According to press reports, the Namibian dairy sector is struggling to compete with dairy imports from South Africa which the Namibian Dairy Producers Association (DPA) claims “are sold under cost price”. The Chair of the DPA warned that “if no urgent solution is found, the shrinking of the Namibian dairy industry and a significant loss of jobs is inevitable.” Currently Namibia is “the only country in the Southern African Customs Union (SACU) that has fully de-regulated its dairy sector”, with no restrictions being maintained on trade with South Africa.
DPA representatives claim that Namibian milk is of a higher quality than South African milk since it is produced without the use of feed supplements and antibiotics banned in Namibia but allowed in South Africa. It is claimed that “local dairy farmers are disadvantaged when compared to foreign producers who do not need to comply with Namibia's stringent requirements,” and that the current regulatory framework “does not support a level playing field between importers and local dairy producers”.
An additional complicating factor is that new Namibian dairy consumers are reported to favour UHT over fresh milk, since it is delivered at a lower retail price and has a much longer shelf life.
Despite the “packaging innovations [and] a focus on buying local and various other pricing promotions” adopted by Namibia Dairies, competition from imports has seen the emergence of “unmanageable milk surpluses”. As a consequence, on 1 March 2013 Namibia Dairies “cut the milk delivery quota of local dairy producers by 50%.” The Chair of the DPA saw this reduction of production quotas for local producers as a short-term solution to the current market situation.
According to press reports, Namibia Dairies and the Dairy Producers Association (DPA) have proposed the establishment of an import quota for milk products that would split the Namibian market 80:20 between local producers and South African suppliers.
Processes of technological changes such as UHT treatment are opening up new markets for dairy products in areas where the absence of refrigeration previously limited the scope for dairy product sales. While this is expanding the consumer base for dairy products, it is also changing patterns of milk consumption and expanding scope for regional trade in liquid milk products. This is opening up the markets of smaller milk producing countries to intensified competition from larger milk producing economies, with accusations of unfair pricing policies being made by smaller producers (see Agritrade article ‘ Addressing dairy product predatory pricing practices within customs unions’, 9 September 2012).
This raises two related issues:
- Which market components should smaller local dairies seek to serve in the context of growing competition from both larger regional producers and international dairy companies?
- What role should government trade policy play in supporting carefully targeted dairy development strategies?
In the case of Namibia, proposals are currently being drawn up for a study to assist in defining more clearly which market components local dairy processors should seek to target, and the associated government policy measures required to support this new strategy.
Divergent regulatory standards, under which for example larger milk producers can use feed supplements and antibiotics banned in neighbouring countries, further compound the competitiveness challenges faced by producers in countries where the commercial dairy sector is smaller or less developed.
This raises the important question of the basis for harmonisation of dairy product standards. Around which norms should such standards be harmonised? This is by no means a simple technical question. Some norms would favour particular groups of existing producers, while other norms would favour different groups of existing producers.
This greatly complicates issues of regional standards harmonisation in the dairy sector and can lead to product standards being used to block regional trade even within the context of regional free trade initiatives.