Australia to benefit from cheese price stability

Prices have rallied by over 40 per cent from two years lows, with the benchmark bulk ingredient cheddar cheese touching $3,000 a ton, benefiting producers in Australia and worldwide.

"It is a dramatic turnaround. Prices have swung from record lows to record highs,"​ said Michael Harvey, industry analyst at Dairy Australia​, which promotes the interests of the sector.

Increased demand from consumers such as Saudi Arabia and Russia, buoyed by strong oil prices, coupled with exports to traditional trading partners such as Japan, is benefiting the Australian dairy sector, which has a 17 per cent share of global cheese exports. Australia produces 330,000 to 400,000 tons of cheese annually and exports about two-third of its output.

The prices have also been pushed northwards by a 3 per cent dip in New Zealand dairy production, which accounts for 23 per cent of the global cheese exports. Production from the European Union, which has a 40 per cent market share, is expected to experience a marginal fall, while Australian output is likely to be at the same levels as last year.

The increase in cheese and dairy prices has also helped cushion exports from the relentless rise of Australian Dollar, which now buys 76 US cents, as against 55 US cents two years ago.

Meanwhile, analysts expect the price of cheese, which has risen much faster than other products such as skim milk and butter, to remain firm in the coming year. "There are no substitute products for cheese,"​ explained Harvey.

Buyers of cheese are less sensitive to price increases than consumers of other dairy products, where 'buyer resistance' kicks in after certain price levels are reached, prompting consumers to look for substitute products.

However, rising fuel prices could hurt the economies of oil-importing counties and lower their demand for cheese and other dairy products.