American Blog

Submitted from YOUR NEW REALITY

Only a few years ago, hundreds of millions of Chinese and Indians were still making do with powdered milk. Now more and more of them want the real stuff, the moo juice, and they want it clean, blindingly white and smooth as silk.

In 2000, the average Chinese consumed 9 litres of milk a year. Now they consume 25 litres each. And China is only one of the world markets where a milk shortage meeting increasing consumer demands for the white stuff are going to ratchet up prices. And, in some areas of the world, profits.

Oil is so yesterday. The real gold in the storming world economy is milk. Fresh milk. As rural dairy farms are swallowed up by drought and expanding suburbs, as multiplying middle classes across China, Russia and India demand the best and the freshest of everything they consume and as dairy feed stocks are converted into extremely profitable biofuels, there are less diary farms producing less milk for a world market demand that has never been so huge.

The price of of milk has doubled in 24 months, and in some parts of the United States milk costs more than gas.

A New Zealand farmer in this story this story managed to pay off his farm in only four years, off the udders of 300 cows :

“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, 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, chocolates, ice cream and cheese. Most baked goods contain butter, and coffee chains like Starbucks sell more milk than coffee.

Just meeting that demand, according to Alex Duncan, an economist at Fonterra, the dominant dairy cooperative in New Zealand and the world’s largest dairy-exporting company, 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 the largest exporter of dairy products. Some dairy economists doubt the world’s heifers 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.

…because of the local nature of the market, there is very little spare capacity. In the past, the world could always count on the United States and Europe to fill shortages by exporting some of their subsidized stockpiles of cheese, butter and milk powder. But the United States has drawn down its butter mountain and other stockpiles; the same is true of the European Union, which started cutting dairy subsidies in 1993 and will be finished this year. Rising dairy demand in the United States and among the EU’s new members, moreover, is sucking up supplies. As a result, said Hemme, “This storage capacity is empty now.”

Australia, a major exporter, is suffering a multi-year drought that has devastated its milk production by killing off the grass that milk cows eat. Many in Australia worry that, far from being a temporary problem, the drought is the result of global warming and that dairies will never be the same.

“Even when prices start easing back, we don’t expect them to go back to where they were,” said Hayley Moynihan, a dairy analyst at Rabobank in New Zealand. “The cost of production and ongoing demand is going to see prices eventually settle at higher levels than they did in the past.”

There you have it. Real milkshakes will soon become a luxury item, even in the West.