Japan’s biggest chain of cheesecake restaurants has collapsed with huge debts as East Asian dairies try to cope with the soaring cost of milk.

The collapse of the Tokyo-based Cheese Cake Factory (CCF) chain makes it the first big victim of a predicament that analysts believe will get worse through 2008.

Buckling under 1.3 billion yen (£6 million) in debts, CCF was forced to close its doors because the price that it pays for cheese has almost doubled in a year.

Fearing similar hardships for its dairy companies, the Chinese Government yesterday ordered the country’s banks to extend credit terms for any milk producers that risk bankruptcy amid soaring prices of animal feed.

Animal feed prices have tracked a series of unprecedented ructions in the markets for wheat, soya, corn and a variety of other commodities that have been affected by extreme weather, rising Asian demand and competition with oil as a source of ethanol. China ordered the banks to extend the deadlines for any dairy operation loans due for repayment before June if default appeared likely.

Japan imports about 90 per cent of its cheese and within the past few weeks prices of bellwethers such as Australian cheddar have risen so much that they threaten to derail the business models of food producers and restaurants.

Australian cheddar prices for the first half of 2008 were set yesterday at US $5,700 (£2,888) per tonne, a jump from last year’s $3,000 that has caught the Japanese food industry off guard and unable to pass such steep rises on to consumers.

Peter Eadon-Clarke, an analyst at Macquarie, said that, faced with the “unrealistic” prospect of passing 40 per cent price rises on to consumers, it was likely that companies would resort to using less cheese in their products.

Demand for dairy products, particularly cheese and yoghurt, is experiencing a worldwide transformation as the growing Chinese economy releases ever greater numbers of consumers from poverty. Rising incomes have created new appetites for pizzas, cheeseburgers, ice-cream and dairy-rich food that had not figured before in the average worker’s diet.

A spokesman for Japan’s Snow Brand Milk admitted that, at $5,700 a tonne, Japan’s 290,000 tonne-a-year cheese habit was causing dramatic changes to the nation’s food makers. Australian imports made sense when they were far below the $4,250 that it cost Japanese makers to produce a tonne of cheddar using domestic milk. The company is now investing heavily in building cheese factories in Japan to take advantage of home-grown dairy herds that used to be too expensive to consider exploiting.

Some economists predict that the soaring cost of cheese will be felt worldwide.

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