Factors influencing the long-term competitiveness of selected commercial milk producers in east Griqualand, South Africa.

Abstract

This study presents two separate competitiveness analyses to assess changes in, and factors influencing, the long-term competitiveness of a panel of commercial milk producers in East Griqualand (EG), South Africa. The Unit Cost Ratio (UCR) method was used to measure competitiveness of EG milk producers. It is defined as the ratio of dairy enterprise accounting costs plus an opportunity cost of management at 5% of milk revenue, to total dairy enterprise revenue. The initial UCR analysis was used to partly investigate the impact of dairy market deregulation on the relative competitiveness of EG milk producers over the period 1983 to 2006. The results of this UCR analysis found that the sample of EG milk producers were not competitive based on the net local price, PL, received for milk but were competitive when dairy cattle trading income was included. This suggests that dairy cattle trading income played an important role in enhancing the competitiveness of EG dairy enterprises in the study period. Further UCR analysis revealed that differences in the inherent ability of members of the EG group to manage market deregulation impacted on the relative competitiveness of EG milk producers. The top onethird of the sample of EG milk producers remained relatively competitive from 1983 to 2006 due to higher real milk prices and lower real unit costs than producers in the bottom one-third category. Differences in relative competitiveness between the top and bottom one-third categories of producers were statistically significant. Based on the findings of the UCR analysis, a Ridge regression analysis was then used to investigate other factors influencing the long-term competitiveness of selected milk producers from EG using unbalanced panel data for the period 1990 – 2006. Results of the regression analysis showed that dairy herd size, the level of farm debt, annual production per cow, technology and policy changes over time, and the ratio of trading income to total milk income influence the long-term competitiveness of these milk producers. To enhance their competitiveness in a deregulated dairy market, relatively small and profitable EG milk producers should consider increasing herd sizes as the importance of herd size in explaining competitiveness suggests that size economies exist. All EG milk producers should consider utilising more pasture and other forages to lower feed costs and select dairy cattle of superior genetic merit to improve milk yields.