Milk prices rise to record highs

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 to $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 Dairyman 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.

Products from Chinese dairy giant Mengniu even carry the label of being the official milk of the Chinese space program. Its drinks promise to "fortify the Chinese people," with packaging showing a space-suited boy clutching a glass of creamy goodness.

China's growing love of dairy is a far cry from two decades ago, when the country was just opening up to foreign products and availability was limited to milk, yogurt and, on rare occasions, butter. The Dairy Association of China estimates consumption will rise by 15-20 percent annually in the coming years.

Premier Wen Jiabao, at a visit to a cow factory last year, said his "dream" is for each Chinese child to consume a pint per day. He is boosting production to try to keep up with demand, but the world's most-populous nation remains a net importer of dairy products, including milk powders.

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. Since July, they've been paying producers an extra five to seven cents a quart after the producers threatened to take their milk elsewhere.

Since May, the price for a half-pound package of butter has gone up from $1.06 to $1.13 in Germany, while the price for a gallon of milk has increased from $3.20 to $3.60.

In a country where beer is cheaper than milk, higher prices for dairy products have led to a flurry of condemnation.

Germany's HDE retail association blames the Chinese and European Union milk quotas. The quota system, imposed since 1984, prevents farmers from producing more to keep up with demand.

"The Chinese are buying European milk powder," said HDE spokesman Hubertus Pellengahr. "There are quotas in the EU and therefore the prices have to rise, and the customer is the one paying the bill."

The quota system will come to an end in 2015. In the meantime, EU spokesman Philip Tod said the EU Commission is allowing small — 0.5 percent — annual increases in quotas through 2008.

Hershey Co.'s chief executive officer, Richard H. Lenny, said America's largest candy maker may adjust its formula to use less lactose because of rising milk costs. Candy bar prices will also be reviewed, he said.

Franck Riboud, head of French yogurt maker Groupe Danone SA, said last month he will raise the price of dairy products in France by 2.5 percent, the first increase in two years, to help compensate for the rise in prices.

In the United States, milk processors and distributors "are being challenged by the most stubbornly inflationary dairy markets in history," said Gregg Engles, CEO of Dallas-based Dean Foods, the largest U.S. processor and distributor of milk and other dairy products, where profits are down.

Associated Press Writers Christopher Bodeen and Joe McDonald in Beijing, Marc Levy in Harrisburg, Pa.; Juliana Barbassa in San Francisco; Dave Koenig in Dallas; Mary Clare Jalonick in Washington, John Hartzell in Milwaukee, Wis.; Matt Moore in Frankfurt, Germany; Aoife White in Brussels, Belgium, and David Ariel in Rome contributed to this report.

MAY 24, 2006 LOW PRICE IS BANKRUPTING DAIRY FARMERS – by Arden Tewksbury When dairy farmers opened their milk checks in late April, many were stunned to find out their advance check for the first 15 days of milk in April was worth only $1.11 per hundredweight (cwt), which is approximately 12 gallons of milk. Considering that the cost of production is between $13 per cwt and $17 per cwt, dairy farmers need a new pricing system. Warnings abounded that this price was coming, but it was hard for dairy farmers to accept the $11.11 as reality until they saw their checks. Unfortunately, some dairy farmers received only $10.68 per cwt. I called some milk handlers to see if they would raise the price to $12.00 to help out. Clearly, the whole pricing mechanism is a farce. It is a disgrace for dairy farmers to receive only $11.11. In February 1981, manufacturing milk was valued at $12.68 per cwt. That was 25 years ago!!! How can any official stand by and watch our dairy farmers be treated this way? Anyone who calls himself a dairy leader, whether he is in a co-op or farm organization, a member of Congress, a worker at the U.S. Department of Agriculture or an economist for any college or university, should hang his head for allowing this pricing mechanism to impose such hardships Surely, everyone must be more than aware of the continuing dramatic costs experienced by all dairy farmers. A dairy economist wrote recently that it was a mystery how cheese prices could increase a few cents a pound on the Chicago Mercantile Exchange (CME). I say, “It’s a complete mystery to me why we still price milk to dairy farmers the same old way.” Some say dairy farmers are producing too much milk, but many others would counter that if imports were curtailed, dairy farmers would see better prices. Some also say that fluid sales are flat. But please visit the dairy cases in your grocery stores. See how many rows and rows of “Coffee-Mate,” “International Delight,” and “Silk Milk” have invaded them. I visited the P&C store in Sayre, Pa. (Bradford County), and I was pleased to see how the manager, Lynelle, has the artificial dairy products separated from the real milk. Dairy farmers, please don’t let the politicians continue to tell you the best they can do is give you the Milk Income Loss Contract (MILC) payments! Please look at what Pennsylvania Milk Marketing Board (PMMB) is continuing to do for the Pennsylvania Class I milk that stays in the state. It currently has a $1.93 premium that goes to farmers to help alleviate their costs. If Pennsylvania can do this, then why not the U.S. Department of Agriculture? Isn’t it time to investigate the CME? Why should a few carloads of cheese establish the price of all milk in the United States? The time has arrived when dairy farmers must stand up and demand changes. Let’s curtail some of the dairy products coming into the United States. Let’s get the imported milk protein concentrate (MPC) out of our dairy products. Let’s make sure your advertising and promotion people are visiting stores to make the dairy case truly a dairy case. Finally, let’s bring the dairy farmers’ cost of production into the pricing formula. Then if there is too much milk, penalize the producers for 5 percent of the so-called “overproduction,” but let’s establish the right price on the other 95 percent of the milk. Many of the organizations that I have worked with over the years, like the National Family Farm Coalition and National Farmers Union, have developed workable dairy programs that would have returned a fair price to farmers, kept milk production in line with the real market, and would have kept dairy imports under control. In addition, these programs would not have cost U.S. taxpayers any money. We need to collaborate to enact a new dairy policy that is based on these workable dairy programs, not on short-term solutions that work against us. -- Arden Tewksbury from Meshoppen, Pa., is a dairy farmer and manager of Progressive Agriculture (PA), an organization representing 1,200 family dairy farmers. He wrote this for the National Family Farm Coalition.

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