Widespread ownership of refrigerators, a growing taste for cheese-laden pizzas and a hearty dose of political endorsement have combined to make milk one of the hottest food products in China.

Dairies in China have unveiled ambitious plans to increase total milk production from 28.7 million tonnes in 2005 to twice as much over the next 12 years to make China the third-largest milk producer in the world. China, runs the logic behind this dramatic expansion, will be consuming about 40kg of milk per person by 2020, against a 24kg average today. But many analysts believe that immediate demand will far outstrip increasing supply in China. One commodities analyst with Rabobank suggested that Chinese consumers’ appetite for milk products will grow annually by about 15 per cent for the next three years.

It is this dynamic that has propelled global milk prices to a near record. Growing demand for milk, milk protein products and other dairy items is being fuelled by changing appetites in China and the Middle East, but supply has slumped. This year’s drought in Australia has left the former exporter of milk now an importer. Over the same period, the EU has cut subsidies for dairy farmers; gone are the milk lakes and butter mountains that once could have plugged the supply gap.

So who are the beneficiaries of this milk supply squeeze? American dairy farmers have never had it so good. Those who have survived the past few years of financial misery, when a number went bust, are reaping the benefits of a US milk price that has risen 55 per cent in a year.

Richard H. Byma has been a dairy farmer in Sussex County, New Jersey for 35 years. His family, who emigrated from Holland in the 1940s, have been farming their land since 1946. His herd of 140 dairy cows and 150 calves on 750 acres is helping him and his son to have their “best year ever”. Mr Byma told The Times: “We’re having fun right now. And it’s about time, because last year was extremely stressful when the milk price was at a 20-year low. We had to use all our savings just to stay afloat. We still work the same hours – 4.30 in the morning to 6.30 in the evening, seven days a week – but we are now making profits.”

But that is only because they are established. He said: “If my son, who has just joined as a partner in the business, had to start from scratch building a dairy herd, he wouldn’t be able to afford it. One of my cows last year would have fetched at auction $2,000. Last week, I would have got $3,000. It takes years to build up a herd.”

Mr Byma’s cows haven’t become more valuable just because of surging Chinese demand for milk. Dairy prices have shot up because the cost of maintaining a herd has increased as well. The corn used to feed cattle has doubled in price in a year because demand for the grain is also being driven by its use to create ethanol, an alternative to petrol. The fuel price has also increased costs.

While the US and traditional exporters such as New Zealand are helping to meet global demand, Japan is emerging as a surprise supplier. Japan’s conversion to milk began with its period of rapid economic growth in the 1980s. Having grown up on raw fish, rice and seaweed, Japanese people became insatiable consumers of yoghurt, ice-cream, cheese and milky drinks.

But since 1993, milk consumption in Japan has fallen back to pre1985 levels. A health boom, a 700 per cent rise in consumption of soya milk and a low birth-rate have combined to give Japan, which has had a dairy herd for only two decades, a vast milk surplus. Now the industry in Japan is preparing to start selling dairy products in China.

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