Milk Production

The Clover group dairy processing company of South Africa has now
decided to invest in Zambia to form a foundation for developing a
regional hub for milk processing and distribution in the sub region.

This new investment in the dairy industry will be welcome because
beyond introducing some healthy competition in the sector, the
consumer will benefit from the variety of new products and possibly, a
higher nutritional content of products on the market.

It is anticipated that the competition amongst three major dairy
product suppliers should bring product prices down although recent
experiences in the mobile telephone service sector suggests that at
least three or four competitors are required to generate enough
competition to see prices come down. Two players in the market
generally lead to cartelling rather than competition.

Zambia has grappled with the dairy industry for decades, and the
farmer has not been able to get a good enough price for milk such that
significantly higher milk production is supported and encouraged.

Clover group may just be the catalyst that creates more demand for
milk from the producers, thereby increasing the producer prices, and
driving the motivation for increased investment in dairy herds and new
entrants into the business.

Zambia is a country that occupies 752,000 square kilometers of land.
Zambia is about ten times the size of Lesotho and offers unimaginable
opportunities for food production to feed the entire sub region.

Investment in most food based industries should be welcomed because
not only does this generate wealth for the nation, but it also
contributes to food security for both the country and the neighbouring
states.
Milk will always be consumed as long as people are around to consume
it. Milk has over the last four decades become a luxury to many
Zambian homes and families simply because of cost, and in many
instances, non availability across the country.

Milk is probably the most nutritious single natural food product that
is available today. Milk nurtures infant children at birth, and milk
can nurture an entire nation if produced and consumed in an affordable
and strategic manner.

The exiting local milk processors must read the writing on the wall
and brace themselves for competition, as a new large investor in the
sector will change the way business is done.

Dairy farmers are challenged to be ready and available to satisfy the
demand for more milk by the processors. Producer prices will no doubt
increase, but the farmers need to be able to supply the demanded
quantities to avoid importation of powdered milk from Australia and
New Zealand as has been the practice.

Government needs to keep a keen eye on the dairy industry and
intervene when necessary to provide extension services and re-stocking
options in order to stimulate and facilitate the development of the
dairy herds across the country.

Many prospective investors will make impressive pledges during
investment discussions, but the acid test is experiencing the pledges
converted into equipment, bricks and mortar, and production.

Clover group may be coming into Zambia initially to package milk, but
they must be engaged to plan for processing in the very near future.
The Zambian dairy farmers need to consider forming cooperatives once
again. Zambia appears to have a capacity side surplus in terms of milk
processing, but there is a definite supply side deficit in respect to
milk production.

Cooperatives ensure that farmers stick to their core business which is
farming. The cooperatives fill in the gaps by setting up milk
collection centres, semi processing the milk if necessary, and
negotiating better producer prices for the benefit of the farmer.

The Netherlands developed the cooperative idea to a fine art, such
that many countries across the world have adopted the model in efforts
to stimulate and encourage milk production.

The competition in the sector may not be initially generated by the
processors, and therefore cooperatives are sometimes challenged to
upgrade their own facilities to include different levels of processing
such that their products have a longer shelf life and can be sold to
the open market if necessary. This competition from the producer level
will generally not be welcome to the large processors and cost
effective pricing and economies and efficiencies of processing scale
start to kick in.

The cooperatives can only go so far in milk processing after which
they have to become fully fledged businesses in themselves. This
business crossover barrier becomes the point at which targeted
processors have better skills, equipment, and know-how to outperform
the cooperatives.

At the end of the day business is business. Companies will try to make
money in the most useful way possible. No single investor will change
the dairy sector overnight. The nation as a whole must invest in
developing the sector starting with Government and the private sector.
The argument for importing milk will always be sound if Zambia does
not significantly produce more milk.

There are several institutions on the ground besides the Ministry of
Agriculture and Cooperatives that can impact on milk production in the
country.

The advent of new investment in the dairy sector may be just the
signal that the Ministry of Agriculture and Cooperatives needed to
lead the charge to promote the cooperative formation across the
country.

Published 18 August 2009