It won’t be long,’" he told me, "before a bottle of milk costs more than a bottle of wine."
I hear plenty of predictions, from City analysts, economic researchers and from businessmen and women. Most of them go in one ear and out the other. But this one stuck. And I have checked it out. And I reckon he could be right. Maybe it won’t be long before milk comes in a green glass bottle, with a fancy label.
""This milk was produced from grass growing on the south-facing slopes of the Quantock Hills. Where the soil is full of nutrients and the grass is especially lush. Monsieur Worzel Gummidge has carefully nurtured his herd of friesian cattle to produce this full-bodied milk, rich in protein yet light as the Somerset sun. Goes well with corn-flakes or a nice cup of tea."
"Let’s see.
"But already milk drinkers around the world are paying more for their milk. Americans consumers are noticing that a gallon of the stuff now costs more than a gallon of petrol. Someone, somewhere, is probably figuring out how cars can be made to run on milk…
The price of milk in the United States has increased by 55% over the last year. Starbucks is adding 9 cents to the price of a cup of coffee. But this is far from a US phenomenon. The price of milk is going up all around the world. It is about to go shooting up in this country as well. Farmers are still working through old contracts. But before the end of the year these will be renegotiated and the dairies and supermarkets will have to pay more.
Already some farmers are choosing to convert their milk into skimmed milk powder, where the world price has doubled in the last year. Now the floods have made things worse. Farmers have been forced to tip their milk away because the floodwaters have prevented tankers from collecting it.
Milk production is dropping like a stone", said Tim Brigstocke, a former chairman of the British Dairy Farmers Association. "Milk is going to become more of a scarce commodity."
This takes a bit of getting used to. For years milk has been as much of a cheap staple as a loaf of white bread. The supermarkets have elbowed the milkman out of the way and mercilessly driven down its price.
We're in for a shock. And for its causes, we need to look far away. Twenty years ago the Chinese barely touched milk and thought that cheese was good for nothing but smelly breathe. Now they want to feed milk to their babies and have a taste for pizza. Global demand for milk is soaring. But supply is not.
Look to Australia. There the drought has stripped more than one billion litres from Australia’s annual milk production. Look to the new obsession with alternative energy. Fields upon which cattle once grazed, or which grew corn and soybean to feed them, are now covered in sugar beet, wheat, sun flowers and oil palms to feed ethanol and bio-diesel plants. Animal feed is becoming scarce. And, with petrol prices so high, the cost of delivering it to the farmer is rising. Farmers need to charge more for milk to stay in business.
The price of milk has hit $3.50 per gallon in the USA, and experts are predicting $5 before the end of the year. That means that the price of cheese, of ice-cream, and of pizzas is going up. Chocolate giant Hersheys has already warned that its profitability is being hit by rocketing milk prices.
But there are winners, too. Coca-Cola is probably rubbing its hands at the prospect of kids drinking even more coke and less milk. The 13,000 remaining dairy farmers in this country – there were 28,000 in 1995 – are realising that they can afford a new Land-Rover. And, of course, there are the dairies and skimmed milk producers, who suddenly find that they have something long thought to be the preserve of supermarkets.
It is called pricing power. It is coming to a farmer near you. It is coming to a dairy near you. And it is coming to a small company that you can read all about in this week’s issue of my newsletter, Red Hot Penny Shares.
It is not too late to subscribe – I will even give you a three month FREE TRIAL.
Regards,
Tom Bulford
for The Penny Sleuth
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