Ignore at your peril: when economic laws kick in

The monthly decrease in milk production experienced since mid-2022 shows that several milk producers have reached the tipping point and may eventually cease dairy operations

- Dr Koos Coetzee

Despite a sharp increase in milk producer prices, milk production decreased in July 2023 by 2,4% year-on-year.

The increase in producer prices as processors tried to stem the negative growth trend did not result in higher production.

This is what happens when economic laws are ignored.

Pay the farmer a low price and they will continue to produce, but only for a short time. In the long run, production is permanently damaged.

Physical laws cannot be ignored. For instance, water freezes at temperatures below 0°C.

Farmers who ignore this have seen what damage ice can do to machinery. To ignore physical laws frequently results in disaster.

FARMERS’ PRODUCTION DECISIONS

The same is true for the laws that govern economic systems. Ignore at your peril. The current situation in the dairy industry is a good example of what happens when economic laws are ignored.

Producer milk prices and the prices that farmers have to pay for farm requisites influence farmers’ production decisions.

Higher profitability results in increased production, while lower profitability results in lower production.