Drop in Milk Production Threatens Food Security

Low milk prices, extreme feed costs and pockets of unfavourable weather are expected to slow growth in milk production, and potentially lead to a global shortage.

The latest report from Rabobank suggests that the slowdown in milk production growth will be sufficient to undershoot even the modest growth in consumption.

With this in mind, supply shortages are inevitable, which will in turn see prices spike.

Rabobank expects prices to rise substantially in the international market in order to bring about the demand rationing needed to balance the market and move prices into alignment with the rallies already evident in US and EU wholesale pricing.

Last week, another Rabobank report warned that skyrocketing agricultural commodity prices are causing the world to re-enter a period of "agflation". The report said that food prices would reach record highs in 2013.

Rabobank estimates that the Food and Agricultural Organisation (FAO) Food Price Index will rise by 15 per cent by the end of June 2013. In order for demand rationing to take place, in turn encouraging a supply response, prices will need to stay high.

Current price inflation is the result of weather driven events in large exporting nations, principally a severe drought in the US (its worst since 1936) and similar water shortages in Russia and South America.

In the US, a bipartisan group of Senators have questioned whether farmers can continue to stay in business at the milk price floor now set by the federal government. The group has asked US Agricultural Secretary, Tom Vilsack, to review the situation, in order to avoid a food supply crisis.

Copa Cocega, representing farming unions in the EU has called on EU farm ministers to step up measures to better manage markets under the future Common Agricultural Policy (CAP).

Government support to agriculture in Organisation for Economic Co-operation and Development (OECD) countries fell to 19 per cent of total farm receipts in 2011, a record low driven by developments in international commodity markets.

Will action be taken to help producers maintain production, or will we face food inflation and shortages in 2013?