The drought has already impacted wheat prices, which rose 34 per cent in the past month because of the weather conditions in the world's third-biggest wheat exporter. But Australia's worst drought in a century could also raise the price of dairy products, with Australia exporting around half of its total output. "If Australian supplies are lower, that would generally have a positive effect on global dairy prices," said Chris Phillips, general manager for trade and strategy at industry association Dairy Australia. Australia's dairy exports account for about 13 per cent of the world market, he told AP-Foodtechnology.com, so the impact of lower Australian production will depend on supply from other major export markets such as Latin America and New Zealand. "For key export customers, processors will be keen to maintain supplies but they will be looking closely at their product mix and evaluating which offers the best returns under the current situation," he added. Drought results in less pasture for grass-fed dairy herds and lower fodder reserves. This means that farmers bring forward the 'drying off' of their herds, reducing total production. Farmers are also facing higher grain prices for supplementary feed for their animals and must therefore weigh up how much herd to keep and the returns on a higher cost base. In New South Wales, where 92 per cent of the state is in drought, farmers have started off-loading stock before the hot, dry summer when they would be forced to buy feed and water. Some in the industry are concerned that major export markets will be nervous about their future supplies. Grant Crothers, chief executive of Burra Foods, a Victoria-based processor of dairy ingredients, told a conference in Sydney that Japan is concerned about Australia's capacity to ensure long-term supply because of the drought, according to ABC news. Japan is Australia's biggest dairy export market, followed by south-east Asia, North America and the Middle East. However Philips pointed out that Australian dairy farmers have had "a very good start to the season and production is well up on the same period of last year". This makes it difficult to assess the real impact of the recent drought on overall production.A drought in 2002-03 caused the industry to lose 800 million litres of milk out of 11 billion, or 7 per cent of its total production, said Philips. Farm exports were down by 27 per cent.