A number of press and government reports have been published in Fiji on the subject of its dairy industry in recent months. In November 2012, the government spoke of improving prices paid to producers for milk, but in December producers were complaining of prices as low as F$0.52/litre. According to the CEO of Fiji Dairy Limited (FDL), the $1/litre price relates to premium grade milk, the highest of three grades that have been established for milk quality. The administrative costs of the farmers’ cooperative also needed to be deducted from the prices paid by FDL. However, the farmers claim that the deduction for administrative costs should amount to no more than 10%, yet farmers are receiving farm-gate prices varying from F$0.52 to 0.82 per litre from one week to the next. This compares to a farm-gate price of F$0.60/litre in the pre-privatisation period, according to the Minister for Industry and Trade.
The growing price concerns need to be seen against the background of the sale in August 2012 of an 80% stake in FDL, Fiji’s sole dairy processing company, to Southern Cross Foods Ltd (SC Foods). SC Foods is a subsidiary of CJ Patel, a multi-sector company with food procurement and distribution operations across the Pacific (Fiji, Papua New Guinea, Samoa, Tonga, Timor-Leste, Australia and New Zealand). A number of conditions of sale were included in the privatisation agreement, including:
- a commitment by FDL to “purchase all the milk produced by Fiji Cooperative Dairy Company Ltd” (FCDCL) for the next 10 years, and a similar commitment by FCDCL to “sell all its milk to FDL”;
- commitments by SC Foods to install more milk chilling centres, establish a 250-acre dairy farm, and upgrade and modernise the milk processing factory within 3 years;
- a commitment by the government to establish “concessionary duty rates… to ensure growth in local production”.
The government’s aim in undertaking the privatisation process was to build on the restructuring that began in 2010, which saw the separation of the milk production arm from the milk processing arm of the majority government-owned company (20% of shares are held by milk producers’ cooperatives). The government hopes the privatisation process will provide a basis for overcoming past problems: the Prime Minister, in a speech, cited “mismanagement, corruption, inefficiency, and outdated infrastructure and technology”.
In November, the government announced a F$1 million budget allocation in 2013 to boost dairy production, with a 20-year tax holiday for those who set up new dairy farms. According to the Prime Minister, Fiji consumes “nearly 77 million litres of milk each year”, but produces only 10 million litres.
Within the privatisation process in Fiji, important information gaps appear to have emerged between government policy makers, farmers, and managers of the newly privatised processing company. Farmers are deeply concerned about the impact of privatisation on farm-gate milk prices and the distribution of the benefits of concessions granted by government (tax breaks and tariff concessions). This needs to be seen in the context of problems faced under government programmes to improve herd quality, and hence the productivity of the national dairy herd. Questions have also been raised about the feasibility of investment stipulations, notably the requirement to establish two chilling centres in the Western district, where currently production is mainly for self-consumption and local direct sales, and chilling centre prices are seen as uncompetitive.
The distinct impression is emerging that if privatisation is to overcome the past problems of “mismanagement, corruption, inefficiency, and outdated infrastructure and technology”, then new rules and regulations for strengthening the functioning of dairy supply chains will be needed. This will need to include a clearer and transparent system for milk pricing and clear policies on the role of milk powder imports within the overall raw material procurement profile. For example, should tariff concessions on milk powder imports be used to support milk prices as an incentive for increased small-scale commercial milk production?
Previously, Rewa Dairies, which was split into FDL and FCDCL under the 2010 restructuring, made “the bulk of its profits from imports”. This included milk powder for reconstitution into milk products and butter and cheeses for local distribution. No significant efforts to develop production of local value-added dairy products were undertaken.
The extensive procurement and distribution network of the new corporate owner (CJ Patel) across the region also potentially raises important regional dairy sector trade policy issues (particularly related to rules of origin) for countries like Papua New Guinea that are also seeking to promote increased local milk production and dairy sector development.