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A warm winter, unexpected dairy surpluses and cash strapped consumers have pushed the market price of milk down this season.
But the storm clouds are gathering again over the dairy industry with farmers saying a recent move by major buyer Parmalat to reduce the price it pays for raw milk by 25 cents could be "catastrophic" for them.
The 25 cent price reduction comes at a time when producer prices have increased by about 35percent year on year, feed costs increased by 60percent, diesel by 63percent, fertilizer by 170percent, electricity by 27percent and labour by more than 10percent.
On Friday Parmalat said the price reduction for raw milk was to "compensate" for the combination of rising input costs, slowing consumer spending and high interest rates.
"The (dairy) business, as most other businesses, is feeling the pressure of increased input costs, escalating interest rates, the increasing inflation rate and a slowdown in consumer spending.
"In these challenging times Parmalat has to consider its profitability as a business, its customers and its shareholders," said Karen Geldenhuys, Parmalat stakeholder relations communications manager.
The good news for consumers is that milk prices are expected to fall in the short term due to a oversupply in the market.
According to Dawie Maree, agricultural economist at the Milk Producers Organisation, some industry players imported more milk amid expectations of a shortage, effectively leading to an oversupply. - With I-Net Bridge