The drought has already impacted wheat prices, which rose 34 per cent in the past month because of the weather conditions in the world's third-biggest wheat exporter. But Australia's worst drought in a century could also raise the price of dairy products, with Australia exporting around half of its total output.

"If Australian supplies are lower, that would generally have a positive effect on global dairy prices," said Chris Phillips, general manager for trade and strategy at industry association Dairy Australia.

Australia's dairy exports account for about 13 per cent of the world market, he told AP-Foodtechnology.com, so the impact of lower Australian production will depend on supply from other major export markets such as Latin America and New Zealand.

"For key export customers, processors will be keen to maintain supplies but they will be looking closely at their product mix and evaluating which offers the best returns under the current situation," he added.

Source: ap-foodtechnology.com