August 11, 2007 in Business

Milk market is white-hot

Associated Press The Spokesman-Review
 
Associated Press photo

Customers walk past milk products at a supermarket in Beijing on Friday. Associated Press
(Full-size photo)

The cost of milk

What it costs to buy a quart of milk in selected cities around the world:

Paris: $1.50

New Delhi: 50 cents

London: $1.20

Copenhagen: 90 cents

Stockholm: 70 cents

Cairo: 50 cents

New York: $1.20

Jerusalem: $1.20

Mexico City: 90 cents

PARIS — It’s cheaper than oil and, barring a global mad cow crisis, we’ll probably never run out of it. But milk has one thing in common with oil: It’s trading at record highs.

Reasons include growing appetites for dairy foods in China and elsewhere in Asia, where chains such as McDonald’s and Starbucks are introducing unfamiliar taste buds to cheeseburgers and lattes. Other factors are rising costs for animal feed, shrinking European production and long-standing drought in Australia and New Zealand, the world’s largest milk-exporting region.

Paying more for milk is causing an uproar in Germany, where families consider providing children with an affordable glass of milk a fundamental right. It is also a concern for consumers in the United States and elsewhere in Europe.

Milk prices hit a record last month in the United States, where consumers paid an average $3.80 a gallon, compared with $3.29 in January, according to the U.S. Department of Agriculture. It forecasts prices will remain high throughout the year.

Prices are likely to remain high worldwide until dairy farmers add more cows or shift production to powders, which are more easily traded than the liquid stuff.

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.

Companies like candy giant Hershey Co. that use dairy for their products are feeling the pinch. But in many parts of the globe, dairy farmers are cheering.

“Global demand has been extraordinary for American dairy products, but global supplies of dairy products have been exceptionally tight,” said Michael Marsh, head of the Western United Dairymen trade group in California, the top dairy-producing U.S. state.

“From the American dairy farmers’ perspective, you have almost a perfect storm.”

In China, milk consumption has soared along with rising incomes, a massive expansion of the dairy industry and the increasing familiarity with — and taste for — nonnative foods among young urbanites.

Pizza Hut sells its cheese-laden pies even in smaller Chinese cities, and milk, yogurt and individually packaged cheese slices can be found in small local supermarket chains. Foreign-owned stores such as France’s Carrefour, Germany’s Metro and America’s Wal-Mart cater to slightly more sophisticated tastes, selling crumbly blue cheeses, wheels of gouda and red-waxed balls of Edam.

The boom in biofuels is also pushing up corn prices and, as a result, making animal feed more expensive. Farmers have responded by raising milk prices.

Corn futures indicate that the price of corn will remain high this year, according to the Washington-based International Dairy Foods Association. Prices have also risen for soybeans, another feed crop, it said.

The impact on the price of a carton of milk differs across the globe because dairy markets vary significantly from region to region, skewed by domestic and trade policies and other factors such as geography.

Governments in the United States, Canada, the European Union and Japan have a range of policies, including tariffs and quotas, that insulate their milk from international prices, according to the Food and Agriculture Organization.

These systems are under strain, as high rewards in the globalized market are inspiring milk producers to challenge the old practices.

In Germany, where milk prices are set annually after negotiations between producers and powerful retailers, retailers have been holding prices down to the tune of almost 15 percent since 2002.


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