The price of milk is soaring worldwide as a drought-stricken dairy industry struggles to meet surging demand for milk products in China and the Middle East.

A doubling in the price of wholesale milk over the past year is creating havoc among food manufacturers, prompting warnings about food price inflation in the UK. Aid organisations have also raised concerns about the depletion of government stockpiles of milk powder.

In the UK, the price of cream has risen 23 per cent over the past year and dairy organisations say that cheese prices will have to rise this summer.

The continuing drought in Australia, which has crippled the country’s dairy output, has raised the wholesale price of skimmed milk powder by 60 per cent in six months. Over the past year, the cost of skimmed milk powder, used widely by the food processing industry, has soared from $2,000 per tonne to $4,800 per tonne.

Butter is also becoming much dearer, rising from $1,800 per tonne to $2,550 per tonne, according to figures from the Milk Development Council.

Changing diets and rising living standards in Asia, notably in China and the Middle East, have caught international milk processors on the back foot. Greater wealth is leading to a change in the Asian diet, explained Carmen Suarez, chief economist at the National Farmers Union. “There is population growth and higher incomes, which leads to higher consumption of animal protein.”

So rapid has been the escalation in demand that the EU’s milk surplus has dried up and the butter mountain has been flattened. Historically, the European Commission has given European producers subsidies to sell dairy products into the world market.

“The markets have been so strong there is no amount [of milk and butter] in intervention,” Ms Suarez said. “For skimmed milk powder the EU has been able to export without subsidies for a year.”

While the disappearance of EU food mountains may be welcomed, aid agencies have given warning of the impact on the world’s poor. Much of the world’s stock of milk powder is sold to poorer countries.

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