Addressing dairy product predatory pricing practices within customs unions
09 September 2012
Namibia Dairies, Namibia’s largest dairy company, has accused the South African dairy industry of ‘predatory pricing practices’ that are resulting in the company losing ‘up to N$20 million a year’ and have already led to the company terminating cheese production in Namibia. Particular concerns exist over pricing practices for long-life milk. The Managing Director of Namibia Dairies, Hubertus Hamm, points out that ‘UHT milk in Cape Town is priced at R11 and in Namibia it is also priced at N$11’ and raises the question ‘where do they recover their transportation costs?’ He maintains that, with the South African rand and Namibian dollar at parity, South African pricing practices are compelling Namibia Dairies to sell their UHT milk at a ‘discount of about 20%’.
There are also accusations of the use in South Africa of ‘genetic enhancers, medicines and growth hormones’, the use of which is prohibited in Namibia, which applies EU standards to its livestock sector. Mr Hamm urged the Namibia government to ensure that imported dairy products were subject to the same production standards as those applied to Namibia dairy products.
Developments in Rwanda suggest that marketing strategies can play an important role in enabling smaller regional producers to maintain and enhance the volume of domestic sales of milk, even when operating in the shadow of a large regional producer. For example, according to press reports Rwanda’s largest milk supplier, Inyange Industries, is planning to extend its network of milk vending machines nationwide to boost milk consumption and allow its plant, currently operating at only 40% of installed capacity, to increase its capacity utilisation towards the current ceiling of 100,000 litres per day.
Editorial comment
Traditionally little attention has been paid to trade and tariff measures for liquid milk products, as there was little direct threat of competition between neighbouring countries of the Southern and Eastern Africa region, given the distances involved and transportation constraints faced. However, technological innovation and the emergence of long-life (UHT) milk have transformed the basis for regional trade in liquid milk across Southern and Eastern Africa.
This is leading to an intensification of discussions in smaller dairy-producing countries (not just Namibia, but also Tanzania, given competition from Kenya) over the appropriate trade measures (both tariffs and production standards) to be applied to dairy products within customs unions, involving partners of vastly unequal size (for more details see Agritrade Executive brief: Update ‘Dairy sector’, 2012, forthcoming).
Potentially this could give rise to imposition of trade-restrictive measures, unless other competition policy-related tools are set in place and effectively applied.
In the Namibian context, Namibia Dairies is pushing for the inclusion of dairy production in the list of controlled products that are subject to import permit requirements (similar to those applied to selected horticulture products wheat and maize and wheat and maize products), following the lapsing of infant industry protection.
In the EAC region, the establishment of common dairy products standards has proved a difficult and complex task (see Agritrade article ‘ Initiatives to establish an EAC regional dairy development strategy’, 6 October 2011). A critical challenge will be finding ways of evening out imbalances in the ability of national producers to compete within a common market governed by common standards, if standards and non-tariff measures are not to emerge as new barriers to trade.
