Dairy Industry in Deep Trouble

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By Wezi Tjaronda WINDHOEK The dairy sector has yet again warned of fatal consequences to the industry if the Infant Industry Protection (IIP), expiring in 2008, is not extended. Already, Namibia Dairies, around which the dairy industry revolves, is making losses of N$1 million per month, raising fears that this may lead to the closure of the UHT plant and the loss of over 350 direct and indirect jobs unless protectionist measures are put in place. The closure of the UHT plant, which converts 500 000 litres of milk, would force producers to reduce their quotas and it would make no economic sense for the producers to remain in the business. There is also an oversupply of between 400 000 and 700 000 litres of milk every month. “IIP is critical for survival of the Namibian Dairy Industry, and, if not implemented, the production of the long-life milk plant will be closed with fatal consequences,” said Sven Thieme, executive chairman of the Ohlthaver and List Group, which owns Namibia Dairies. The industry sounded a similar warning last year after which the Rietfontein factory in Grootfontein closed down and four dairy producers ceased operation resulting in 84 job losses. The industry, through the Ministry of Trade and Industry, in June applied for an extension of the IIP until 2008 and also a levy of 40 percent of the value of imported UHT milk to SACU and is still awaiting a response. Thieme warned that the closure of the UHT milk plant would lead to a cut of up to 700 000 litres of milk production per month. This means that fresh milk production will have to be reconsidered, while fresh milk prices will dramatically increase in the long term. “ND cannot sustain the monthly losses on long-life milk products,” he said. To rescue the industry, Thieme said, the government should put in place other measures such as implementing the Angolan Bilateral Agreement, removing VAT on fresh and long-life milk and implementing anti-dumping and fair competition laws. The industry said it has fallen on hard times due to competitively priced UHT milk sourced from South Africa. Dairy Producers Association Chairman Japie Engelbrecht said although the industry is regarded as of strategic importance to food self-sufficiency by the Ministries of Trade and Industry and Agriculture, Water and Forestry, the sector has been under pressure from dairy imports from South Africa at predatory prices and will not be able to survive unless measures are implemented to protect the industry. To stay in the market, milk producers have had to slice their raw milk prices by 10 cents per litre despite oil price hikes, which impact on fodder and transport costs. Other drastic measures that the industry is contemplating to stay afloat include creating joint ventures for producers to decrease costs and thereby increasing competitiveness. Due to the small size of the Namibian market, Namibian milk has not yet reached economies of scale like their South African counterparts. “Dairy volumes in Namibia are about one percent of the South African dairy market, which makes it highly vulnerable to market diversions from South Africa with no mechanism in place to address the influx of subsidized external dairy products into Namibia,” said Engelbrecht. Although export of products assist to generate economies of scale, Namibia is experiencing problems, which include high barriers of entry for long-life and fresh milk, especially to Botswana, it cannot subsidise transport to sell milk to South Africa, cheaper imports where milk is subsidised and there are also high import duties to the Angolan market. The duties are in excess of 50%. At present, the sector has 17 producers whose milk quota is 1.78 million litres per month. Despite the IIP, Thieme said inflation eroded the protection before the industry could entrench itself properly. Although the Namibian Competition Commission, which will deal with cases of prohibitive and restrictive business practices, unfair practices in general such as collusion, price fixing, dominant position, and acquisitions and merges among others has been put in place, it is yet to start its operations. When the Cabinet announced the names of the commissioners in March this year, it said the absence of a watchdog over unfair trade practices to safeguard Namibian industries would retard the ambition of the country to enter the value addition sector as foreign companies may destroy emerging industries in the absence of a legal framework.