Share-milking as an alternative business model for the successful establishment of black commercial dairy farmers in South Africa

Abstract

South African milk producers supply around 8.4 million litres of milk per day. The monetary value of this supply results in a contribution of approximately 6.7% to the gross value of agricultural production. In 2015 producer income was estimated at R14 900 million with an investment capital of around R32 500 million. In South Africa the dairy industry is the fourthlargest of all agricultural industries, creating approximately 20 000 sustainable job opportunities, excluding up and downstream opportunities (MPO, 2016). Both small and large businesses are affected by global trends that are the driving forces behind major changes in the dairy industry. Agri-businesses and farmers are exploring methods to change their strategies, business models and production systems to be able to sustain their competitiveness in the global market. Entry barriers to the global markets and local industry are capital intensive, costly and complex (OABS, 2014). In South Africa the tendency exists where the larger commercial dairy farms are expanding by incorporating smaller farming units. This tendency exists in most countries around the world. This trend will certainly increase the entry barriers for establishing black commercial dairy farmers, despite the pressure of transformation in South Africa. In fact, they would be at greater risk of business failure compared to their more established counterparts in the formal sector due to the lack of access to critical resources and relevant experience. Therefore, alternative business models should be evaluated and implemented to assist with the establishment of black commercial dairy farmers in South Africa. Kirsten and Sartorius (2002) referred to the formation of partnerships between small-scale farmers and thereby increasing their marketing power and enabling them to compete against large-scale farmers. These partnerships would allow the smaller farmers to enjoy the same benefits that their larger counterparts enjoy, as well as reduce managerial inputs required and transaction costs. Milk SA (2014) refers to various success stories of transformation in the primary dairy industry. All of these success stories are based on share-milking agreements, hence the research on how share-milking contributes to the successful establishment of black commercial dairy farmers. The availability of suitable land for dairy production where emerging farmers can be established is also becoming a major constraint. Suitable coastal land will become exhausted; therefore, there is a need for alternative models to establish emerging farmers. Both communal land and privately owned land are currently being used for share-milking projects. The primary dairy industry is not excluded from the proposal stating that all commercial farmers should cede 50% of their land to farmworkers; hence Agri SA's proposal and presentation to the Department of Rural Development and Land Reform (DRDLR). According to Agri SA (2015), proposals should: ● "comply with the Constitution of South Africa; ● give full recognition to economic and market actualities; ● not necessarily be dependent on state support; while ● utilising the potential of private-public partnerships as far as possible; ● adhere to the NDP framework" (Agri SA, 2015). Agri SA (2015) referred to the share-milking scheme at Reebok Rant as an alternative to the 50/50 proposal from Government.