Business Irish

Sunday 19 November 2017

Consumers 'will bear brunt of higher dairy trade costs'

Peter Flanagan

Peter Flanagan

THE price of cheese, butter and other dairy products is set to rise in the near future, according to a leading economist.

Speaking to the Irish Independent, Dr Constantin Gurdgiev said that a combination of factors has contributed to raising prices of basic commodities and that it was likely these price rises "will be passed through by producers in the coming weeks".

According to the most recent European Commission Quarterly report on the dairy market, milk prices have increased by close to 50pc in the last year and that has led to increases in butter and cheese prices of 52pc and 32pc respectively. Dr Gurdgiev believes that these hikes will force suppliers to raise their prices.

"When the global economy entered recession, the conventional wisdom was that demand would fall and therefore supply should be reduced.

"Demand has not fallen as expected, especially in the likes of China, India and other parts of the developing world.

"We are also seeing changes in dairy consumption in the developed world. The level of cheese in western diets, for example, has increased markedly.

"In the first quarter of the year butter production in the EU was down 9pc but butter prices were up 50pc year-on-year and it has been a similar story in the cheese market. "Despite cuts in cheese production, consumer demand for cheese in the UK was up 5.7pc.

As well as lower production and higher consumption, Dr Gurdgiev also pointed to energy costs as a contributing factor to rising prices.

"Transport and production costs have increased significantly, with the increase in oil prices one of the chief culprits.


"All these factors make it very difficult for dairy suppliers, which are traditionally low margin businesses, to sustain higher costs without passing on that cost further down the line."

Neither Kerry Group nor Glanbia would respond to Dr Gurdgiev's comments. It is believed that Kerry is not expected to raise milk prices significantly before the end of the year.

Dr Gurdgiev has also cast doubt on reassurances from industry sources and analysts over the past week that the Russian ban on wheat exports would have little impact on food prices here.

"We must remember that although much of the grain supply has been hedged by the big firms, if that hedging has been done with Russian grain, then it is effectively worthless.

"If the Russian government ends the ban on December 31, as it has said it would, but the wheat crop is stretched, then it is inconceivable to me that the government would allow wheat producers to export their crop to the rest of the world without first looking after the Russian people.

"So even if the export ban is ended, there may not be much grain for Russia to export," he added.

Irish Independent

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