The cows of New Zealand are working overtime. The rise in milk demand is outpacing that for crude oil and the Premier of the world's most populous nation has had a dream “to provide every Chinese [with] sufficient milk”.

The Japanese just cannot get enough cheese and in the Philippines only mobile phone cards and beer rival formula milk as the leading consumer commodity. Although the herds of New Zealand may have their work cut out to meet demand, their masters are beaming from ear to ear. Never before has the term “cash cow” been more appropriate.

In what has been called a white gold bonanza, the 11,000 farmer members of Fonterra Co-operative Group, the largest dairy exporter and joint owner with Arla of the Anchor and Lurpak brands in the UK, have been promised a payout 63 per cent higher than last year. The windfall, which amounts to more than NZ$9 billion (£3.6 billion) countrywide, comes after global prices reached a record last November. The average man or woman in gumboots is expected to receive a cheque for a record NZ$770,000.

“Especially in the South Island, where they've had reasonable growing conditions and a very high international price that has been passed through from Fonterra, those farmers have had by far their best year, probably in history and certainly in recent living memory,” Doug Steel, senior economist for Westpac Institutional Bank, said.

Soaring in tandem with other agricultural commodities, whole and slim milk powers, cheese and butter have doubled in price worldwide in less than 18 months. Demand is being driven by the urbanisation and economic growth of emerging markets, with a significant contribution from freshly enriched oil-producing nations, Mr Steel said.

Supply has been curtailed by droughts in New Zealand and Australia and by Common Agricultural Policy reforms that have cut subsidies in Europe, the biggest dairy producer. At the same time, the costs of substitutes has risen, diluting the incentives to switch to soy or products based on palm oil. Stockpiles worldwide have dropped dramatically and, although prices have fallen from their peaks, the bonanza is expected to continue.

Westpac expects prices in the long term to remain 50 per cent higher than their average during the past ten years. Most dairy products are consumed in their home market and only about 7 per cent of the 100 million tonnes gulped down each year is freely traded. Fonterra, a virtual monopoly, controls a third of this, accounting for about 20 per cent of New Zealand's total exports.

Andrew Ferrier, the chief executive of Fonterra, said that there had been a structural shift in prices of soft commodities, and dairy in particular. “[Higher costs] are certainly impacting, but at current world dairy prices our farmers are still in expansion mode. The bottom line is we've seen revenues go up faster than costs in the last year or so,” Mr Ferrier, a former head of Tate & Lyle's North American sugars business, said.

Growth in production should continue to expand at 2 per cent a year. Mr Ferrier said: “Farmers are consolidating farms. They are buying their neighbours and becoming more efficient on the same land, so that's sustainable. And also we've seen quite a bit of conversion from sheep and beef to dairy, and that's because dairy in the last few years has clearly paid better.”

One hundred farms a year are converting from lamb and beef to dairy in Southland, the southernmost New Zealand province, alone. Others are buying up the farm next door to increase economies of scale. It is estimated that every second farmer owns two separate dairy farms, and many own three or four.

The industry joke is that every farmer has a monopoly board tacked to the farmhouse door. Consequently, the average price of a dairy farm has risen more than a third in a year to NZ$4.1 million, against an average of NZ$3 million last year and NZ$1.5 million for all farms. The price of dairy cows has surged threefold to as much as NZ$3,000 a head.

Katie Milne, who owns 200 cows in Rotomanu on South Island, said she was confident that dairying had become properly profitable again. “Because it was at the stage where you made a meagre living, I guess,” she said. “You were a farmer because you loved farming, more than it was a lucrative thing to be in. But, hopefully, yes, it feels like we've turned that corner.”

The strength of the market has emboldened her to buy a new utility truck and tractor, to take on a lease for another farm and to plan to buy another 40 cows. Others have been following the dairy herd, employing huge diggers to transform the rugged countryside into undulating hillocks conducive to dairying.

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