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Johannesburg - Over the past year, the producer price index (PPI) for raw milk went up by 24% while the dairy products PPI increased by 11.3%, according to the South African Milk Processors’ Organisation (Sampro).
Using data collected from Statistics South Africa, Sampro recorded the change in PPI for raw milk and dairy products until August 2016. The PPI indicates the trend in the change in product prices. It is a reflection of price pressures, and increases will eventually feed through to consumer level.
The price index at August 2016 was at 137.5, up from 110.5 in August 2015. Essentially consumers are paying more for milk this year than last year.
According to FNB senior agricultural economist Paul Makube, the price hike is due to reduced production. “[This is] as a result of poor production conditions due to drought. Pastures were in poor condition and deteriorated further as drought persisted.”
Higher feed costs due to the increase in grain prices - particularly maize which is a major ingredient in livestock feed - also contributed to higher production costs. This was accompanied by higher electricity costs.
The index increase in raw milk was greater than that of cereal and crops at 23.1%, fruit and vegetables at 12.4%, live animals at 12.3% and other animal products at 10.3%.
July to August 2016
The PPI for raw milk dropped 0.1% from July to August 2016, whereas the PPI for dairy products lifted 0.6%.
The price index over the same period for live animals rose by 4.3% and the index of fruit and vegetables was 0.4% higher.
PPI of raw milk vs dairy products
In January 2012 the index for raw milk, with a base year of 2000, was at 250.4 index points, 16.2% higher than the index of dairy products at 215.5.
Prices may stabilise as production gets back to normal for the new crop season, provided the weather holds up, said Makube.
“The rainfall forecasts still point to a normal season and milk production is expected to increase in the next few months due to seasonality,” he added.
The full effect of production recovery on prices will materialise from the second quarter of 2017 when the size of the crop gets known, he explained. “Already, maize futures have started falling with yellow maize for July 2017 delivery trading below R3 000 per tonne.”
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