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Dear dairy: How much higher will milk prices go?

·2-min read
man getting milk out of fridge at supermarket
Milk prices are on the march. (Source: Getty)

Milk, like many other food categories, has been hit hard by inflation, with year-on-year food price inflation the highest it’s been since 2011.

Dairy and related products saw a 4.1 per cent, year-on-year price increase, according to the latest Australian Bureau of Statistics data, and a 1.9 per cent increase over the March quarter.

Last time Yahoo Finance checked in on the cost of milk, the price of Woolworths-branded milk had increased to $1.30 a litre from $1.20 a litre in November last year.

Rabobank senior dairy analyst Michael Harvey said it was hard to say exactly how much extra consumers would be paying for dairy products going forward but prices were certainly trending upwards.

“Consumers will have no choice but to tighten their belts,” Harvey said.

As a commodity, dairy is traded internationally, Harvey explained.

“And [global prices] are at or near record levels, depending on the exact product you are looking at,” he said.

He said supply shortages caused by a range of issues in export regions, including weather disruptions, supply chain issues and high costs of production, were driving prices up.

Low milk supply feeds into a high farm-gate price, which means dairy farmers around the world - including Australia - are getting paid handsomely for their milk.

“And it’s still increasing,” Harvey said.

He said this was good news for farmers, and would “hopefully incentivise new production”.

However, Harvey said healthy farmer profits were being eaten up by increasing production costs, including higher costs for fuel, feed and fertiliser.

He said the high cost of farmgate milk was driving up the cost of finished products, like cheese, butter and yoghurt.

Will milk prices keep rising?

Looking forward, Harvey said a lot of the key settings underpinning high food prices were going to continue to play out for the next six to 12 months because global prices were going to remain firm.

“There are still ongoing supply chain issues, the cost of production is going to remain elevated.”

On the flip side, food and beverage retailers will be working hard to minimise the impact on the customer to maintain their market share.

Retailers will look at ways to offset the high cost of production by looking at pack size and exploring other opportunities to cut costs in the business.

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