August 13, 2007

 

Rising milk demand in Asia causing global price hikes

 

 

Growing appetites for dairy in Asia and limited worldwide supply are driving milk prices to record highs and causing milk producers in other countries to rethink their policies.

 

Rising incomes have created a more westernized diet in China, creating greater demand for milk and other dairy products.

 

China's milk consumption has soared along with rising incomes, a massive expansion of the dairy industry and a recently-acquired taste for foreign products such as yoghurt, pizzas, cheeses, chocolates and other dairy-heavy products.

 

Milk consumption is estimated to rise by 15 to 20 percent annually in the coming years, according to the Dairy Association of China.

 

On the other side of the globe, rising costs of animal feed have shrunk European production and long-standing drought in Australia and New Zealand, have also cut milk output, leading to record prices.

 

Milk prices hit a record last month in the United States, where consumers paid an average US$3.80 a gallon, compared to US$3.29 in January, according to the USDA. Prices are likely to remain high throughout the year.

 

The trend of higher prices are likely to be repeated in countries throughout the world as Asian countries develop an appetite for milk.

 

International dairy prices increased 46 percent between November 2006 and April 2007, with milk powder prices increasing even faster, according to the Food and Agriculture Organization.

 

Higher feed prices precipitated by the booming development of biofuels is also leading to higher milk prices.

 

Countries like the US, Canada, the EU and Japan are relatively protected from rising prices due to policies, such as tariffs and quotas, that insulate their milk from international prices.

 

However, even these systems are under strain, the FAO noted.

 

German milk producers, who claimed that prices have been held down for the past few years, have been winning the fight to gain higher prices after threatening to export their milk to more lucrative markets. Milk prices have gone up by 12 percent since May.

 

The European quota system, which prevents farmers from producing more milk, has come under attack as world market demand rises.

 

Although the quota system is scheduled to end in 2015, EU spokesman Philip Tod said the EU Commission is allowing small annual increases in quotas through 2008.