[getsmart-l] Could rising demand for milk and biofuel stop sprawl?

[Gloria Boxen]

Could the rising demand  and prices for dairy products (along with demand for biofuel) make farming profitable and keep land in production?

Go to 
http://www.boston.com/news/world/europe/articles/2007/08/10/milk_prices_rise_to_record_highs/

http://abcnews.go.com/Business/wireStory?id=2994283
 
 http://www.nytimes.com/2007/09/04/business/worldbusiness/04milk.html?ex=1346558400&en=ae8f27ebf8f13afe&ei=5088&partner=rssnyt&emc=rss
 
or read below and learn more about the world market for dairy products

Gloria Boxen

http://www.boston.com/news/world/europe/articles/2007/08/10/milk_prices_rise_to_record_highs/

Abstract
...milk has one thing in common with black gold: It is trading at record highs. Reasons include growing appetites for dairy foods in China and elsewhere in Asia, where fast-food and coffee chains are introducing taste buds to cheeseburgers and lattes, as well as rising costs for animal feed, shrinking European stocks and droughts in Oceania, the world's largest milk exporting region. 

Dairy farmers cheer as milk prices rise  By Emma Vandore, AP Business Writer  |  August 10, 2007
 PARIS --Unlike oil, we probably won't ever run out of milk. But the two liquids have one thing in common: They're trading at record highs.
 Milk prices are rising for reasons that 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.


 Reasons include growing appetites for dairy foods in China and elsewhere in Asia, where fast-food and coffee chains are introducing taste buds to cheeseburgers and lattes, as well as rising costs for animal feed, shrinking European stocks and droughts in Oceania, the world's largest milk exporting region.


 Paying more for milk, a source of nutrients like calcium, is causing uproar in Germany and other countries where many families consider providing children with an affordable glass of milk a fundamental right.
 Prices are likely to remain high until dairy farmers add more cows or shift production to powders, more easily traded than the liquid stuff.
 Milk prices in the United States hit a record in July, according to the U.S. Department of Agriculture. It forecasts prices will remain high throughout the year.


 International dairy product prices increased 46 percent between November 2006 and April 2007, with milk powder prices increasing even faster, according to the U.N. 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 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 Wal-Mart of the U.S. 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.


 The Dairy Association of China estimates consumption will rise by 15-20 percent annually in coming years.


 Premier Wen Jiabao, on a visit to a dairy farm last year, said his "dream" is for each Chinese child to consume half a liter (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 consequence, 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, the association 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 United States, Canada, the European Union, and Japan have a range of policies including tariffs and quotas which insulate their milk from international prices, according to the FAO.


 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 such as Aldi, Lidli and Edeka, David took on Goliath -- and won.

 Retailers have been holding prices down to the tune of almost 15 percent since 2002. Since July, they have been paying producers an extra seven to 10 euro cents (five to seven U.S. cents) per liter after the producers threatened to take their milk elsewhere.


 Since May, the price for a 250-gram packet of butter has gone up from 77 euro cents to 82 euro cents (from $1.06 to $1.13 for half a pound of butter) in Germany, while the price for a 1 liter of milk has increased from 58 euro cents to 66 euro cents (from $3.20 to $3.60 for one gallon of milk).


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


 The 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 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. CEO 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 rise in two years, to help compensate for the increase in prices.
 --------
 Associated Press writers from around the world contributed to this report. 
   
    © Copyright    var crYear = new Date(); document.write(crYear.getFullYear());2007 The New York Times Company



http://abcnews.go.com/Business/wireStory?id=2994283

With Dairy Farmers Feeling the Pinch, Consumers Expected to Pay More for Milk This Fall
By GENARO C. ARMAS Associated Press Writer,                        The Associated Press, State College, Pa.     
...The price of milk swings by classic supply-and-demand economics, said Douglas Eberly, counsel for the Pennsylvania Milk Marketing Board. When prices dip, it makes it harder and more expensive for farmers to make milk.


   If demand remains constant, but the supply of milk goes down, prices tend to increase. That may allow farmers to ramp up milk production again, which increases supply and in turn likely lowers the retail cost of milk.


   Logan Bower, president of the Professional Dairy Managers of Pennsylvania, said costs for farmers have risen so much recently that he is unsure whether even the predicted price increases will help.

http://www.nytimes.com/2007/09/04/business/worldbusiness/04milk.html?ex=1346558400&en=ae8f27ebf8f13afe&ei=5088&partner=rssnyt&emc=rss

 
September 4, 2007
   A Thirst for Milk Bred by New Wealth Sends Prices Soaring   By WAYNE ARNOLD
           HAMILTON, New Zealand — After years of saving, Geoff Irwin finally scraped up enough money to buy his parents’ dairy farm near here in 2003. Now his parents have retired to a house nearby and Mr. Irwin runs the farm with its 300 cows.

 
 It is hard work, 12 hours a day, but already it looks as though it has paid off: just four years later, the farm is worth more than twice what Mr. Irwin paid for it. Prices for dairy farms in New Zealand are soaring along with dairy incomes, thanks to a global milk boom.

 
 “It feels really good,” said Mr. Irwin, 45. “It feels like we’re going to be earning and be rewarded the way we should.”


 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.

 
  But because of the local nature of the market, there is 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 finish this year. Rising dairy demand in the United States and among the European Union’s new members, moreover, is draining supplies. As a result, Mr. Hemme said, “This storage capacity is empty now.”


 At the same time, rising demand for biofuels is pushing up the price of corn and other grains, which is what farmers in the United States, Europe, Canada and Japan feed their cows instead of grass. Rising feed costs help to push milk prices even higher.


  Production is growing in emerging markets like China, but demand there is growing even faster. The average person in China now consumes more than six gallons of milk a year, up from more than two gallons in 2000, according to IFCN. So while China is now one of the world’s top milk producers, it is also the world’s largest milk importer.


 Experts say the growing demand for milk will have to be met in countries like China and Argentina as higher prices lead to greater investment in lifting milk yields.

 
  Some see the United States as another main source of milk supplies. International prices have now risen above the subsidized price of milk there, making it profitable for American dairies to export their milk. “There’s a real opportunity for the U.S. to export without government support or subsidies,” Mr. Goode said.


  Mr. Hemme at IFCN estimates that both the American Midwest and Europe could multiply their milk production. But it would take one or two years and require using more costly corn and grain. So even if milk supplies keep up with demand, the price will stay high.

 
 “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.”
          
     Copyright 2007  The New York Times Company
     
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