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The global milk boom

Driven by a combination of climate change, trade policies and competition for cattle feed from biofuel producers, global milk prices have doubled over the last two years. In parts of the United States, milk is more expensive than gasoline. There are reports of cows being stolen from Wisconsin dairy farms.

“There’s a world shortage of milk,” said Philip Goode, manager of international policy at Dairy Australia in Canberra.

But the biggest force driving up milk prices is the same one that has driven up prices for conventional commodities like iron ore and copper: a roaring global economy. Rising incomes in emerging economies from China and India to Latin America and the Middle East are lifting millions of people out of poverty and into the middle class.

It turns out that, along with zippy cars and flat-panel TVs, milk is the mark of new money, a significant source of protein that factors into much of any affluent person’s diet. Milk goes into infant formulas, chocolate, ice cream and cheese. Most baked goods contain butter, and coffee chains like Starbucks sell more milk than coffee.

Just meeting that demand, said Alex Duncan, an economist at Fonterra, the dominant dairy cooperative in New Zealand and one of the world’s largest dairy-exporting companies, will require the addition each year of the equivalent of New Zealand’s entire annual milk output.

That is a lot of milk. New Zealand is one of the world’s largest milk producers, according to IFCN Dairy Research Center in Germany, but it is the largest exporter of dairy products. Some dairy economists doubt that the world’s cows are up to the task and say there is a possibility that the shortage of milk now being seen in parts of the world will spread.

Others say there are plenty of places where more milk can be produced if the price is right. One thing they agree on is that milk prices are likely to stay high and rise even higher.

“No one forecast this rapid shortage of milk,” said Torsten Hemme, head of the IFCN center.

This is not good if you are in the market for milk. Pizza parlors and ice cream vendors are raising their prices. Starbucks has raised the price of its drinks. Milk is also weighing on profits at Cadbury Schweppes and at Kraft Foods’ cheese unit.

What is unusual, and somewhat confusing, about the milk boom compared with other booming commodities is that milk is not like oil: You cannot stick it in barrels and stockpile it. It goes sour. Even in powder form, the most commoditized version, milk has a shelf life. As a result, only about 7 percent of all the milk produced globally is traded across borders. The rest is consumed in domestic markets, which are protected by geography and just as often by tariffs or subsidies.

Big buyers like chocolate makers and grocery stores buy their milk under long-term contracts and so can smooth out sudden spikes or dips in prices. Thus, the full effect of the global shortage varies from country to country, and not all consumers are yet suffering the full impact…..

The New York Times: Read more

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