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Price of cheese expected to rocket as milk supply sours

Brace yourselves for pizza price hikes as dairy product shortages caused by freak weather.

Cheese sandwiches and pizzas may no longer be a cheap snack. A combination of freakish weather affecting milk supplies and runaway global demand for milk is sending the price of cheese soaring.

In the past three months the wholesale price of cheddar in Britain has increased by US$700 a tonne, breaking the US$4,000 mark. Similar rises over the next quarter look likely and cheesemakers are braced for hefty price hikes.

It is bad news for pizza chains and Britain's fromage lovers who have enjoyed four years of the price remaining stable. But no more.

"There has been a surge in prices for butter and milk powder," said Nigel White, secretary of the British Cheese Board, the body that represents more than 40 of Britain's cheesemakers. "It's going to have to ripple through to the cheese market."

Experts say a massive increase in demand for milk from fast-growing countries such as India and China is playing havoc with the normal laws of supply and demand.

Meanwhile, a severe drought in Australia -- one of the world's biggest milk producers -- and an EU policy to reduce milk production among member states have both restricted supply.

For the owners of Italian restaurants, the massive price increases could not have come at a worse time. Wheat prices are also soaring, sending the cost of pasta spiralling.

So far global restaurant chains -- such as Pizza Hut, which goes through 130 million kilograms of cheese per year -- have tried to resist passing the increase on to their customers.

But in the US, where 350 slices of pizza are consumed every second and the wholesale price of cheddar cheese, the industry benchmark, has almost doubled in the past year, the omens are not good.

Pizza Hut and Papa John's have both already raised the prices of their cheese-only pizza pies to put them on a par with their one-topping offerings.

Typically cheese makes up 40 percent of the costs of producing a pizza so soaring prices will have a dramatic impact on a pizza company's bottom line.

The price of mozzarella has soared even higher than that of cheddar. A year ago fresh mozzarella cost US$1.25 per 0.45kg in the US. Today it touches the US$4 mark.

In New Zealand the company that runs the Pizza Hut, KFC and Starbucks franchises recently announced its profits were down 47 percent -- partly thanks to the soaring cost of raw ingredients.

The profit warning is likely to send tremors across Britain's pizza industry. And, worryingly, the price of cheese looks set to rise yet further.

David Zaslavsky, a market analyst with Downes-O'Neill, a dairy brokerage firm in Chicago, told the US press that a strong demand, along with a typical summer decline in milk production, could keep cheese prices high.

To compound it all, grain prices are also soaring, sending the cost of cattle feed rocketing -- placing further inflationary pressures on milk producers.
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