The Covid-19 Pandemic has resulted in many catastrophic negatives. However, positives (if you look for them), emerge from nearly every disaster. This article has not been written to minimize the pandemic horrors, but is to emphasize the possible positives for SA and its dairy industry.
The international lockdown procedures have, without a doubt, considerably reduced the spread of the virus and the death rate. However, as tragic as deaths have been, particularly for medical workers and other healthy people, the number of deaths have consistently not been put into perspective. The world has a total population of nearly 8 billion people and the average life span is less than 70 years. The expected world death rate from all causes, is an average of approx. 65 million people per annum. So far in the world the mortality total from Covid-19 as at end April 2020 is just over 200 000, which is 0.81% of the expected world deaths from all causes. In SA the expected number of deaths from all causes is approx. 0.6 million per annum and so far less than 100 people have died of Covid-19 (but it is early days for SA).
The compromise has always been between economic disaster and human lives – while hindsight is easy, it looks now as if the world has erred on the side of medical science at the expense of economics (this is a hard call because if the virus had been left to run its natural course many more people in the world would have, and will, die and this would result a very different economic outcome).
In SA where the lockdown and social distancing has not been practically possible for everyone, it is even more difficult to make an effective decision. In SA with the issue of social distancing not being carried out properly the virus should run rampant. Mitigating circumstances in SA however, might be:
1. The average age of the SA population is less than 30.
2. The BCG vaccine for TB, which has been mandatory for babies since 1973, might be effective against Covid-19.
3. The SA average temperature, despite going into winter, is higher than many of the other badly affective countries.
Therefore with the current state that the SA economy is in (which is worsening daily), maybe the time has come to rethink strategies.
The SA finance minister has ultimately had no option but to approach the IMF for funding, (despite much opposition, particularly from the left, who want funding to come from Russia or China, or for the ANC to merely print more money!). The IMF will impose many rigid and necessary economic conditions on the ANC, not the least of which will be the restructuring of economic policy and the shutting down or privatizing of disastrous parastatals. Moody’s, understandably, downgraded SA to junk status. They have probably done SA a long term favour. The junk status downgrade has resulted in the forced withdrawal of international state and institutional investors and a further weakening of the rand. The current world economic situation has given rise to SA having a relatively higher investment interest rate than many other countries and this will probably attract a spate of international private investors. The rand, therefore is likely to strengthen to at least R16.50 to the US dollar. If you have offshore portfolios I recommend hedge against this. (Note the Rand has already strengthened somewhat but it is not too late to hedge).
There are positives for the SA dairy industry as well. Following this pandemic there is likely to be a world shortage of food. The SA Dairy Industry has good long life products (provided it keeps quality up to scratch) and with a weak rand this should result in many export opportunities arising (despite the rand strengthening somewhat). If these export opportunities materialize, and contracts are drawn up correctly, many will be long term. This will alleviate potential domestic oversupply and dairy farmers should be able to increase the domestic milk price to export parity. With demand power on their side, and with the increase in the production of long life products, farmers must stand together so that they get the secondary industry to adapt (like New Zealand) and allow total seasonal production. This will reduce production costs considerably, increase margins and keep even the smaller farmers on the land. A premium price for their milk can then be demanded from farmers who produce all year round.
Funding through the IMF will force the government to incorporate better financial management. If the dairy farmers stand together and achieve long term export markets, as well as get total seasonal production allowed, the future for them looks extremely promising.