High Dairy Price Index adds to inflationary pressure

According to agricultural consultany Promar International, the UN Dairy Price Index (DPI) is at its highest level since 2014, having increased by a significant 48.2 points in the last 12 months and by 4.5 points during September to reach 224.2 points.

This increase is primarily due to booming global demand, particularly for butter and cheese, combined with supply constraints in Australia, New Zealand and the EU, explains John Giles, divisional director at Promar International.

Giles advises that Promar’s insight and data shows that even with declines in milk powder prices, as a result of high intervention stocks in the EU and limited buying interest, the demand for butter and cheese remained high in key consumer markets.

He adds that global food demand is still increasing rapidly in key markets such as Asia, and this is mirrored in the international dairy market. However, production in some key sectors, such as dairy and arable has been less buoyant, resulting in increased prices.

“This is demonstrated in the overall UN FAO Food Price Index (FPI) figure, which has recorded a 10.6 point, year-on-year increase. This could have a significant impact on UK food prices, particularly when combined with a weak exchange rate and other inflationary pressures at work in the economy.

“The UN FAO FPI was at 178.4 points during September, an increase of 1.8 points from August, and UK food inflation has already reached 3% and may carry on climbing before the end of the year. This is something the UK consumer is not really used to, after nearly 15 years of price deflation.”

Giles adds that retailers will be extremely reluctant to pass on potential increases to the consumer, and will instead turn attention to driving efficiencies within their supply chains.

“Unlocking and analysing data throughout the supply chain from farm to retailer, including processing, will highlight where the best efficiency gains can be made, and help to keep food prices under control,” he says.

“Balancing supply and demand of products both in the UK and globally is complex. However, being well informed and having access to the right sort of data, allied to additional insight on key market trends and developments, can help UK and international supply chains to deal with increasing pressure in the future. Ultimately, generating efficiencies throughout the supply chain, will help ensure sustainable food production for years to come.”