domestic consumption is not substantially increased, milk production in SA will ultimately be controlled by fluctuating and depressed prices to the farmer.

It will be highly preferable and beneficial, if farmers themselves form a collective entity and export their extra milk into Africa – in this way they can become milk price makers i.e. they would obtain export parity price for their milk exported (this price should be close to import parity) and will be able to lever up the domestic milk price by threatening to export more milk, thus creating a domestic shortage. With a weak rand, domestic distributors will be forced to pay more if they refuse to pay the extra domestic price and resort to additional imports.

The rand, despite a recent resurgence, is likely to weaken further in the future. Better political governance will slow down this decline.

Currency strength is mainly determined by:-

a)     the difference in inflation rates between trading partners (SA inflation is relatively high),

b)     political activities within SA

c)      International Economic Ratings (SA is currently one notch above junk status).

All of these factors are unlikely to improve in SA, however, if Ramaposa takes over the presidency in before the next elections, things might be more positive.

With the tragic demise of Dairy Day, farmers are unlikely to invest in their own exporting entity , however, and will therefore have to rely on the export market being developed by current distributors, retailers like Checkers or an international exporting entity like Fonterra. These organizations are only likely to pay the farmer the depressed domestic price for milk and they will pocket the difference between the export parity and domestic market price themselves. Farmer prices are thus likely to remain depressed and the opportunity for farmers to become price makers will be lost.

There has been relatively little political interference and BEE enforcement up to now in the dairy farming sector. This is unlikely to last as land ownership in SA is an emotive issue. If violence and farm invasions are to be avoided, BEE partners will probably have to be incorporated into the declining number of white dairy farming businesses with little or no compensation. This could have a dramatic impact on land values, entity equity and profitability. Dairy farming businesses with high debt ratios, cash flow difficulties and poor profitability will not survive.

In the long run as land is finite and the human population is expanding exponentially, the domestic animal species that are likely to survive and even thrive, are the species that can effectively convert products that humans cannot eat into nutritional products that humans can eat. Commercial species that compete directly with humans for declining resources will die out. The ruminant dairy cow is capable of converting inedible grass and fodder crops into highly nutritious milk and milk products. They will be able to use pastures and fodder crops grown on heavy soils – most of the maize currently produced for silage will be consumed by humans for grain and irrigated flattish lands with good soils currently growing grass, will be converted to produce consumable “Cash Crops”. This does not mean that dairy farmers will be eliminated but will convert to being “mixed” farmers carrying out their dairy farming on difficult soils and slopes that are not suitable for the production of crops for human consumption. Grain byproducts not consumable by humans will supplement these cows and the lower producing high solids crossbred cow is likely to be more sought after.

High dry-matter yielding pasture over sown with suitable legumes and fodder crops will become a high percentage input roughage for the dairy cow. In SA it would make sense to use Kikuyu which is an African grass, adapted to African conditions, as the base pasture. Most people are unaware that fifty different varieties of Kikuyu have been identified and collected from Kenya down to South Africa. 30 of these varieties are currently growing in overgrown experimental plots at Cedara. To my knowledge only 2 varieties of Kikuyu have been grown commercially in SA. Obviously the correct Kikuyu varieties, best suited to heavy soils and steep slopes, need to be identified and propagated.

Kikuyu as a base pasture currently provides many nutritional and economic advantages and as we are forced to reconsider current production practices because of resource restrictions (particularly water) and human competition, it is highly likely that different varieties of Kikuyu will be utilized more and more.

Advantages of over sown Kikuyu are:

1)     Kikuyu over sow has the potential to produce very high dry matter yields.

2)     It utilizes water much better than any other pasture species because of its deep rooting and “matting” capabilities and has a much lower water requirement per kg of DM produced. (Requires up to 30% less water for the same DM production).

3)     Kikuyu improves organic carbon levels in the soil.

4)     As a result of this it is a more efficient nitrogen utilizer.

5)     It has better grazing and trampling tolerance than most other species.

6)     It provides better soil stability and results in far less erosion.

7)     It produces more total milk per hectare.

Disadvantages are:-

1)     Difficulty of getting a good ‘take’ or germination at time of over sow (particularly with small shallow rooting seeds)

2)     It has a bigger seasonal variation in production – it produces less late autumn and winter DM and produces more spring and summer DM particularly in the cold and frosty areas.

3)     Kikuyu on its own has a high fiber and lower effective energy content, particularly in autumn. However, over sown with legumes and other winter production species it analyses out as well as perennial rye grass on its own. Choosing the correct over sow species and preparing the seed bed at time of over  sow properly, is critically important.  

Kikuyu has the added advantage that if water supply is shut off or if drought conditions prevail it still yields as well as a good dryland pasture, i.e. as already stated, it tolerates drought and heat extremely well.

Kikuyu over sow has currently fallen out of vogue, but in the long term it has a great future role to play in the SA dairy production scenario – anybody dismissing Kikuyu as a future production species is either unwise or badly misinformed.

CONCLUSIONS

1)     Population explosion is set to continue to exponentially explode (particularly in Africa) for some time yet.

2)     Sub Saharan Africa, with its burgeoning population will become the fasted growing food market in the world, and the potential for the exportation of milk and milk products from SA is considerable.

3)     Over the next five years the number of SA Dairy farmers will probably decline to less than 1000 and the production from these farms, due to better efficiency and know how,  will more than likely grow much faster than domestic consumption. A sustainable export market into Africa will therefore be essential.

4)     SA Dairy farmers need to convert from being milk price takers into being milk price makers. By forming a farmer controlled entity for exports, this can be achieved. This however, is unlikely to happen.

5)     Political interference into white owned dairy farms is likely to increase, and farmers are likely be pressured to take on BEE partners with little or no compensation. The impact of this on land prices and milk profitability will be considerable.

6)     The dairy cow in the long term, because it can convert (with an acceptable conversion ratio) what humans can’t eat into highly nutritious product that humans can eat, will survive and be sought after. This will mean, however, that milk will have to be produced off heavy soils and significant slopes. Water will probably be the first limiting resource and because Kikuyu can tolerate hot and dry conditions and can be grown on heavy soils and steep slopes, it will become the base over sow pasture for perennial rye, legumes and fodder crops like chicory and roots etc.

7)     In SA new taxation strategies will be steadily introduced and dairy cows may even suffer a carbon emission (belch and fart) tax.

If SA dairy farmers can handle the challenges ahead and can adapt accordingly, their product will be hugely sought after and they will do very well financially. I am also sure that the fewer, large dairy farmers, will not allow themselves to be manipulated by the secondary and tertiary sectors, nearly as much as they are now.

Derek Broom
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