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10 Jan, 2008 05:23

Thirst for milk pushes up prices

Milk prices are going through the roof because of growing global competition for limited milk supplies. Russia is suffering a shortage of milk, a problem made worse by the nation's small livestock industry.

Demand for milk has increased around the world.  Countries like China, where milk consumption has never been high, are now big importers. This new thirst for milk is driving prices up as well as putting additional pressure on dairy processors. 

Wimm-Bill-Dann CEO, David Yakobashvili, says it's a simple economic equation. 

“Our suppliers are now getting more oriented towards other countries like Algeria, Indonesia or China. They can sell dry milk to them at a price of $US 5 per kilo, which is much more than they can get on the Russian domestic market,” Yakobashvili said. 

Russian milk production grew slightly last year but remained well below the government’s targets.  

Last year the country produced 32 million tonnes of milk, only 3 per cent more than the year before.   

Yakobashvili says the country was “self-sufficient” in Soviet times. 

“But from 1990 the cattle population fell by half. Now we produce around 31 or 32 million tonnes of milk per year, and we are forced to import from Ukraine and Belarus,” he added. 

The fashion for biofuel has created additional demand for cereals, making the problem worse.  That has pushed up the cost of livestock feed.  

BrokerCreditService analyst Tatyana Bobrovskaya said the new fuel had “reduced available pasture land”. 

“It made milk production very expensive, encouraging farmers to shift from milk to meat,” Bobrovskaya said. 

In Russian shops, tightened milk supply caused a 27 per cent rise in dairy product prices last year.  

The government’s stated aim is to reduce dependence on imports but it’s been forced to remove trade barriers to increase the supply of milk into the country.