Clover to head for the coast as travel costs rise

FMCG SUPPLIER NEWS

IOL Business - Mar 22nd, 08:26

Dairy producer Clover is investigating the possibility of moving its cheese facility closer to milk sources at the coast. This would save on transport and distribution costs, the firm said this week. 

Speaking at a media tour in Port Elizabeth, Clover chairman Werner Buchner said this greenfield project would cost the group about R300 million.

The project included moving a cheese plant from Lichtenburg in North West closer to dairies in the Eastern Cape or KwaZulu-Natal.

This, Buchner said, would help cut operational costs that included transport and supply chain costs.

“We are looking at a few options [including] a suitable location for this facility. We once had Port Elizabeth as an option but we are investigating other options as well.”

Clover is completing its Cielo Blu project, announced when the firm listed in 2010.

This project aims to relocate certain production facilities closer to the milk source. Historically, Clover had been unable to build facilities in coastal areas other than KwaZulu-Natal. However, in the past two decades the dairy producer has noticed a steady migration of dairy farmers to the coast, resulting in a mismatch between the source of raw materials at the coast and Clover’s inland factories. This required the group to transport raw milk inefficiently.

As part of Cielo Blu, Clover has successfully relocated its long-life milk production from Midrand, Gauteng, to the Perseverance industrial area in Port Elizabeth in the Eastern Cape. The dairy producer has committed R100m to this facility to reorganise and expand its long-life milk production. Clover said the relocation would improve efficiencies while reducing transport requirements.

Buchner said Clover planned to do the same with its cheese facility. But the group could not use the Port Elizabeth facility for this project as there were concerns about the closeness of the South African Breweries facility. “We have concerns about the amount of yeast in the air around this area, so this might not be an option,” he explained.

The plan would ideally be near Port Elizabeth or East London or in KwaZulu-Natal where there were more milk farmers. This development would be as complicated and expensive as Cielo Blu.

In the expansion of its Port Elizabeth facility, Clover had worked with emerging milk producers in East London. Buchner said Clover collected milk from an empowerment company known as the Amadlelo Agri farmers, based in East London.

The distance between the East London milk source and Clover’s facility was challenging: “My dream in the future is to have a production facility in [East London] because there is vast potential for milk production in this area, which is totally untapped at this stage,” Buchner said.

Thando Ngcolomba, the Nelson Mandela Bay municipality’s councillor for the economic development, tourism and agriculture portfolio, said while the agricultural sector had been identified as a potential catalyst for growth and job creation, it faced serious challenges such as limited transport and high logistic costs.

These costs were the biggest input costs and would be continuously affected by the rise in the fuel price and the economic slowdown.

Buchner said that recent trends in local milk demand indicated that there was no real massive growth as consumption was only growing at 2 percent annually.

“For this reason we have seen a lot of dairy farmers going out of business. We need to grow much quicker [than 2 percent] to deal with rising input costs.”

Most commercial milk producers might survive this squeeze, but emerging farmers would suffer.

“That is one of the things we need to change. We need to start producing for export, we need to go into Africa because it is on our doorstep. Once we have done that we will be in a growing environment.”

Buchner added that there were enough milk producers in South Africa for exports.

Clover shares slipped 0.64 percent to close at R17.19 at the JSE on Wednesday.