The cost of milk, cheese and other dairy products are going to get higher, an industry expert has warned.
The price for a litre of milk started rising around November last year when Woolworths increased the price of its generic milk from $1.20 a litre to $1.30 a litre.
“We’ve seen farmgate milk prices increase significantly over the past two years and they're forecast to continue rising in the season ahead,” a Woolthworths spokesperson told Yahoo Finance.
“As a result of the farmgate price movements, we’ve been paying our suppliers more for milk in recent years, accepting millions of dollars in wholesale cost increases.
“In November last year, we reviewed and adjusted the price of Woolworths-brand milk to reflect the higher costs.”
While a 10-cent increase doesn’t seem like much, it’s just the start according to Michael Harvey, senior dairy analyst at Rabobank.
“Consumers would have already seen some subtle increase in milk prices at the retail end,” Harvey told Yahoo Finance.
“There is the possibility of more retail price increases in dairy prices coming down the line, simply because of what's happening with the global market situation.”
Inflation hits the supermarkets
The dairy industry has seen the bulk prices of butter and cheese at record levels due to supply chain issues.
“It is unprecedented how high the prices for those commodities are in the global market,” Harvey said.
“Prices for cheese and butter have jumped 50 per cent in less than a year. We don’t expect retail prices to match those levels but there will be increases along the line.”
Inflation had hit all areas of the food system, not just dairy prices, Harvey said, so the toll it would take on consumers was yet to fully be realised.
“The cost of everything in the food system is rising rapidly, whether it's beef, dairy, grain, or everything else in the supply chain,” he said.
“It’s also things like packaging and distribution, the cost of labour and everything else.
“Consumers are no doubt going to see food inflation in the coming 12 months.”
How long will prices stay high?
Harvey said consumers should expect prices to remain higher for quite some time.
“From a global privacy perspective, it's a commodity so it is very cyclical so you can get swings,” he said.
“But when it comes to pricing at the retail level, it can get a bit more sticky.
“If you see a price increase, it's likely to be there for a longer period of time because it takes longer for price changes on the global scale to feed through to the consumer.”
But, it’s not all bad news. While dairy and meat prices have been seeing increases, the cost of fresh produce has been coming down.
“We're actually coming through a period right now where we've got deflationary pressures coming through on fresh produce, because we had such high produce pricing late last year,” Harvey said.
“So, when you're looking at the basket of food at the shops, there will be cost pressures on dairy and meat, but there is some relief on fresh produce.”