South Africa’s dairy industry is facing renewed pressure as rising input costs and lower milk procurement prices threaten the viability of local farms. Industry representatives warn that further closures could eventually affect domestic supply and leave consumers paying more for milk and dairy products.
André van Heerden, chief executive of dairy cooperative Samilco, said farmers were struggling after Lactalis, one of the country’s major milk buyers, cut the price paid to producers by 70 cents per litre. The reduction amounts to approximately 10%, placing additional pressure on producers already dealing with higher fuel, electricity and operating expenses.
The concern is not limited to farmers’ immediate income. If dairy operations become financially unsustainable and more producers leave the sector, South Africa could become increasingly reliant on imported products to meet demand. Importing milk and dairy goods involves shipping, import-related expenses and domestic transport, which could add to costs further along the supply chain.
Rising costs leave farmers with limited room to manoeuvre
Samilco represents producers operating mainly across the Southern Cape, from Caledon to George. Many are small- and medium-sized farmers who also run other agricultural businesses to support their income.
Van Heerden said a growing number of producers were struggling to make dairy farming profitable. A reduction of 70 cents per litre is particularly difficult to absorb when expenses for diesel, electricity and other essential inputs are already rising.
Farmers also have limited influence over the prices they receive. Although producers communicate and negotiate through committees, Van Heerden said their position remains weaker than that of large milk buyers and processors.
He believes greater transparency is needed across the dairy supply chain. Farmers can provide information about their own production expenses, but they do not necessarily have access to comparable details about processors’ and retailers’ costs or profitability. Better access to such information, he argued, could help explain how prices are set and how financial pressure is distributed across the industry.
Van Heerden also questioned whether lower farm-gate prices intended to address a milk surplus would lead to lower prices for shoppers. If producers accept a significant reduction to help move excess supply, he said, consumers should ideally see some benefit at retail level.
Export difficulties add to domestic market pressure
South Africa’s milk surplus has also been affected by challenges in overseas markets. According to Van Heerden, producers have lost some export contracts in the Middle East, particularly in Saudi Arabia. The loss of these outlets has added pressure to the domestic market, where more supply must be absorbed.
Cost-cutting and efficiency improvements have already reshaped the sector. Van Heerden said the number of dairy parlours in South Africa had fallen from more than 200 to about 144. He warned that additional reductions in the prices paid to farmers could prompt further exits, particularly in the Southern Cape.
Some producers are effectively relying on income from other farming activities to sustain their dairy operations because milk production alone is no longer sufficiently profitable. If this situation continues, more farms could decide to close or shift their resources elsewhere.
The impact on retail prices would not necessarily be immediate. Diesel and energy expenses affect production, processing and transportation, making it difficult to determine whether savings made by processors are passed on to consumers. Retail pricing also depends on costs and decisions throughout the supply chain.
However, Van Heerden believes widespread farm closures could eventually increase pressure on shoppers if local production declines and imports become more important. Additional shipping and transport costs could make imported dairy products more expensive.
Samilco has referred its concerns to the Competition Commission and is considering possible legal action under competition legislation. The dispute raises broader questions about bargaining power, supply-chain transparency and the long-term sustainability of domestic milk production.
For consumers, the immediate issue is not a confirmed retail price increase but the risk that continued financial pressure on dairy farmers could weaken local supply over time. Whether that risk translates into higher supermarket prices will depend on future farm closures, market demand, import costs and how price changes move through the dairy industry.