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South Africa -Milk and dairy products outlook

Despite the decline in producer numbers, milk production has increased by 31%, from 2.59 million tonnes in 2009 to 3.4 million tonnes in 2018. This implies that the amount of milk per producer has increased by a staggering 273%. The production for raw milk in South Africa is seasonal, as it is in the rest of the world. Production peaks in October and November, while lower levels are typically recorded between April, May and June. Production levels are influenced by a number of factors, including climatic conditions and the cost of feed, which influences the intensity of feed use in pasture-based systems. Volatile production levels, combined with the small share of products traded in the international market, makes for volatile prices.

As was the case for most livestock related industries, profitability of dairy production came under severe pressure in 2016, as persistent and severe drought conditions pushed yellow maize prices to imports parity levels. As a result, the milk to maize price ratio, which represents a basic indicator of profitability, fell to its lowest level since 2001. In 2017, a record maize harvest replenished stocks and feed grain prices declined sharply, pushing the milk to maize price ratio to its highest level since 1994. The return to profitability stimulated expansion and in 2018, milk production increased by almost 5%. In an environment where consumer spending power is under pressure, this expansion induced a downward spiral in milk prices and by the end of 2018, milk prices had reached a level comparable to 2014.

In 2019, the combination of lower prices and drought induced increases in feed costs is expected to result in a downward adjustment in milk production. Over the course of the next decade however, the milk to maize price ratio is projected to trend upwards, finding an equilibrium at a level that is comparable to 2014 and above the average attained over the past decade. This is projected to be sufficient to support production growth of 1.7% per annum towards 2028.

The South African dairy market is divided into two segments; approximately 62% is utilised as liquid products, with the remaining 38% processed into concentrate products. The percentage composition of South African liquid products market currently stands as, 43% ultra-high temperature (UHT) milk, 34% pasteurised milk, 12% yoghurt, 8% other, 2% flavoured milk and 1% cream. Other products include buttermilk. The market for concentrated products on the other hand is inclusive of cheese (65%), butter (16%), SMP (7%) and fresh or whole milk powder (WMP) (12%) (MPO, 2019).

Over the period of the outlook, consumption of fluid dairy products is projected to increase by an annual average of 1.4%, compared to an average of 2.4% per annum for concentrated products. Amongst the concentrated dairy products, cheese continues to account for the bulk of the market. Cheese consumption is also projected to increase at a faster rate than any other product. By 2028, cheese consumption is projected to expand by 44% relative to the 2016-2018 base period. This represents a slowdown from the previous decade, when consumption increased by 62%. In line with the firm demand for animal fats globally, butter consumption is also expected to increase by 34% over the next 10 years, compared to growth of 54% over the past decade. Butter is however a much smaller market than cheese, with per capita consumption reaching 0.42kg in 2018, compared to 1.87kg of cheese.

Milk powder represents an easily traded product, but consumption in South Africa remains low and a small share of the total dairy mix. By 2018, per capita consumption of SMP and WMP had reached 0.13kg and 0.27kg respectively. By 2028, this is expected to reach 0.16kg and 0.29kg respectively. Combined with strong population growth, this relates to total consumption growth of 32% and 27% respectively by 2028 relative to the 2016-2018 base period.


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