ECAMA speaks on milk prices, economics, demand, supply

By Richard Chirombo

The Economics Association of Malawi (Ecama) has spoken out on raw milk prices, saying prevailing trends, where processors bought the commodity from dairy farmers at much lower prices against the background of low production output, defied the economic principle of demand and supply.

The economics think tank, which carries out development policy research on economic issues to the public apart from analyzing, appraising and reviewing economic conditions in the country, said looking at the situation in Malawi milk producers deserved an improved take home package than is the case.

Ecama President, Thomas Munthali, said in an interview the principle of demand and supply dictated that, when there is high demand for a commodity- which happens when demand exceeds supply- commodity prices rose.

“It is an automatic issue that when supply is low and demand high, commodity prices go up. But what is happening in the milk industry is difficult to understand because prices are low against a commodity whose production is said to be relatively low as compared to demand and consumption,” said Munthali.

The country’s milk yield is currently pegged at eight litres, a development that has had some negative impacts on milk consumption. On average, the Malawian drinks five litres of milk per year.

However, Director of Animal Health and Livestock Development in the Ministry of Agriculture and Food Security, Wilfred Lipita, has expressed high hopes the precarious situation could be overcome. He said the dairy industry had registered a 15 per cent growth rate since 2001

Lipita attributed such growth to the resuscitation of the once run down extension services system, and livestock multiplication centres.

“But production and consumption remain very low. It is government’s plan to double the milk production levels for each cow from eight litres to 15 in the next five years, as well as increasing the number of cross breeds we are producing from 150 per year to 5, 000 per year to meet the high demand for dairy cattle,” said Lipita.

Munthali said, against such a background, it would only be fair to say current raw milk prices were below par and defied the economic principle of demand and supply.

Raw milk used to fetch K68 before June 1. Now milk processors say they will be buying it at K50 per litre.

This development has not gone down well with Malawi Milk Producers Association (MMPA) President, Phillimon Kapinji. He said the recent development could set the dairy farming industry on a downward spiral, and may lead into the collapse of the industry.

“This is a very sad development and, if government- through the Ministry of Industry and Trade- does not come to our rescue, it may spell the collapse of dairy farming in Malawi . The poor farmer will get nothing for his toil with the reduction in raw milk buying prices.

MMPA has a membership of 6, 000 dairy farmers- 2000 (more dairy farmers) above the estimated Ministry of Agriculture and Food Security figure of 4,000 farmers.

While the Ministry also says the industry has grown at a rate of 15 per cent, Kapinji says was growing (among the MMPA membership) at 30 per cent.

According to the producers, Malawi was now producing 40, 000 litres a day, and had claimed, in 2008 alone, 26 per cent of market share against a back ground of increased, cheap imports. But Kapinji said this was still lower if Malawi was to improve its per capita milk consumption levels and thus the need for better prices from processors.