World dairy prices likely to tend higher soon

 

 

Consumers will face a return to high dairy prices in the months ahead if current trends continue, but farmers will benefit.

 

Global dairy product prices have risen sharply since August and the extent of the increase has surprised most observers. Analysis says that the massive surge to record dairy prices witnessed in 2007 and 2008 may be about to return.

 

Global dairy analysts warn the sustained rise in the cost of dairy produce that began again in August 2009 could herald a new era of expensive dairy food products that will put pressure on inflation in the year ahead.

 

The price hikes will benefit farmers whose incomes were badly hit since the global slowdown, but will hurt consumers if the trend continues.

 

FAO said its figures show a worrying trend in consumer prices for the past several months. Its dairy price index of international dairy product prices reached 209 in November, an increase of 114% from February 2009. The index rose by 32% in November alone. Prior the 2007, the index was never higher than 150.

 

Other dairy commodities prices have also doubled since February. Whole milk and skim powder prices have jumped by 90% while Fonterra's whole milk auction price has doubled since August. Fonterra is the world's largest exporter of dairy produce and is regarded as a very reliable barometer of world dairy prices.

 

These increases occurred at a time when the EU and the US have been stockpiling products. It was expected that the release of these stocks would undermine the upward price trend, but that has not happened.

 

However, lower milk output growth in Oceania, which includes Australia and New Zealand, has been less robust than previously assumed with production there now past its peak, which will add further to price pressures in the year ahead. There has also been a rise in demand in Asia and in oil-exporting countries.

 

This configuration of growth and demand has made the stock overhang of much less concern than it was earlier in the year, but it has not disappeared. It is for this reason that FAO notes that the "sustainability of the rise in prices is uncertain". The FAO noted the hikes cover its composite food commodity basket which has risen uninterruptedly since August.

 

Concern is growing that the recent price developments are, in reality, signalling a return to the price surge witnessed in 2007 and 2008 when demand for dairy produce from rapidly growing economies such as China and other emerging Asian economies resulted in a windfall for dairy farmers.