The price of dairy products across the globe are expected to rise moderately over the course of the next few months due to the prolonged drought in Australia.
According to the Australian Dairy Corp (ADC), the Australian dairy industry has grown so much in recent years that its impact on the global market, particularly in Asia, is now significant enough for the present drought situation to effect dairy prices around the world.
"The economic outlook for China and South-East Asia remains positive ... and as long as it remains strong, demand (for Australian dairy products) will be strong," said ADC manager for international policy, Phillip Goode in an interview with the Malaysian Business Times.
Today, Australia exports 66 per cent of its dairy products to Asia, including Japan. About 40 per cent of the country's total exports goes to the South-East Asian region. Goode said that until the Asian economic crisis in 1997, exports of Australian dairy products to South-East Asia were fast growing.
Goode also told the Business Times that the drought in Australia is now expected to reduce milk exports by 1.5 per cent from last year's export of 11.3 tonnes. Some agricultural areas in Australia have been in the grip of a drought for almost 18 months, with certain regions hit by the driest conditions in more than a century. The damage caused by the record drought will likely worsen and Australia's central bank earlier warned that the drought could cut the country's economic growth by up to one percentage point.
However, Goode gave assurance that Asia was unlikely to face a shortage of dairy products during this festive season as most of the orders would have been shipped earlier. He also told the Business Times that Australian dairy producers will be able to fulfil all contracts on-hand, although the drought does put short-term pressure on supply.
"This could lead to a price increase over the next five to six months because New Zealand also faces a tight supply situation this year," he explained. Goode, nonetheless, said the price increase is expected to rise at moderate levels as prices were already at a low level for the past 12 months.
"For example, between August 2001 and August 2002, the price of skimmed milk powder was low due to the anticipation of over-supply. But now, the drought would make supply tight and the price increase would be reasonable," he said.
All the same, Goode thinks that the tight supply is not expected to last as dairy products from Europe will come into the market in February 2003, after the winter season.
The ADC is a statutory marketing authority which undertakes marketing and regulatory activities to enhance the profitable production and marketing of Australian dairy produce.