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Dairy industry to lose close to N$40m annually

Mon, 24 August 2015 17:08
by Charmaine Ngatjiheue
News Flash

The dairy industry is set to lose close to N$40 million on an annual basis due to the current drop in volumes of milk purchased, The Villager can reveal. Moreover, the current selling of milk products at cheaper prices is causing a financial risk of N$15m to the dairy industry. On a monthly basis, farmers stand to lose about N$5m if their milk is not purchased.

Namibia Dairies’ Managing Director Gunther Ling said the total impact of closing the industry is estimated to be in excess of N$500m, and an estimated 1000 jobs will be lost. He said the industry was enjoying government support in the form of quantitative support measures (QSM), but it was set aside due to a court ruling.

“The quota was put aside in August 2014, and since then, the industry has been under pressure. Towards the end of 2014, Ultra-High Temperature (UHT) sales’ volumes dropped as a result of cheaper imports and discount costs to Namibian dollars increased to counter and retain share,” Ling said.

He said the industry seeks interventions which can ensure a sustainable market share at a fair price. The problem is a global crisis which sprung forth in February/March this year, and over the last six months, the auction price fell by 50% or more. “The umping of milk started in US/Canada/China earlier in 2015, and global farmers have been protesting since June/July 2015,” he explained.

The Namibia Trade Forum (NTF) said this week that together with the dairy industry, they are working towards formulating short-term and long-term strategies for consideration by Cabinet.

NTF Senior Policy Analyst Maria Immanuel said all these efforts are coordinated through the Ministry of Industrialisation, Trade and SME Development (MITSD) and the Ministry of Agriculture, Water of Forestry (MAWF) as lead ministries. She noted that the Namibian dairy industry is unique in terms of the production set-up, and the fact that Namibian producers do not use growth stimulants in milk production puts the industry in an uncompetitive position when competing with processors in South Africa, who use these to increase their milk production.

“The other major factor is that Namibia is a small economy in population, but comparatively large in geographic size.
In this regard, transport costs play a major role for a farmer who, for example, transports milk from Grootfontein to Windhoek,” Immanuel stated.  

She added that in South Africa, UHT milk is Value- Added Tax (VAT)-free, while Namibian consumers pay VAT. “Considering these three factors, it becomes clear that the playing field is not level.  Our dairy industry requires more domestic protection to survive, and most importantly support for farmers to maintain the jobs created,” she continued.  

Immanuel suggested that government and the industry can explore creative ways to assist Namibian industries by considering the country’s unique realities. “A good example is to use standards.  Namibian milk has superior quality because it contains no growth hormones, and our cows are held free-range. A country such as Botswana exploits standards as a means to protect their small fragile domestic industry,” she suggested.

Consumers will then be protected from exposure to the adverse effects of imported products, saying work is ongoing on the Sector Growth Strategy for both the poultry and dairy sector as prioritised under the ‘Growth at Home’ strategy. “These growth strategies aim to chart out long-term strategies to develop the two industries, especially to bring communal farmers and the small and medium-sized enterprises (SMEs) into the mainstream,” she said.

Immanuel suspects that if there is any dumping of products, then it is mainly coming from the South African market (which is also struggling due to global dumping there), and is Namibia’s main trading partner. “Because we operate in a customs’ union with South Africa (under the Southern African Customs Union-SACU agreement), the term does not technically apply because we operate as one market,” she surmised.

Currently, an Annex on Unfair Trade Practices under the SACU Agreement is still to be finalised, and this would be a major instrument in dealing with these kinds of matters.

Immanuel further stated that the issue of anti-dumping and the process involved will be the responsibility of the Namibia Board of Trade.
“The other options we can explore are competition issues. These fall under the mandate of the Namibian Competition Commission (NCC). And finally, we need to update our national legislation to accommodate our industry’s special needs,” she said.