June 12, 2007/The Daily Telegraph (LONDON) -- The price of cheese and butter in shops is expected to shoot up over the next month as the full impact of a crisis in the global dairy market reaches shoppers' pockets in Britain.

An acute drought in Australia and in parts of the U.S. has led to a shortage of milk powder -- a key ingredient for some of the world's biggest food manufacturers.

This has come at the same time as demand for dairy products from Asia has soared, in large part because of increasingly affluent consumers in China switching to westernised diets.

The combination of the two factors has led to a surge in wholesale milk prices.

A year ago, skimmed milk powder on the world market was being sold for 1,000 pounds ($1,983) a ton. It is now fetching 2,400 pounds ($4,760) , with most of the growth coming in the past few months.

The cost of butter and cheese has also surged, with butter prices climbing 42% and cheddar prices increasing by 30%.

So far the prices on shelves have yet fully to reflect these increases, but dairy experts say that it is only a matter of time.

A pint of double cream has already climbed from 92p ($1.82) to 1.12 pounds ($2.22) over the past year and cheddar is predicted to be the next dairy product to be affected. While these price rises are not good for shoppers, they should be helpful to Britain's hard-pressed farmers.

Of the 13.5 billion liters of milk that British cows produce each year, seven billion go into pints of fresh milk. The rest is processed into milk powder, cheese, butter and other ingredients that are exported on to the global market.

Barry Nicholls, the chief executive of Milk Link, one of the country's major processors, said, "This is unprecedented over the last 30 years to have the luxury of deciding where to place our milk.''

However, some in the farming world say that British farmers will see only a small benefit from the global price increases.

Most farmers are tied into long-term contracts to supply their milk to British supermarkets and will not be able to switch into the booming milk powder and cheese markets.

Tom Hind, a dairy adviser at the National Farmers' Union, said: "There is a degree of cynicism amongst farmers that they will see any of this filter down. Many believe it is a bubble waiting to burst.''

The demand from China, however, is expected to continue unabated as consumers there develop a taste for milky tea and processed food that contains dairy ingredients.

Imports of cheese into China have more than doubled in the past five years.

From the June 18, 2007, Prepared Foods e-Flash