Dairy industry must focus on niche markets to survive

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Windhoek

While Namibia Dairies and the Dairy Producers Association (DPA) have issued a stern warning about the potential collapse of the local dairy industry and requested urgent intervention in the form of import restrictions, some local experts feel the industry would not survive once such restrictions are lifted.

The impending crisis in the dairy industry stems from a global and regional oversupply of milk.

“Yes, import restrictions, or import duties would help them (the dairy industry), but it would come at the expense of the consumer (such as higher milk prices) in an industry that will never be able to survive once the restrictions are lifted,” said James Cumming, director of research at Simonis Storm Securities.

He said the dairy industry is a notoriously difficult sector to operate in without economies of scale, remarking that even the massive dairy industry in France, which receives substantial government subsidies and assistance, went on strike a few weeks ago to protest against the low price of milk.

Cumming noted the small size of the local industry and said it would never be able to compete against imports. Furthermore, he pointed out that it is very expensive to feed dairy cows in Namibia due to low rainfall and long distances to transport feed.

“Namibia Dairies is trying to compete head-on with large South African and international producers in the non-value-added space (i.e. milk) and this is unsustainable. This all sounds like doom and gloom, but it is the reality that our comparative advantage does not lie in milk production and sales thereof. I would argue that the only way the dairy industry can survive is to become a niche player in the value-added market,” said Cumming.

Niche products for export he suggested include high quality cheese, butter and even goat milk, which is very popular in Europe. “There are plenty of tourists who could be ambassadors for the dairy products back in their country,” Cumming added.

The country’s only dairy producer, Namibia Dairies and the DPA said last week that a total breakdown of the industry is imminent if urgent intervention is not forthcoming within the next three to six months. Managing director of Namibia Dairies, Gunther Ling, explained that the crisis is a culmination of a number of factors that resulted in global dairy prices reaching a 13-year low.

Meanwhile, the Namibia Consumer Trust (NCT) also entered the debate, arguing that interventions, such as Infant Industry Protection (IIP), will not save the local dairy industry.

“Infant Industry Protection granted to milk will not result in long-term sustainability of Namibia Diaries, for example. The !Aimap Superfarm in Mariental provides 63 percent of Namibia Diaries’ total milk intake. It is also Namibia’s single biggest producer. There are prohibitive costs, such as the significant transport costs between the farm and the factory in Windhoek.

“These are fatally blatant production inefficiencies. Namibia Dairies is apparently significantly challenged to produce cheese and stopped production in 2007, because it is not profitable,” commented NCT’s executive director, Michael Gaweseb.

He added that IIP has a tendency to offer disproportionate – and perhaps unintended – benefits to top executives and shareholders. “However, the high prices attributed to IIP potentially disconnects consumers from access to good nutrition and access to housing, for example,” Gaweseb said in a recent statement.

“IIP is a policy that lacks compassion for the poor, especially since value-added tax does not distinguish between the haves and have-nots. There is also talk of the current oversupply being destroyed in order to avoid reducing the price. IIP further exacerbates income inequalities amongst Namibians, thus it is currently outdated, considering the commendable poverty eradication drive and that no Namibian should be left behind,” said Gaweseb.

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