Clover Industries Ltd. is considering building South Africa’s first dairy mega-factory to boost exports to the rest of the continent from a country that consumes about 98 percent of the milk it produces, potentially countering the need for future volume and price cuts.
The proposed plant will be built near Estcourt in the eastern KwaZulu-Natal province for 890 million rand ($67 million) and will produce dairy products including milk powders and baby foods, Clover Chief Executive Officer Johann Vorster said by phone Wednesday. The facility will be the first of its kind on the continent, employing technology that will use the dairy efficiently, resulting in less wastage of byproducts, and will make dry milk-based lines that can last for as many as two years.
“The sad thing about South Africa is that we have to cut milk prices every three, four years to keep volumes in check,” Vorster said. “The infrastructure is just not there to export,” he said, referring to plants that are able to manufacture for sales in other markets.
Clover’s plans to seek new markets in the rest of Africa follow those of producers such as Pioneer Food Group Ltd. and Tiger Brands Ltd., which have expanded to countries such as Nigeria and Kenya as opportunities for growth in their home market remains muted.
Clover lowered the price it pays to farmers by 0.60 rand ($0.04) to 4.10 rand a liter on Aug. 1 after increases of 15 percent in 2014 and a further 6 percent during the March quarter, Vorster said. Milk-production volumes in the country were 11 percent higher during the first six months of the year, compared with the same period in 2014. South Africa requires annual volume growth of about 2 percent to meet local demand, he said.
Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, is advising Clover on the plant, Vorster said.