Global food prices increase on the back of drought-driven dairy price ‘surge’ - FAO

By Mark ASTLEY contact

- Last updated on GMT

Global food prices increase on the back of dairy price ‘surge’ - FAO

Related tags: Milk

Global food prices increased in March on the back of an 11% New Zealand-driven “surge” in global dairy prices, the Food and Agriculture Organisation of the United Nations (FAO) has revealed.

The FAO Food Price Index, which is a measure of the monthly change in international food commodity prices, averaged at 212 points in March 2013 – up 1% from February 2012.  This “small increase”​ has been attributed to the rising cost of dairy commodities around the world.

The FAO Dairy Price Index takes into account butter, skimmed milk powder, whole milk powder, cheese, and casein price quotations. The index jumped by 22 points in March to 225 – one of the largest ever recorded changes.

It has attributed the dairy price increase to the “hot, dry weather” ​currently being experience in Oceania – more specifically New Zealand, where the drought has led to a steep fall in milk production in the country.

Oceania weather “root of this price surge”

“At the root of this price surge is prolonged hot, dry weather in Oceania which has led to milk production falling off steeply and a concomitant reduction in the processing of dairy products,” ​said an update from the FAO.

The dairy prices used in the FAO Dairy Price Index calculations are based on the exports of Fonterra-dominated New Zealand – the world’s largest dairy exporter.

“As a result, the spot prices for New Zealand dairy products – upon which the index is based – have surged, as buyers big against each other to meet commitments.”

The FAO added that export dairy export prices have risen in other important export regions, including the European Union (EU) and the US.

“The ‘Oceania Effect’ has also caused export prices elsewhere to rise, but not to the same extent,” ​said the update.

Drought “created a real challenge”

Fonterra, which collects around 90% of the milk produced in New Zealand, revealed in its recently published half year results that the dry conditions experienced in New Zealand's North Island since January had “created a real challenge.”

“The drought in the third quarter has been more severe and lasted longer than anyone might have predicted, and means we are currently forecasting total milk collection volumes for the full season to finish in line with last season,"​ said Fonterra chairman, John Wilson.

The severity of the drought has, however, lessened in recent weeks. 

DairyReporter.com attempted to contact Fonterra for an update on its milk production targets, but the company was unavailable for comment prior to publication.

Related topics: Commodities, Pricing Pressures

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